AV Sir CL PYEQ Solved Papers D18 to J24

S. No Chapter Heading Page No.
Company Law Old Course
1 December – 2018 1.1 – 1.12
2 June – 2019 2.1 – 2.16
3 December – 2019 3.1 – 3.20
4 December – 2020 4.1 – 4.16
5 June – 2021 5.1 – 5.19
6 December – 2021 6.1 – 6.19
7 June – 2022 7.1 – 7.17
8 December – 2022 8.1 – 8.22
9 June – 2023 9.1 – 9.21
10 December – 2023 10.1 – 10. 20
11 June – 2024 11.1 – 11.20
Company Law New Course
1 December – 2023 1.1 – 1.26
2 June – 2024 2.1 – 2.27

Company Law
December – 2018
Exam Paper
PART - I
1. Comment on the following [5 Marks Each]
(a) Raman Pvt. Ltd. has only two shareholders, X and Y. All shares were fully paidup. X sold all
his shares to Y and the company carries on its business activities thereafter.
Answer
According to section 3A of Companies Act, 2013, if at any time the number of members of a
company is reduced, in the case of a private company, below two, and the company carries on
business for more than six months while the number of members is so reduced, every person
who is a member of the company during the time that it so carries on business after those six
months and is cognisant of the fact that it is carrying on business with less than two members,
shall be severally liable for the payment of the whole debts of the company contracted during
that time, and may be severally sued therefor.
Hence in the given case of Raman Pvt. Ltd., out of the two shareholders X and Y, X sold all his
shares to Y and the company carried on its business activities thereafter, pursuant to the referred
section where the company carries its business for more than six months, Mr. Y shall be severally
liable for the payment of the whole debts of the company contracted after those six months, and
may be severally sued there for.
(b) Every company is required to disclose the details of vigil mechanism in the Board Report.
Answer
Section 177(9) of Companies Act, 2013 read with Rule 7 of Companies (Meetings of Board and its
Powers) Rules, 2014 the following companies are required to establish a vigil mechanism for
their directors and employees to report their genuine concerns or grievances.
1. Every listed company
2. The Companies which accept deposits from the public.
3. The Companies which have borrowed money from banks and public financial institutions in
excess of fifty crore rupees.
Further the sub-section (10) provides that the details of establishment of such mechanism shall
be disclosed by the company on its website, if any, and in the Board’s report.
(c) A public company may issue secured irredeemable debentures.

Answer
A Debenture, in which no time is fixed for the company to pay back the money, is an
irredeemable debenture.
According to Rule 18(1)(a) Companies (Share Capital and Debentures) Rules, 2014 an issue of
secured debenture may be made for a period of redemption not exceeding ten years from the
date of issue. In case of certain companies such redemption period may exceed ten years but not
exceed thirty years.
After the commencement of the Companies Act, 2013, no company either public or private can
issue perpetual or irredeemable debentures.
(d) Chief Financial Officer is responsible to maintain books of account of the company.
Answer
Section 128 of the Companies Act, 2013 deals with provisions relating to maintenance of Books
of accounts by the company. According to sub section (6) of section 128 if the Managing Director,
the Whole-Time Director in charge of finance, the Chief Financial Officer or any other person of a
company charged by the Board with the duty of complying with the provisions of section 128,
1.1 Unacademy Unlock/Discount Code AVC

fails to comply with the provisions shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees.
Accordingly it is the responsibility of the Chief Financial Officer along with Managing Director
and whole time director in charge of finance of the company to maintain the Books of Accounts of
the company.
Attempt all parts of either Q. No. 2 or Q. No. 2A
2. Attempt the following [3 Marks Each]
(a) 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.
Answer
Section 135 of Companies Act, 2013 provides that a company falling under specified criteria shall
put in place a Corporate Social Responsibility Policy indicating the activities to be undertaken by
the company in areas or subject, specified in Schedule VII of Companies Act, 2013. It is further
provided that the Board of Directors of every company shall ensure that the activities as are
included in Corporate Social Responsibility Policy of the company are undertaken by the
company.
The expenditure incurred for the benefit of society shall be considered as expenditure in
pursuance to Section 135 of Companies Act, 2013, only if the same falls under Corporate Social
Responsibility Policy of the Company.
(b) 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.
Answer
Section 118 of Companies Act, 2013 read with Rule 25 of the Companies (Management and
Administration) Rules, 2014 read with Secretarial Standards on Board Meetings (SS-1) and
Secretarial Standards on General Meetings (SS-2), Minutes of all Board Meetings and
shareholders meetings shall be preserved permanently in physical or in electronic form with
Timestamp.
(c) If a company has appointed a Company Secretary then his signature is mandatory on the
share certificate issued by the company. Analyse with reference to the provisions of the
Companies Act, 2013.
Answer
According to Section 46(1) of the Companies Act, 2013 a share certificate, issued under the
common seal, if any, of the company or signed by two directors or by a director and the Company
Secretary, wherever the company has appointed a Company Secretary, specifying the shares held
by any person, is the prima facie evidence of the title of the person to such shares.
Hence where the company has appointed a Company secretary then his signature is mandatory
on the share certificate issued by the company.
(d) The concept of treasury shares in United Kingdom is same as buy-back of shares in India.
Examine.
Answer
Section 124 read with chapter 6 of U.K Companies Act, 2006 deals with treasury shares Treasury
shares are purchased by the company out of the distributable profits of the company and the
company is allowed to hold such shares. The aggregate nominal value of shares held as treasury
shares must not exceed 10 percent of nominal value of issued share capital.
In India the Section 68 of Companies Act, 2013 allows buy back of its own shares but does not
allow a company to hold shares. Bought back shares are to be cancelled within seven days, hence

in India, bought back shares cannot be held as treasury stock. In India buy back of shares cannot
exceed 25 percent of total paid up capital in any financial year.
(e) 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.
Answer
Rule 3 of the Companies (filling of Documents and Forms in Extensive Business Reporting
Language) Rules 2015 mandates the following select class of companies mentioned below to file
financial statements in XBRL (extensible Business Reporting Language) mode and by using the
XBRL taxonomy in e-form AOC-4 XBRL:
(i) All companies listed with any Stock Exchange(s) in India and their Indian subsidiaries.
(ii) All companies having paid-up capital of Rupees five crore or above.
(iii) All companies having turnover of Rupees one hundred crore or above.
(iv) All companies which are required to prepare their financial statements in accordance
with Companies (Indian Accounting Standards) Rules, 2015.
However, the non-banking financial companies, housing finance companies and companies
engaged in the business of banking and insurance sector are exempted from filing of financial
statements under these rules.
OR
(Alternate question to Q. No. 2)
2A. Attempt the following [3 Marks Each]
(i) On 3rd December, 2018 the Registrar of Companies applied to the Regional Director
for seeking sanction to file a winding up application against a company. On next day
i.e. on 4th December, 2018 the Regional Director granted its sanction. Examine the
validity of Regional Director’s action.
Answer
According to section 272(1) & (3) of Companies Act, 2013 a petition to the Tribunal for the
winding up of a company can be presented by Registrar of Companies. However, Registrar
shall obtain the previous sanction of the Central Government to the presentation of a
petition. The section also provides that the Central Government shall not accord its sanction
unless the company has been given a reasonable opportunity of making representations. The
power of Central Government in this context has been delegated to Regional Directors.
In the given case Regional Director granted its sanction on the very next day of filing of the
petition without giving reasonable opportunity to the company of being heard. Here the
action of Regional Director is invalid.
(ii) A company declared dividend on 21st November, 2018. It reports on 22 nd 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.
Answer
According to Section 126(1) of the Companies Act, 2013 where a dividend has been declared
by a company but has not been paid or claimed within thirty days from the date of the
declaration to any shareholder entitled to the payment of the dividend, the company shall,
within seven days from the date of expiry of the said period of thirty days, transfer the total
amount of dividend which remains unpaid or unclaimed to a special account to be opened by
the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.
In the given case the company declared dividend on 21st November, 2018, the dividend
remains unpaid after 30 days of declaration i.e. 22nd December, 2018. The company is
advised to transfer the remaining unpaid or unclaimed dividend to a special account called
the Unpaid Dividend Account in any scheduled bank within seven days from the date of
expiry of the said period of thirty days. Further any money transferred to the Unpaid

Dividend Account of a company which remains unpaid or unclaimed for a period of seven
years from the date of such transfer shall be transferred by the company along with interest
accrued, if any, thereon to the Investor Education and Protection Fund.
(iii) 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.
Answer
An insolvent may be a member of a company as long as he is on the register of members. He
is entitled to vote, but he loses all beneficial interest in the shares and company will pay
dividend on his shares to the Official Assignee or Receiver [Morgan v. Gray, (1953)]. Hence
his claim is invalid and his dividend shall be paid to official assignee.
(iv) In a case pertaining to oppression and mismanagement, the respondents pleaded that
the legal heirs of a deceased member whose name is still on the register of members
are not entitled to apply before Tribunal, as only member of the company can
complain about oppression and mismanagement. Thus, legal heirs have no locus
standi. Examine this argument in the light of decided cases.
Answer
According to section 241 of Companies Act, 2013 any member of the company may make an
application to the tribunal for relief in cases of oppression or mismanagement under given
circumstance. In Worldwide Agencies (P) Ltd. v. Margaret T. Desor (1990), it was
decided that the legal representatives of a deceased member whose name is still on the
register of members are entitled to file a petition under Sections 397 and 398 of the
Companies Act, 1956, for relief against oppression or mismanagement.
In the present case the abovementioned case is applicable, where the member has died and
his name still exists in the register of members, the legal heirs are entitled to maintain the
petition.
(v) The Board of directors of Wood Ltd. are authorised to borrow money upto Rs.2 crore.
The Board of directors got sanctioned a loan of Rs. 30 lakh from a Bank for payment of
debt liabilities of the company. But the Board of directors used this amount towards
payment of their travelling & tour expenses. Will Wood Ltd. be held liable for
repayment of the loan ? Discuss.
Answer
In a decided case of V.K.R.S.T Firm v. Oriental Investment Trust Ltd. 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
unauthorized activities provided the lender had no knowledge of the intended misuse.
Applying the principles of the above decided case in the given case Wood Ltd. will be held
liable for repayment of the loan of Rupees 30 lakhs which well within the sanctioned limits of
the company.

(a) Ram is a practising 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 `60 crore. Now
Gayatri Pvt. Ltd. is considering appointing YE firm as its statutory auditors. Can Gayatri
Pvt. Ltd. appoint YE firm 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.
Answer
According to the provisions of section 139 of the Companies Act, 2013 read with Rule 5 of
Companies (Audit and Auditors) Rules, 2014 the following companies are required to appoint
and rotate auditors:
1. All listed companies.
2. All unlisted public companies having paid up share capital of rupees ten crore or more.
3. All private limited companies having paid up share capital of rupees fifty crore or more.
4. All companies having paid up share capital of below threshold limit mentioned in (2) and (3)
above, but having public borrowings from financial institutions, banks or public deposits of
rupees fifty crores or more.
An individual auditor who has completed his term as auditor for more than one term of five
consecutive years and an audit firm who has completed the term as auditor for more than two
terms of five consecutive years shall not be re-appointed as an auditor of the company.
It is further provided that as on the date of appointment no audit firm having a common partner
or partners to the other audit firm, whose tenure has expired in a company immediately
preceding the financial year, shall be appointed as auditor of the same company for a period of
five years.
Accordingly in the present case the company is required to appoint and rotate the auditors on
completion of the tenure. Thus Gayatri Ltd cannot appoint YE audit firm as auditor of the
company.
1. In case the appointee company is a One Person Company, rotation of auditor does not apply
and hence the appointing company can appoint YE audit firm as auditor.
2. In case the appointee company is a Small Company, rotation of auditor does not apply and
hence the appointing company can appoint YE audit firm as auditor.
(b) 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 `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.
Answer
The maximum quantum of buy- back that Premium Ltd. can make as on 1st April, 2018, in
pursuance to section 68 of Companies Act, 2013 is 25% of aggregate of paidup capital and free
reserves of the company. Further provided that the reference to twenty-five per cent shall be
construed with respect to its total paid-up equity capital in that financial year and the ratio of the
aggregate of secured and unsecured debts owed by the company after buy-back should not be
more than twice the paid-up capital and its free reserves.
Accordingly, in the present case we have,

Free Reserves – Rs. 5,00,000
Securities premium Account – Nil
Proceeds of other specified securities- Nil
Total Debt i.e.(7,00,000+ 15,00,000) – Rs. 22,00,000
Sum of paid up Equity capital + free reserves – Rs. 15,00,000
Hence, the maximum fund available for buy-back (in absence of securities premium account and
proceeds of issue of any other specified securities) is Rs. 5,00,000
Amount that must be maintained as sum total of free reserves and paid up equity capital is half of
total debt i.e. half of Rs. 22,00,000 i.e. Rs.11,00,000
Buy back can be made upto 25% of Paid up capital and free reserves i.e. Rs. 10,00,000 + Rs.
5,00,000 i.e. Rs.15,00,000 *25% = Rs. 3,75,000.
Further debt equity ratio is

Debt:
Secured and unsecured debt= 15,00,000+ 7,00,000 = 22,00,000
Capital after Buy Back:
Total Capital= 10,00,000-3,75,000= 625000
Free reserve= 5,00,000-375000= 1,25,000
Total Capital+ free reserve= 6,25,000+ 1,25,000=7,50,000
Debt equity ratio= 22,00,000/7,50,000= 2.93
The ratio being more than twice the paid-up capital and its free reserves the maximum quantum
of Rs. 3,75,000 is not advisable.
As stated above post buyback debt equity ratio must not be more than 2. Accordingly, post
buyback total capital and free reserve must be half of debts i.e (15,00,000 + 7,00,000) /2 =
11,00,000. The maximum buyback of equity may be {(10,00,000 +5,00,000) -11,00,000}/2 = Rs.
2,00,000.
Therefore, in the given case, maximum possible buyback is of Rs. 2,00,000 amounting to 20,000
equity shares of Rs.10 each.
(c) 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.
Answer
There is no restriction on delegation of powers of the board of directors of the company except as
provided in first proviso to section 179(3) of Companies Act, 2013. It provides that The Board
may delegate power to borrow money, to invest the fund of the company and to grant loan or
give guarantee or provide security in respect of loans, by way of resolution to any committee of
directors, the managing director, manager or any other principal officer, or principal officer of a
branch of the company.
Apart from this the board of directors may delegate all or any of its powers to any person
including a person not in employment of the company if the Articles of Association so provides.
Accordingly, in present case the Board of Directors of XYZ Ltd. may delegate the powers relating
to transfer of securities only when the Articles of association allows delegation of the powers to
any of the directors of the company or any person not in employment of the company.

PART - II
4. Explain the following [5 Marks Each]
(a) 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
Answer
In case Mr. Anil not a retiring director in the company is desirous of standing for directorship of
the Pritam Ltd., in pursuance of section160 of the Companies Act, 2013 the following procedure
needs to be followed:
1. The proposed director or some member intending to propose him as a director, has, not less
than fourteen days before the general meeting, left at the registered office of the company, a
notice in writing under his hand signifying his candidature as a director or, as the case may
be, the intention of such member to propose him as a candidate for that office, along with the
deposit of one lakh rupees which shall be refunded to such person or, as the case may be, to
the member, if the person proposed gets elected as a director or gets more than twenty-five
per cent. of total valid votes cast either on show of hands or on poll on such resolution.
2. The company shall, at least seven days before the general meeting, inform its members of the
candidature of a person for the office of a director or the intention of a member to propose
such person as a candidate for that officea.
 By serving individual notices, on the members through electronic mode to such
members who have provided their email addresses to the company for communication
purposes, and in writing to all other members.
 By placing notice of such candidature or intention on the website of the company, if any.
 Publishing the same in vernacular newspaper seven days before the meeting
3. The candidate may obtain Director Identification Number (DIN) and give his consent in DIR-
2.
4. If the candidate is elected the company shall file DIR-12.
(b) 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.
Answer
According to section 173 of Companies Act, 2013 read with Rule 3 and 4 of Companies (Meetings
of Board and its powers) Rules, 2014, a director participating in a meeting through video
conferencing or other audio visual means which are capable of recording and recognising the
participation of the directors and of recording and storing the proceedings of such meetings
along with date and time, shall be counted for the purpose of quorum,.
Provided that in case where there is quorum in a meeting through physical presence of directors,
any other director may participate through video conferencing or other audio visual means.
(c) 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.
Answer
According to section 178 of Companies Act, 2013 The Board of Directors of every listed public
company shall constitute the Nomination and Remuneration Committee consisting of three or
more non-executive directors out of which not less than one-half shall be independent director.

The chairperson of the company (whether executive or non-executive) may be appointed as a
member of the Nomination and Remuneration Committee but shall not chair such Committee.
In present case the CSR Committee cannot serve as Nomination and Remuneration committee as
the composition is different.
(d) Draft an appropriate resolution to authorise the Board to borrow for company’s business
upto a limit beyond paid-up share capital and free reserves. Assume facts and figures.
Answer
Special Business
To consider and, if thought fit, to pass with or without modification(s), the following
resolution as Special Resolution:
“RESOLVED THAT pursuant to the provisions of Section 180(1)(c) and other applicable
provisions, if any, of the Companies Act, 2013, and subject to such approval as may be necessary,
consent of the company be and is hereby accorded to the Board of directors of the company for
borrowing, from time to time, such sum of money as may not exceed Rs. .................................. (Rupees
................................. ), for the purpose of the business of the company, notwithstanding that the
moneys to be borrowed together with the monies already borrowed (apart from temporary loans
obtained from the company’s bankers in the ordinary course of business) will exceed the
aggregate of the paid-up capital of the company and its free reserves, that is to say, the reserves
not set apart for any specific purpose, provided that the total amount upto which the monies may
be borrowed by the Board of directors of the company shall not exceed the aggregate of the paid-
up capital and free reserves of the company by more than the sum of ‘....................................... (Rupees
.....................................) at any one time.
Resolved further that the Board be and is hereby authorized to do all the acts, deed and things as
it may in its absolute discretion deem necessary and appropriate to give effect to the above
resolution”.
Explanatory Statement
The shareholders of the company had, at the extraordinary general meeting of the company held
on ........................, passed a special resolution under Section 180 (1) (c) for borrowing the maximum
amount of Rupees ........................, upto which the Board of directors of the company could borrow
funds from financial institutions and banks in excess of the company’s paid-up capital and free
reserves. However, in view of the increased business activities of the company, the said ceiling of
Rupees (........................) has been found to be inadequate. Your directors are of the opinion that the
ceiling of borrowings by the Board be raised to rupees ___________.
Hence the proposed resolution for consideration and approval by the members of the company.
None of the directors is concerned or interested in the proposed resolution.
(a) Kirti Ltd. has total paid-up share capital of `23 crore and its annual general meeting is
scheduled on 27th December, 2018. Ritik is holding paid-up share capital having nominal
value of `3 crore and Sonu is holding paid-up share capital having nominal value of `2.4
crore. On 24th December, 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.
Answer
Section 105 of the Companies Act, 2013 read with Rule 19 of the Companies (Management and
Administration) Rules, 2014 provides that a member, who is entitled to attend and vote, can
appoint another person as a proxy to attend and vote at the meeting on his behalf. Proxy need not
be a Member. A Proxy can act on behalf of Members not exceeding fifty and holding in the

aggregate not more than ten percent of the total share capital of the company carrying Voting
Rights.
However, a Member holding more than ten percent of the total share capital of the company
carrying Voting Rights may appoint a single person as Proxy for his entire shareholding and such
person shall not act as a Proxy for another person or shareholder.
Ritik holding in the given case is 13.0% and Sonu is 10.4%, since the holding of both severally
exceeds 10% of total share capital of the company same person cannot be appointed as Proxy for
both Ritik and Sonu, he can be appointed as proxy for either of the two.
(b) 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 ?
Answer
The general meeting can only be held valid if the quorum is present at the meeting. The
resolution that was put to remote e-voting and has obtained majority votes shall be taken up at
adjourned meeting. Meeting without requisite quorum is invalid.
(c) Assume yourself as Company Secretary in practice and secretarial auditor of Rama Ltd.
which is having its annual general meeting scheduled on 17th August, 2018 at its
registered office in Mumbai. On 16th August, 2018 you have a business meeting fixed at
Kochi and return flight to Mumbai in the evening of 16th August, 2018. But due to bad
weather conditions all flights departing from Kochi are declared cancelled. Discuss the
alternatives available to you with regard to the annual general meeting of Rama Ltd.
Answer
According to section 146 of the Companies Act, 2013 the auditor shall, unless otherwise
exempted by the company, attend either by himself or through his authorized representative,
who shall also be qualified to be an auditor, any general meeting and shall have right to be heard
at such meeting on any part of the business which concerns him as the auditor.
In the given circumstance provision of section 146 is applicable and authorized representative
may be sent to attend the general meeting of the company.
(d) 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
Answer
According to section 173(3) of the Companies Act, 2013 a meeting of the Board may be called at
shorter notice to transact urgent business subject to the condition that at least one independent
director , if any, shall be present at the meeting. In case of absence of independent directors from
such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the
directors and shall be final only on ratification thereof by at least one independent director, if
any.
Accordingly all decisions taken at the meeting needs to be circulated to all the directors and shall
be final only on ratification of atleast one independent director.
(e) Fashion Ltd. holds a general meeting for passing a special resolution regarding
appointment of Shyamlal 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.
Answer
According to Section 196(3) of the Companies Act, 2013 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 twenty-one years or has attained the age of seventy years. Further appointment
of a person who has attained the age of seventy years may be made by passing a special
resolution in which case the explanatory statement annexed to the notice for such motion shall

indicate the justification for appointing such person In case 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.
A person who has attained the age of seventy may be appointed as the managing director of the
company after passing special resolution. In the present case the special resolution was not
passed.
Mr. Shyamal may be appointed as the Managing Director since the votes cast in favour exceed the
vote cast against the resolution and Central Government approval may be obtained by the Board
of Directors of the Company to appoint him as managing director. If the Central Government is
satisfied the approval may be granted.
OR
1. In a general meeting, a motion was put for removal of small shareholders’ director. A
small shareholder contended that only small shareholders are entitled to vote on this
motion as it is related to removal of small shareholders’ director and motion should be
passed as special resolution. Is the argument valid ? Analyse with reference to the
Answer
A small shareholder director can be removed by in pursuance to section 169 of Companies Act,
2013 by passing an ordinary resolution in a general meeting. All the shareholders are eligible to
vote irrespective of small shareholder or otherwise. The argument hence is not valid.
2. 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.
Answer
According to section 196 (5) of Companies Act, 2013 where an appointment of a managing
director, whole-time director or manager is not approved by the company at a general meeting,
any act done by him before such approval shall not be deemed to be invalid.
In accordance with above stated provision in the present case the contention of refusing to
accept delivery of goods on the grounds that the appointment of managing director was not
approved at the general meeting and agreement was signed prior to general meeting and after
appointment by the Board does not stand valid.
3. SRM Ltd. has paid `15 lakh as an insurance premium on behalf of its Company Secretary
and Managing Director for indemnifying any of them against any liability in respect of any
negligence, default, misfeasance, breach of duty or breach of trust for which they may be
guilty in relation to the company. Can the company pay such insurance premium ? Discuss
referring to the provisions of the Companies Act, 2013.
Answer
According to section 197(13) of Companies Act, 2013 where any insurance is taken by a company
on behalf of its managing director, whole-time director, manager, Chief Executive Officer , Chief
Financial Officer or Company Secretary for indemnifying any of them against any liability in

respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they
may be guilty in relation to the company, the premium paid on such insurance shall not be
treated as part of the remuneration payable to any such personnel. Further it has been provided
that if such person is proved to be guilty, the premium paid on such insurance shall be treated as
part of the remuneration.
In accordance with above stated provision in the present case the company can pay the insurance
premium of Rs. 15.00 lacs for company secretary and managing director for indemnifying any of
them against any liability in respect of any negligence, default, misfeasance, breach of duty or
breach of trust for which they may be guilty in relation to the company, and such shall not be
treated as remuneration.
4. 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.
Answer
According para 7.7.1. of Secretarial Standard on Board Meeting a Director is entitled to inspect
the Minutes of a Meeting held before the period of his Directorship. Further para 7.7.2 provides
that a Director is entitled to receive a copy of the signed Minutes of a Meeting held during the
period of his Directorship, even if he ceases to be a Director.
Hence the actions of managing director are not valid. Claim of Mr. Ravi for inspecting the Minutes
of a Meeting held before the period of his Directorship and for receiving a copy of the signed
Minutes of a Meeting held during the period of his Directorship is valid.
5. On 5th January, 2018 in a general meeting a motion for removal of a director was put to
vote. The Chairman declared the motion passed as ordinary resolution by show of hands.
In the next general meeting held on 28th September, 2018, a member questioned the
validity of the said resolution which was declared as passed by the Chairman alleging that
majority votes were against the motion and asked the chairman to disclose number of
votes cast in favour of and against the said resolution. Referring to the provisions of the
Companies Act, 2013 discuss if the demand of member is tenable.
Answer
According to section 107 of Companies Act, 2013 at any general meeting, a resolution put to the
vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out
electronically, be decided on a show of hands. A declaration by the Chairman of the meeting of
the passing of a resolution or otherwise by show of hands and an entry to that effect in the books
containing the minutes of the meeting of the company shall be conclusive evidence of the fact of
passing of such resolution or otherwise.
Hence the demand of members is not tenable.
PART - III
(a) Shalini, Practising Company Secretary, has disclosed information acquired in the course of
her professional engagement to a person other than the client, without the consent of such
client. Can she do so ? Can she retain the digital signature of her client for uploading e-
forms on MCA portal ?
Answer

Clause 1 of Part I of Second Schedule to the Company Secretaries Act, 1980 provides that a
Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he
discloses information acquired in the course of his professional engagement to any person other
than the client so engaging him, without the consent of such client, or otherwise than as required
by any law for the time being in force. This clause indicates the position of trust and confidence
reposed by the client in a Company Secretary in practice. Thus Shalini is guilty under the above
mentioned clause.
It is suggested that Shalini may retain digital signature of client after obtaining a formal letter
signed by his client authorising PCS to make use of his Digital signature.
(b) Rakesh, practising Company Secretary, has accepted the position of Secretarial Auditor
previously held by another Company Secretary in practice by communicating through
SMS. He also used designation ‘Company Law Consultant’ in his visiting cards. Examine
with reference to the relevant provisions of Company Secretaries Act, 1980 and/or
Companies Act, 2013 whether these are in order.
Answer
Clause 8 of Part I of First Schedule to the Company Secretaries Act, 1980 provides that a
Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he
accepts the position of a Company Secretary in Practice previously held by another Company
Secretary in Practice without first communicating with him in writing.
The primary requirement under this clause is of prior communication with the previous
incumbent. This is intended for reasons of professional courtesy.
It would be necessary that the communication, in order to be effective, shall be by a registered

letter or by hand with an acknowledgement so that there is positive evidence of the
communication having been complete. With the advent of use of the technology, communication
by any electronic medium viz., SMS, Whats App and such other Messenger apps is permitted,
provided the sender (the PCS taking up the assignment) is able to establish that the message is
delivered to the recipient before he or she takes up the assignment.
Hence Rakesh is not guilty of professional misconduct in this case.

Clause 8 of Part I of First Schedule to the Company Secretaries Act, 1980 provides that a
Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he uses
any designation or expressions other than Company Secretary on professional documents,
visiting cards, letterheads or signboards, unless it is a degree of a University established by law in
India or recognised by the Central Government or a title indicating membership of the Institute of
Company Secretaries of India or of any other institution that has been recognised by the Central
Government or may be recognised by the Council.
Designations like Company Law Consultant, Income Tax Consultant, Corporate Adviser,
Investment Adviser, Management Consultant etc. are prohibited.
Hence Rakesh is guilty of professional misconduct in this case.

Company Law
June – 2019
Exam Paper
PART - I
(a) A private company and a banking company, can freely accept deposits.
Answer
Rule 1(3) of the Companies (Acceptance of Deposits) Rule, 2014 made under Section 73 and 76 of the
Companies Act, 2013 provide that the Companies (Acceptance of Deposits) Rule, 2014 shall apply
to a company other than -
1. A banking company.
2. A non-banking financial company as defined in the Reserve Bank of India Act, 1934 registered
with the Reserve Bank of India.
3. A housing finance company registered with the National Housing Bank established under
the National Housing Bank Act, 1987.
4. A company specified by the Central Government under the proviso to sub-section (1) of section
73 of the Act.
Accordingly, the Companies (Acceptance of Deposits) Rules, 2014 is not applicable to banking
company. Hence, a banking company can freely accept deposits.
A private company is allowed to accept deposits from its members subject to fulfillment of
conditions provided under section 73(2)(a) to (e) of the Companies Act, 2013.
However, the Ministry of Corporate Affairs vide the notification dated 13th June 2017 provides
that the section 73(2)(a) to (e) shall not apply to following classes of private companies,
1. Which accepts from its members monies not exceeding one hundred per cent of aggregate of
the paid up share capital, free reserves and securities premium account.
2. Which is a start-up, for five years from the date of its incorporation.
3. Which fulfills all of the following conditions, namely:-
 Which is not an associate or a subsidiary company of any other company.
 If the borrowings of such a 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.
 Such a company has not defaulted in the repayment of such borrowings subsisting at the
time of accepting deposits under this section:
The company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the
Registrar in Form DPT-3.
(b) 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.
Answer
As per provisions of sub-sections (1) and (2) of section 129 of the Companies Act 2013, every
financial statement of ‘the company must give true and fair view of the state of affairs of the
company at the end of financial year. True and Fair view in respect of financial statement means-
1. Financial statements and items contained should comply with accounting standards notified
under section 133.
2. Financial statement shall be in form or forms as provided for different class or classes of
companies in Schedule III.
3. Financial statement shall not be treated as not disclosing a true and fair view of the state of
affairs of the company, merely by the reason of the fact that they do not disclose-

 In the case of an insurance company, any matters which are not required to be disclosed by
the Insurance Act, 1938,or the Insurance Regulatory and Development Authority Act,
1999.
 In the case of a banking company, any matters which are not required to be disclosed by
the Banking Regulation Act, 1949.
 In the case of a company engaged in the generation or supply of electricity, any matters
which are not required to be disclosed by the Electricity Act, 2003.
 In the case of a company governed by any other law for the time being in force, any
matters which are not required to be disclosed by that law
(c) 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.
Answer
The Articles of Association of a company cannot impose a blanket ban prohibiting transfer of
shares in favor of a minor, as such a restriction is unreasonable and not sustainable. Section 44
of the Companies Act, 2013 provides that shares in a company are movable property and are
transferable in the manner provided by the Articles.
The expression “in the manner provided by the articles of association the company” can only be
interpreted to mean the procedure to be opted for transfer and impose restrictions, which are
meaningful and reasonable. In case, the restriction imposed on transfer to a minor is accepted, it
would mean that the shares of a deceased member can never be inherited by the legal heir who
might be a minor. This would lead to a highly unjust situation and cannot be accepted as tenable.
Accordingly, if the shares can be transmitted in favour of a minor, there is no reason why the
shares which are fully paid -up and in respect of which no financial liability devolves on the minor
are to be held as not transferable merely because of the ban imposed in the Article of Association
[Saroj Britannia Industries Ltd., Appeal No.5/80 decided 14.12.81 by CLB].
(d) Every shareholder of a company is known as member while every member may not be
knownas shareholder.
Answer
A company is composed of, members, though it has its own separate legal entity. The members of
the company are the persons who, constitute the company as a corporate entity.
In the case of a company limited by shares, the shareholders are the members. The terms “members”
and “shareholders” are usually used interchangeably being synonymous, as there can be no
membership except through the medium of shareholding. Thus, generally speaking every
shareholder is a member and every member is a shareholder. However, there may be exceptions to
this statement, e.g., a person may be a holder of share(s) by transfer but will not become its
member until the transfer is registered in the books of the company in his favor and his name is
entered in the register of members. Similarly, a member who has transferred his shares, though he
does not hold any shares yet he continues to be member of the company until the transfer is
registered and his name is removed from the register of members maintained by the company under
Section 88 of the Companies Act, 2013. A member is a person who has subscribed to the
memorandum of association of the company. A shareholder is a person who owns the shares of the
company. The bearer of a share warrant is not a member, but the bearer of a share warrant can be a
shareholder.
(a) ‘‘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.
Answer
According to section 39 of the Companies Act, 2013 allotment of any securities of a company
offered to the public for subscription shall be made only when the amount stated in the

prospectus as the minimum amount has been subscribed and the sums payable on application for
the amount so stated have been paid to and received by the company by cheque or other
instrument.
The amount payable on application on every security shall not be less than five per cent of the
nominal amount of the security or such other percentage or amount, as may be specified by the
Securities and Exchange Board of India (SEBI) by making regulations in this behalf.
Refund of money
In cases where the stated minimum amount has not been subscribed and the sum payable on
application is not received within a period of thirty days from the date of issue of the prospectus,
or such other period as may be specified by SEBI, the amount received as above shall be returned.
‘The application money shall be repaid within a period of fifteen days from the closure of the
issue and if any such money is not so repaid within such period, the directors of the company who
are officers in default shall jointly and severally be liable to repay that money with interest at the
rate of fifteen percent per annum.
The application money to be refunded shall be credited only to the bank account from which the
subscription was remitted.
(b) What are the requirements as to the maintenance of Register of Postal Ballot ?
Answer
Section 110 of the Companies Act, 2013 and Rule 22(10) of the Companies (Management and
Administration) Rules, 2014 states that 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.
The scrutinizer shall maintain a register either manually or electronically to record their assent or
dissent received, mentioning the particulars of name, address, folio number or client ID of the
shareholder, number of shares held by them, nominal value of such shares, whether the shares
have differential voting rights, if any, details of postal ballots which are received in defaced or
mutilated form and postal ballot forms which are invalid.
Entries in the register should be made immediately after the opening of postal ballots. Separate folios
should be maintained for each resolution passed through postal ballot. The register should be kept
at the registered office of the company after the Scrutinizer has submitted his report.
The postal ballot and all other papers relating to postal ballot including voting by electronic
means, shall be under the safe custody of the scrutinizer till the chairman considers, approves
and signs the minutes and thereafter, the scrutinizer shall return the ballot papers and other
related papers or register to the company who shall preserve such ballot papers and other related
papers or register safely.
(c) Explain whether a Floating charge attached to the company’s property generally remains
dormant till it crystallizes or becomes fixed.
Answer
A floating charge attached to the company’s property generally remains dormant till it crystallizes
or becomes fixed. The company has a right to carry on its business with the help of assets over
which a floating charge has been created till the happening of some event which determines this
right. Crystallization is the process by which a floating charge converts into a fixed charge. A
floating charge crystallises and the security becomes fixed in the following cases:
1. When the company goes into liquidation.
2. When the company ceases to carry on its business.
3. When the creditors or the debenture holders take steps to enforce their security e.g. by
appointing receiver to take possession of the property charged.
4. On the happening of the event specified in the deed.
In the aforesaid circumstances, the floating charge is said to become fixed or to have been
crystallised. Until the charge crystallises or attaches or becomes fixed, the company can deal with

the property so charged in any manner it likes. Once crystallized, the security cannot be sold, and
the lender may take possession of it.
(d) Who is a ‘‘related party’’ as defined in Section 2 (76) ?

Answer
According to Section 2(76) of the Companies Act 2013, “related party”, with reference to a company,
means—
1. A director or his relative.
2. A key managerial personnel or his relative.
3. A firm, in which a director, manager or his relative is a partner.
4. A private company in which a director or manager or his relative is a member or director.
5. A public company in which a director or manager is a director and holds along with his
relatives, more than two per cent (2%) of its paid-up share capital.
6. Any body corporate whose Board of Directors, managing director or manager is accustomed to
act in accordance with the advice, directions or instructions of a director or manager.
7. Any person on whose advice, directions or instructions a director or manager is accustomed to
act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or
instructions given in a professional capacity
8. Anybody corporate which is—
 A holding, subsidiary or an associate company of such company.
 A subsidiary of a holding company to which it is also a subsidiary.
 An investing company or the venturer of the company.
Explanation.—For the purpose of this clause, “the investing company or the venturer of a
company” means a body corporate whose investment in the company would result in the
company becoming an associate company of the body corporate such other person as may be
prescribed;
(e) State the time limit within which certificate of securities as provided in Companies Act, 2013
to be issued in case of :
1. Any allotment of shares.
2. Any allotment of debentures.
What is the punishment in case of default committed in the above cases ?
Answer
Under section 56(4) of the Companies Act, 2013, every company, unless prohibited by any provision
of law or any order of any Court Tribunal or other authority must deliver the certificates of all
securities allotted, transferred or transmitted :- .
1. Within a period of two months from the date of incorporation, in the case of subscribers to
the Memorandum and within a period of two months from the date of allotment in the case
of any allotment of any of its shares.
2. Within a period of six months from the date of allotment in the case of any allotment of
debenture
However, as per the proviso to sub section 4 of section 56, where the securities are dealt with in a
depository, the company shall intimate the details of allotment of securities to depository
immediately on allotment of such securities.
Where any default is made in complying with the above provisions, Section 56(6) states the
company and every officer of the company who is in default shall be liable to a penalty of fifty
thousand rupees.

OR
(a) 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 ?
Answer
Section 123(4) of the Companies Act, 2013 provides that the amount of the dividend, including
interim dividend shall be deposited in a scheduled bank in a separate account within five days from
the date of declaration of dividend.
However, in case of Government Company sub section 4 of Section 123 shall not apply in which
the entire paid up share capital is held by the Central Government, or by any Stale Government or
Governments or by the Central Government and one or more State Governments or by one or more
Government Company.
Inferring from section 124(1) dividend must be paid to any shareholder entitled to the payment
of the dividend, within 30 days from the date of declaration of dividend.
Secretarial Standard-3(SS-3) hereby clarifies that the Dividend shall be deposited in a separate bank
account within five days from the date of declaration and shall be paid within 30 days of
declaration. The intervening holidays, if any, falling during such period shall be included.
Therefore in the given illustration the dividend shall be deposited into a separate bank account of
a scheduled bank on or before 05.10.2018 and the same must be paid to the registered shareholder
or to his order or to his banker on or before 30.10.2018.
(b) Draft ‘‘A specimen of deed of Assignment of shares of a company’’.

Answer
SPECIMEN OF DEED OF ASSIGNMENT OF SHARES OF COMPANY
THIS ASSIGNMENT is made this -------day of --------between AB, son of ----------
resident of ---------- (hereinafter called “the Assignor”) of the one part, and CD, son of ----------
resident of (hereinafter called “the Assignee”) of the other part.
THE DEED WITNESSES:

That in consideration of the sum of Rs.--------- (Rupees ) paid by the assignee to the assignor, the
receipt whereof the assignor hereby acknowledges, the said AB hereby assigns, sells and transfers
to the said CD --------------- Equity Shares of Rs-------- each, fully paid up ,bearing consecutive Nos-----
----to (inclusive), which stand in the name of the assignor in the Register of Members
of………………Co. Ltd. TO HOLD the same to the assignee absolutely, subject nevertheless to the
conditions on which the assignor held the same up to date.
AND the assignee hereby agrees to take the said Equity Shares subject to such conditions.
IN WITNESS WHEREOF the assignor and the assignee do hereto affix their respective signatures
on the day, month and the year stated above.
Witness : Witness :
Assignor: Assignee:
(c) Who are all the persons required to obtain Digital Signature Certificates ?
Answer
The e-forms are required to be authenticated by the authorized signatories using Digital
Signature Certificate (DSC) as defined under the Information Technology Act, 2000. A digital
signature is the electronic signature duly issued by a certifying authority that shows the authority

of the person signing the same. It is an electronic equivalent of a written signature. Every user who
is required to sign an e-form for submission with MCA is required to obtain a Digital Signature
Certificate. For MCA-21, the following four types of users are identified as users of Digital
Signatures and are required to obtain digital signature certificate:
1. MCA (Government) Employees.
2. Professionals (Company Secretaries, Chartered Accountants, Cost Accountants and Lawyers)
who interact with MCA and companies in the context of Companies Act.
3. Authorized signatories of the Company including Managing Director, Directors, Manager or
Secretary.
4. Representatives of Banks and Financial Institutions.
All companies (Public Company, Private Company, Company not having share capital, Company limited
by share or guarantee, Unlimited Company) must comply with this requirement of registration of
DSC by the director, manager and secretary. Foreign directors are required to obtain Digital
Signature Certificate from an Indian Certifying Authority (List of Certifying Authorities is
available on the MCA portal).The process of registration of DSC is same as applicable to others.
(d) Explain whether the Corporate Social Responsibility (CSR) Committee is entrusted with
any specific functions under the Companies Act, 2013 ?
Answer
Section 135 (3) of the Companies Act, 2013 read with Rules made thereunder provides that the
following functions shall be carried out by a Corporate Social Responsibility (CSR) Committee:
1. To formulate and recommend to the Board, a CSR Policy which shall indicate the activities to
be undertaken by the Company in areas or subject, specified in Schedule VII of the Act.
2. To recommend the amount of the expenditure to be incurred on the activities undertaken in
pursuance of the CSR policy.
3. To institute a transparent monitoring mechanism for implementation of the CSR projects or
programs or activities undertaken by the company.
4. To monitor the CSR policy of the company time to time.
(e) 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 `100.00 crore. With reference to provisions of Companies Act,
2013 state whether the action for damages is maintainable ?
Answer
In the case of Pavlides v. Jensen (1956), a minority shareholder brought an action for damages
against three directors and against the company itself on the ground that they have been negligent
in selling a mine owned by the company for £ 82,000, whereas its real value was about
£ 10,00,000. It was held that the action was not maintainable. The judge observed, “It was open to
the company, on the resolution of a majority of the shareholders to sell the mine at a price decided
by the company in that manner, and it was open to the company by a vote of majority to decide
that if the directors by their negligence or error of judgement has sold the company’s mine at an
undervalue, proceedings should not be taken against the directors”.
Applying the above interpretation, the action for damages under taken by the minority shareholders
of XYZ Ltd. is not maintainable. Hence an action for damages neither against the company nor
against the directors is valid.
(a) 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 ?
1. A relative of whole-time director of the company.
2. A shareholder who has no beneficial interest.
Answer

Section 71 of the Companies Act 2013, read along with rule 18(2) of the Companies (Share capital
and Debentures) Rules, 2014 provides that a person shall not be appointed as a debenture trustee, if
he
1. Beneficially holds shares in the company.
2. Is a promoter, director or key managerial personnel or any other officer or an employee of
the company or its holding, subsidiary or associate company.
3. Is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee.
4. Is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary
of such holding company.
5. Has furnished any guarantee in respect of the principal debts secured by the debentures or
interestthereon.
6. Has any pecuniary relationship with the company amounting to two per cent or more of its
gross turnover or total income or fifty lakh rupees or such higher amount as may be
prescribed, whichever is lower, during the two immediately preceding financial years or
during the current financial year.
7. Is relative of any promoter or any person who is in the employment of the company as a
director or key managerial personnel.
Accordingly, the explanations to the questions would be as under:

 A relative of whole-time director of the company (KMP) cannot be appointed as debenture
trustee.
 A shareholder who has no beneficial interest can be appointed as debenture trustee.
(b) Vijay is an auditor of XYZ Ltd, a listed public company having paid-up share capital of `10
crore. Advise him as to whether he can render the following services, keeping in mind, the
relevant provisions of Companies Act, 2013 ?
1. Vijay wants to conduct internal audit of XYZ Ltd. He also wishes to provide actuarial
services to XYZ Ltd.
2. Vijay wishes to ‘‘design and implement one financial system’’ and offer management
services to ABC Ltd, the holding company of XYZLtd.
3. What will be your answer in the above two cases if services are provided to PQR Ltd, a
subsidiary company of XYZ Ltd.?
Answer
Section 144 of the Companies Act, 2013 provides that an auditor shall provide to the company only
such other services as are approved by the Board of Directors/ the audit committee, but which
shall not include any of the following services (whether such services are rendered directly or
indirectly to the company or its holding company or subsidiary company, namely:-
1. Accounting and book keeping services.
2. Internal audit.
3. Design and implementation of any financial information system.
4. Actuarial services.
5. Investment advisory services.
6. Investment banking services.
7. Rendering of outsourced financial services.
8. Management services.
9. Any other kind of services as may be prescribed.
Therefore based on the above mentioned provisions advice to Vijay will be as under:
 Vijay cannot conduct internal audit of XYZ Ltd or carryout actuarial services to XYZ Ltd.
 Vijay cannot provide management services or implementation of financial system to ABC Ltd as
such services to the holding company is also not allowed.
 Providing (i) and (ii) services above to PQR Ltd the subsidiary company of XYZ Ltd is also not
allowed.

(c) 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 no. 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.
Answer
Section 3A of the Companies Act, 2013 provides that if at any time the number of members of a
company is reduced, in the case of a public company, below seven or in the case of a private
company, below two, and the company carries on business for more than six months while the
number of members is so reduced, every person who is a member of the company during the time
that it so carries on business after those six months and is cognizant of the fact that it is carrying
on business with less than seven members or two members, as the case may be, shall be severally
liable for the payment of the whole debts of the company contracted during that time, and may be
severally sued there for.
In view of the above provision, if the company continued to carry on the business with that
reduced membership (i.e. 6) beyond six months period, only those members who are cognisant of
the fact that it is carrying on business with less than seven members shall be severally liable for the
payment of the whole of debts of the company contracted during that time, and may be severally
sued therefor.
PART - II
(a) ‘‘A’’ Ltd., a public company wants to appoint Alternate Directors. Examine the validity of
acts of the company with reference to provisions of Companies Act, 2013 in following cases
:
1. ‘D’ a director was absent for a period of two and half months. It is proposed to appoint an
alternate director.
2. ‘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.
3. Can the said appointment, if permitted, be passed by circular resolution ?
Answer
1. Section 161(2) of the Companies Act 2013 empowers the Board, if so authorized by its articles or
by a resolution passed by the company in general meeting, to appoint a director (termed as
‘alternate director) to act in the absence of a original director during his absence for a period
of not less than three months from India. Since as D is absent only for two and half months.
Alternate director in place of D cannot be appointed.
2. Section 161(2) of the Companies Act, 2013 states that in the conditions for appointment of an
Alternate Director, the person to be appointed as the Alternate Director shall be the person other
than the person holding any alternate directorship for any other Director in the company or
holding directorship in the same company. Therefore since F is acting as an alternate director for
another director i.e. “G”, he cannot be appointed again as alternate director for E in the same
company.
3. There is no specific provision in the Act which provides that the appointment of an Alternate
Director shall be made at the meeting of the Board. In the absence of any such prohibition, an
alternate director can be appointed by passing a resolution by circulation. Therefore in the
given illustration, if permitted the alternate Director can be appointed by circular resolution.
(b) Prepare an Agenda items for a Board Meeting with a minimum of any eight items to be
discussed.
Answer
Agenda Items for meeting of the Board of Director of the Company Scheduled to be held on (day),
(Date) at (Venue ) at (Time) (meeting No.) 2019-20 (Any 8 items)
1. To grant leave of absence, if any.
2. Appointment of Chairman of the Meeting.
3. To confirm minutes of last Board/ Committee Meeting held in financial year 2018-19.

4. To take note of Disclosure of Interest by Directors pursuant to Section184 (1).
5. To take note of Declaration given by Independent Director to meets the criteria of
Independence under section149(7) of Companies Act, 2013.
6. To consider and approve CSR policy (Name of the Policy).
7. To consider and approve appointment of the Company Secretary.
8. To take note of Statement containing investor complaint under regulation 13(3) of SEBI (
LODR) Regulations, 2015.
9. Noting of Compliance Report on corporate governance under regulation 27(2) of SEBI ( LODR)
Regulations, 2015.
10. Appointment Secretarial Auditor of the Company for the financial year 2019- 20.
11. Appointment Internal Auditor of the Company for the financial year 2019-20.
12. To approve & consider Audited Financial Statements for the year ended 2018-19.
13. To take note of Statutory Auditors Report on the Financial Statements of the Company for the
year ended 2018-19.
14. To take note any other item(s).
(c) DEF Ltd. has made profit for last 3 consecutive financial years as under :
Year Rs. in Crore
2017—18 100
2016—17 150
2015—16 200
Considering the provisions of Companies Act 2013, state whether :
1. DEF Ltd. can contribute Rs. 33.75 crore directly to a political party by a bearer cheque ?
2. What is the limit on the maximum amount that can be contributed by a company to a
political party ?
3. Would your answer be different, if DEF Ltd. is a ‘‘Government Company’’ and donation
is given by an ‘‘account payee cheque’’ ?
Answer
1. According to Section 182 of the Companies Act, 2013, a company, other than a government
company and a company which has been in existence for less than three financial years, may
contribute any amount directly to any political party, on obtaining approval from the Board of
Directors in their meeting. Further the contribution under this section shall not be made
except by an account payee cheque drawn on a bank or an account payee bank draft or use of
electronic clearing system through a bank account. Therefore as per above provision DEF
Limited cannot contribute Rs.33.75 Crore directly to a political party througha bearer cheque.
2. As per section 182 of the Companies Act, 2013, a company, other than a Government
company and a company which has been in existence for less than three financial years, may
contribute any amount directly or indirectly to any political party. Hence DEF Ltd can
contribute any amount to a Political Party.
3. According to Section 182 of the Companies Act, 2013 Government Company are not allowed
to make contribution to the political party. Considering DEF Limited as a Government
Company, it cannot make any contribution to a political party even by way of an account payee
cheque.
(d) 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.
Answer
Section 173(2) of the Companies Act, 2013 states the participation of directors in a meeting of the
Board may be either in person or through video conferencing or other audio visual means, as may
be prescribed, which are capable of recording and recognizing the participation of the directors and
of recording and storing the proceedings of such meetings along with date and time.
The second proviso of section sub section 2 of section 173 states that where there is quorum in a
meeting through physical presence of directors, any other director may participate through video

conferencing or other audio visual means in such meeting on any matter specified under the first
proviso. (Inserted by the Companies (Amendment) Act, 2017, w.e.f 7-5-2018)
In this case of Achintya Kumar Barua vs. Ranjit Barthkur ([2018] 91 taxmann.com 123 (NCL-
AT)] the NCLAT has held that, even one of the director so desires, a company is bound to provide
facilities to directors to participate in board meetings by video conferencing.
With the above amendment and the Tribunal decision, Jolly Retail Ltd. is bound to provide the
necessary video conferencing facilities to the director.
(a) Pluto Ltd. was incorporated on 10th June, 2013 in Delhi and is engaged in the business of
providing specialized catering services for corporate events. The Board of directors
proposed to venture into event management services, which requires the alteration of the
object clause of the Memorandum of Association of the company. Draft the necessary
resolution assuming relevant data.
Answer
Shareholder’s Resolution to be passed in the General Meeting of Pluto Ltd for Alteration of Object
Clause in MOA:
RESOLVED THAT pursuant to the provisions of Section 13 and other applicable provisions, if
any, of the Companies Act, 2013, and the Rules made there under, as amended from time to time,
and subject to the consent of the members in General meeting and subject to the approval of the
Registrar of Companies (“ROC”) and/or of any other statutory or regulatory authority, as may be
necessary, Clause III (Objects Clause) of the Memorandum of Association of the company, be and is
hereby altered by inserting the following sub clause under Part- A of Clause III, after the existing
sub- clause 2 and the remaining sub-clauses be re-numbered accordingly:
“To conduct the business, in and outside India, of event management service on variety of areas
including corporate events (product launches, press conferences, corporate meetings and
conferences), marketing programs (road shows, grand opening events), and special corporate
hospitality events like concerts, award ceremonies, film premiers, launch/release parties, fashion
shows, commercial events, private and personal events such as weddings, birthday celebrations and
such other events of like nature.”
“RESOLVER FURTHER that any director of the company, be and is hereby severally authorized to
file, sign, verify and execute all such e-forms, or documents, as may be required and do all such
acts, deeds, matters and things as may be necessary and incidental for giving effect to this
resolution.”
(b) State the situations under which a company is required to constitute the Audit Committee ?
Answer
Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meeting of the
Board and its Powers) Rules, 2014, provides that the Board of directors of the following companies
are required to constitute an Audit Committee of the Board -
Every listed public companies;

1. All public companies with a paid up share capital of 10 crore rupees or more.
2. All public companies having turnover of 100 crore rupees or more.
3. All public companies, having in aggregate, outstanding loans or borrowings or debentures or
deposits exceeding 50 crore rupees or more.
The paid up share capital or turnover or outstanding loans or borrowings or debentures or deposits, as
the case may be, as existing on the date of last audited financial statements shall be taken into
account for the purpose.

(c) ‘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 :
1. The number of independent directors it should appoint on its board.
2. How many independent directors should be appointed by T Ltd. in case it is an ‘‘unlisted
public company’’ ?
3. 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 ?
4. 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. ?
Answer
1. As per Section 149(4) of the Companies Act 2013, every listed public company is
mandatorily required to have at least one-third of the total number of directors as
independent directors. T Ltd should appoint 1/3 of its total Directors as an Independent
Director and accordingly has to appoint (1/3 x9= 3) 3 independent directors.
2. As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014
unlisted public companies having paid up share capital of ten crore rupees or more shall
have at least two independent. Hence, Two independent directors have to be appointed by
T Ltd as it is an unlisted company and its paid up share capital is more than Rs.10 crores.
3. Section 149(10) of the Companies Act,2013 states that subject to the provisions of Section
152, an independent director can be appointed for a term of up to five consecutive years on
the Board. It has been clarified that as such while appointment of an Independent Director
for a term of less than 5 years would be permissible, appointment for any term (whether
for 5 years or less) is to be treated as a one term under section 149(10) of the Act.
Therefore T Ltd cannot appoint an Independent Director for term of a six years in the second
consecutive term.
4. Section 149(11) of the Act, no person can hold office of Independent Director(ID) for more
than two consecutive term’s such a person shall have to demit office after two
consecutive terms, even if the total number of years of his appointment in such two
consecutive terms is less than 10 years. It is clarified by the Ministry that appointment for
any term (whether 5 years or less) is to be treated as one term under section 149(10) of
the Companies Act, 2013. Further, under section 149(11) of the Companies Act,2013 no
person can hold office of independent director for more than two consecutive term’s such
a person shall have to demit office after two consecutive terms, he shall be eligible for
appointment only after the expiry of the requisite cooling -off period of 3 years.
Therefore T Ltd cannot appoint an independent Director who has already completed two
consecutive terms for 4 years for another period of two years.
(d) Referring to the provision of Companies Act, 2013 advise the directors of a company in the
following matters :
1. The company wishes to obtain approval of the financial statement in a meeting held
through video conferencing.
2. Due to urgency, the company wants to get its prospectus approved in a meeting held
through video conferencing.
Answer
Section 173 (2) states that the participation of directors in a meeting of the Board may be
either in person or through video conferencing or other audio visual means, as may be
prescribed, which are capable of recording and recognising the participation of the
directors and of recording and storing the proceedings of such meetings along with date and
time.
Accordingly, the company can obtain approval of the financial statements from directors in a
meeting held through video conferencing

(ii) the company can also get its prospectus approved in a meeting held through video
conferencing.
(e) ‘S’ is a member of Institute of a Company Secretaries of India. He has defaulted in payment of
annual subscription and his name is removed from the Register of Members by ICSI on 3lst
December, 2018.
1. Can he be appointed as ‘‘Company Secretary’’ by ‘M’ Ltd. with a paid up share capital of
`10 crore on 1st January, 2019?
2. If M Ltd. has paid up share capital of Rs. 2 crore and it has appointed ‘S’ as a company
secretary on part time basis, is it valid ?
Answer
Section 2(24) of the Companies Act, 2013 defines “company secretary “ or “secretary” means a
company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company
Secretaries Act, 1980 who is appointed by a company to perform the functions of a company
secretary under this Act.
According to clause (c) of Sub-section (1) of section 2 of the Company Secretaries Act, 1980, a
company secretary means a person who is a member of the Institute of Company Secretaries
of India.
Therefore, ‘Company Secretary’ means a person who is a member of the Institute of Company
Secretaries of India (ICSI) and who is appointed by a company to perform the function of a
company secretary. The functions of company secretary have been detailed in section 205 of the
1. No, S cannot be appointed as a company secretary as his name is removed from the
register of members by ICSI on 31.12.2018 itself.
2. There is no mandatory requirement to appoint company secretary for a company having
paid up share capital of less than ten crore rupees. No, S cannot be appointed as a
company secretary of M Ltd. even if the paid up capital of the company is Rs. 2 crores as
his name is removed from the register of members by ICSI. Therefore, appointment of S
as Company Secretary is not valid.
OR
(a) 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 ?
Answer
The ABC Corporation Ltd. can remunerate their non-professional managerial personnel according to the
following provisions of Section 197 of the Companies Act, 2013 read with Schedule V of the Act,
which provides as under:
1. If in any financial year, a company has no profits or its profits are inadequate, the company
shall not pay by way of remuneration any sum exclusive of sitting fees to its directors including
any managing or whole- time director or manager except in accordance with the provisions of
Schedule V.
2. In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the
effect of increasing the amount thereof, whether the provision be contained in Company’s
memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the
company in general meeting or its Board, shall not have any effect unless such increase is in
accordance with the conditions specified in thatschedule.
In case a company has inadequate profits/no profits in any financial year, no amount shall be payable
by way of remuneration except if these provisions are followed:

Where the effective capital is Limit of Yearly remuneration payable shall not
exceed
Negative or less than Rs.5 crore Rs.60 lakhs
Rs.5 crores or above but less than Rs.100 Rs.84 lakhs
crores
Rs.100 crore and above but less than Rs.50 Rs.120 lakhs
crore
Rs.250 crores and above Rs. 120 lakhs plus 0.01% of the effective capital
in excess of Rs. 250 crore
Provided that the remuneration in excess of above limits may be paid if the resolution passed by the
shareholders is a special resolution.
(b) ‘X’ was appointed as an Additional director of Precious Ltd w.e.f. 21st November, 2018 in a
casual vacancy caused by the unexpected death of ‘‘P’’ by way of a circular resolution
passed by the Board of directors. With reference to the provisions of the Companies Act,
2013 advise the company on the validity of the appointment of ‘X’ and his continuation as
Additional director.
Answer
Section 161(4) of the Companies Act, 2013 states that if the office of any director appointed by the
company in general meeting is vacated before his term of office expires in the normal course, the
resulting casual vacancy may, in default of and subject to any regulations in the articles of the
company, be filled by the Board of directors at a meeting of the Board which shall be subsequently
approved by members in the immediate next general meeting.
Provided that any person so appointed shall hold office only up to the date up to which the
director in whose place he is appointed would have held office if it had not been vacated.
Section 161 does not authorize the Board to appoint an additional director to fill the casual vacancy
1. If appointment of X is made as an additional director, then, such appointment cannot amount
to filling a casual vacancy.
2. If X is appointed to fill a casual vacancy, then he shall not be an additional director.
It is thus clear that the appointment of X as an additional director to fill the casual vacancy is not
valid. However, X can be treated as additional director and his office as additional director will be
valid upto the date of ensuing AGM. In this regard, the text of the resolution dealing with casual
vacancy will be void but will be valid to the extent of additional director.
Further X has been appointed to fill the casual vacancy by passing a circular resolution. Since the
appointment of a director filling a casual vacancy requires passing of resolution in a board meeting,
the appointment of X is in contravention of section 161, and is therefore, invalid.
(c) Enumerate the difficulties encountered in holding virtual meetings of Members.

Answer
Following are the main difficulties encountered in holding virtual meetings of members:
1. Security of the systems used.
2. Streaming with quality without interruption.
3. Providing with secure login and shareholder authentication for attendance with ease of access
for shareholders. and remote voting.
4. Combined registration, voting and reporting software.
5. Customized instant results screen and detailed audit reporting.
6. Data security of logins and Passwords.
7. Allowing the shareholders, the choice of device.
8. The technology used must give all shareholders a reasonable Opportunity to participate.
9. The technology must be secure and must provide reasonable measures for verifying/
validating those allowed to attend and vote at the meeting.
10. The Company must provide a digital record of the meeting.

(d) As a company secretary referring to the provisions of Companies Act, 2013 examine the
validity of following propositions:
1. A company wishes to call its annual general meeting on a working day at 6.30 p.m.
2. Due to the availability of chairman, the AGM of the company can be held only on 15th
August, 2018. All members are ready to give consent in writing in advance for thesame.
3. Due to technical problem, company wants to hold its AGM at a city other than a city at
which registered office of the company is situated.
Answer
According to section 96(2) of the Companies Act 2013, every annual general meeting can be called
during business hours, that is, between 9.00a.m. to 6.00p.m. on any day that is not a National
Holiday. It should be held either at the registered office of the company or at some other place
within the city, town or village in which the registered office of the company is situated. The
Central Government is empowered to exempt any company from these provisions, subject to such
conditions as it may impose.
Annual general meeting of an unlisted company may be held at any place in India if consent is given
in writing or by electronic mode by all the members in advance.
In case of Government Company, the Central Government may approve such other place for holding
AGM, if the place is other than the registered office.
In case of Section 8 Company, the time, date and place of each AGM are decided upon before-hand
by the Board having regard to the directions if any, given in this regard by such company in the
general meeting.
In view of the above provisions of the Companies Act, 2013:

(a) Annual General Meeting can be held only between 9:00 a.m. to 6:00 p.m, unless exempted by the
Central Government.
(b) AGM cannot be held on a National Holiday, unless exempted by the Central Government,
even though the company has consent in writing in advance to conduct AGM on 15th August,
2018.
(c) AGM can be held only at the city of registered office, unless exempted. As per the proviso to
Section 96(2), in case of an unlisted company, annual general meeting may be held at any
place in India if consent is given in writing or by electronic mode by all the members in
advance.
(e) Prism Ltd. which has 50 preference shareholders called a preference shareholders meeting for
amending the terms of these shares. ‘A’ was the only preference shareholder who attended
the meeting. He, however held the proxies from all other preference shareholders. He took
the chair, conducted the meeting and passed a resolution for amending the terms of the issue
of these shares. Examine the validity of the meeting and theresolution passed.
Answer
Under section 103 (1) of the Companies Act, 2013, unless the articles of the company provide for a
larger number, in case of a public company, five members personally present shall be the quorum
for a meeting of the company, if the number of members as on the date of meeting is not more than
one thousand.
The case given in the question corresponds to the decision in Sharp vs. Dawes wherein it was
held that “the word meeting prima facie means coming together of more than one person.” In this
given case, only one shareholder was present and it was held that the meeting was not validlyheld.
Further in East Vs. Bennet Brothers Ltd. (1911) it has been held that in case of a meeting of a
particular class of members if all the shares of that particular class are held by one person, then that
one person shall form the quorum.
In the given case, therefore, the applicable quorum will be 5 members and since all the shares are
not held by one person but there are 50 members, no quorum is therefore present. The meeting and
the resolution passed there shall not be valid. Proxy shall not be counted for quorum.

PART - III
(a) Ragini, a practicing company secretary expressed her opinion on a report given to a business
firm called ‘‘Quick March Consultants’’. Ragini has an interest in the same to be extent of
12% of shares in the firm. Is she guilty of professional misconduct ?
Answer
Clause 4 of Part I of the Second Schedule to the Companies Secretaries Act, 1980 deals with
professional misconduct in relation to Company Secretaries in Practice. A company secretary in
practice shall be deemed to be guilty of professional misconduct, if he—
“Expresses his opinion on any report or statement given to any business enterprise in which he, his
firm or a partner in his firm has a substantial interest;”
This clause ensures that a professional has to be independent, while expressing any opinion. He
should not have any substantial interest in the business enterprise to which the report or
statement pertains. That would create a conflict with his duty. Expressing opinion or giving
report with appropriate disclosers about his interest in the report was permitted earlier. However
under the new clause there is a total ban on expressing opinion or giving any report about any
business enterprise in which he, his firm or a partner in his firm has a substantial interest.
“Substantial Interest “used in this clause is not limited to financial interest only.
In this connection it may be stated that the Council of the ICSI pursuant to Regulation 168 of the
Company Secretaries Regulations, 1982 passed a resolution in which ‘Substantial Interest’ has
been defined to mean an interest to the extent of 25%. The same guideline is relevant under the
above clause also.
Based on the above regulation, Ragini who holds only 12% of shares in the business firm Quick
March Consultants would not be guilty of Professional mis-conduct.
(b) How would you substantiate the view that the members of the Institute of Company
Secretaries of India (ICSI) are subject to disciplinary mechanism ?
Answer
The members of the Institute of Company Secretaries of India are subject to disciplinary
mechanism under First and Second Schedule of the Company Secretaries Act as amended from
time to time.
Where a member is guilty of any professional or other misconduct mentioned in the First Schedule,
the matter shall be placed before the Board of Discipline.
Where a member is guilty of any professional or other misconduct mentioned in the Second
Schedule or in both the Schedules, the matter shall be placed before the Disciplinary Committee.
Where the Board of Discipline is of the opinion that a member is guilty of a 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:—
1. Reprimand the member.
2. Remove the name of the member from the Register up to a period of three months.
3. Impose such fine as it may think fit which may extend to rupees one lakh.
Where the Disciplinary Committee is of the opinion that a member is guilty of a professional or
other misconduct mentioned in the Second Schedule or both the First Schedule and the Second
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:
1. Reprimand the member.

2. Remove the name of the member from the Register permanently or for such period, as it
thinks fit.
3. Impose such fine as it may think fit, which may extend to rupees five lakhs.

Company Law
December – 2019
Exam Paper
PART - I
(a) 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.
Answer
It is not correct to state that the Companies Act, 2013 does not provide statutory recognition to the
doctrine of lifting of corporate veil and only judicial interpretation disregard the concept of separate
personality.
The Companies Act, 2013 itself contains some provisions in Sections 7(7), 251(1) and 339 which
lift the corporate veil to reach the real forces of action. Section 7(7) of Companies Act, 2013 deals
with punishment for incorporation of company by furnishing false information; Section 251(1) of
Companies Act, 2013 deals with liability for making fraudulent application for removal of name of
company from the register of companies and Section 339 of Companies Act, 2013 deals with
liability for fraudulent conduct of business during the course of winding up.
Ever since the decision in Salomon v. Salomon & Co. Ltd., normally Courts are reluctant or at least
very cautious to lift the veil of corporate personality to see the real persons behind it. Nevertheless,
Courts have found it necessary to disregard the separate personality of a company in the following
situations:
Jones vs. Lipman
1. Where the corporate veil has been used for commission of fraud or improper conduct. In such
a situation, Courts have lifted the veil and looked at the realities of the situation.
R.G. Films Ltd

2. Where a corporate facade is really only an agency instrumentality.
Connors Bros. v. Connors

3. Where the conduct conflicts with public policy, courts lifted the corporate veil for protecting
the public policy.
Daimler Co. Ltd. v. Continental Tyre & Rubber Co.

4. A company will be regarded as having enemy character, if the persons having de facto control
of its affairs are resident in an enemy country or, wherever they may be, are acting under
instructions from or on behalf of the enemy.
Sir Dinshaw Maneckjee Petit, Vodafone case

5. Will ignore the concept of separate entity and make the individuals concerned liable to pay
the taxes which they would have paid but for the formation of the company.
The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar v. The

Associated Rubber Industries Ltd., Bhavnagar and another
6. Avoidance of welfare legislation is as common as avoidance of taxation and the approach in
considering problems arising out of such avoidance has necessarily to be the same and,
therefore, where it was found that the sole purpose for the formation of the new company was
to use it as a device to reduce the amount to be paid by way of bonus to workmen, the Supreme
Court upheld the piercing of the veil to look at the real transaction.

7. Another instance of corporate veil arrived at by the Court arose in Kapila Hingorani v. State of
Bihar.
8. Where it is found that a company has abused its corporate personality for an unjust and
inequitable purpose, the court would not hesitate to lift the corporate veil. Further, the
corporate veil could be lifted when acts of a corporation are allegedly opposed to justice,
convenience and interests of revenue or workmen or are against publicinterest.
(b) The provisions of the Companies Act, 2013 relating to compromises and arrangements are
uniformally applicable to all companies.
Answer
Section 230 to 240 covered under Chapter XV of the Companies Act, 2013 provides for the
Compromise, Arrangements and Amalgamation of Companies. The said provisions are uniformly
applicable to all companies except Section 233 which prescribes simplified procedure for merger or
amalgamation of -
 Two or more small companies.
 Between a holding company and its wholly-owned subsidiary company.
 Such other class or classes of companies as may be prescribed.
Accordingly, sub-section (1) of Section 233 of Companies Act, 2013 states that notwithstanding
the provisions of section 230 and section 232 of Companies Act, 2013, a scheme of merger or
amalgamation may be entered into between two or more small companies or between a holding
company and its wholly-owned subsidiary company or such other class or classes of companies as
may be prescribed, subject to the following, namely:-
1. A notice of the proposed scheme inviting objections or suggestions, if any, from the Registrar
and Official Liquidators where registered office of the respective companies are situated or
persons affected by the scheme within thirty days is issued by the transferor company or
companies and the transferee company.
2. The objections and suggestions received are considered by the companies in their respective
general meetings and the scheme is approved by the respective members or class of members at
a general meeting holding at least ninety per cent of the total number of shares.
3. Each of the companies involved in the merger files a declaration of solvency, in the prescribed
form, with the Registrar of the place where the registered office of the company is situated.
4. The scheme is approved by majority representing nine-tenths in value of the creditors or
class of creditors of respective companies indicated in a meeting convened by the company
by giving a notice of twenty-one days along with the scheme to its creditors for the purpose or
otherwise approved in writing.
(c) An unregistered charge shall be void against the liquidator and other creditors of the
company.
Answer
According to Section 77 of the Companies Act, 2013, all types of charges created by a company are
to be registered with the Registrar of Companies (ROC), Where they are non-compliant and are not
filed with the Registrar of Companies for registration, the charge shall be void as against the
liquidator and any other creditor of the company. In the case of ONGC Ltd v. Official Liquidators
of Ambica Mills Co Ltd (2006), the ONGC had not been able to point out whether the so called
charge, on the basis of which it was claiming preference as a secured creditor, was registered or
not. It was held that in the light of this failure, ONCG could not be treated as a secured creditor in
view of specific provisions of section 125 of Companies Act,1956 and the statutory requirement
under the said section. This does not, however, mean that the charge is altogether void and the
debt is not recoverable. So long as the company does not go into liquidation, the charge is good
and may be enforced.
Void against the liquidator means that the liquidator, on winding up of the company, can ignore the
charge for the purpose of ascertaining the priority of payment and can treat the concerned
creditor as an unsecured creditor. The property will be treated as free of charge i.e. the creditor
cannot sell the property to recover its dues.

Void against any other creditors of the company means that if any subsequent charge is created
on the same property and the earlier charge is not registered, the earlier charge would have no
consequence and the latter charge if registered would enjoy priority over the earlier charge. In
other words, the latter charge holder can have the property sold in order to recover its money.
Thus, non-filing of particulars of a charge as required under Section 77 of the Companies Act,
2013 does not invalidate the charge against the company as a going concern. It is void only
against the liquidator and the creditors at the time of liquidation. The company itself cannot have
a cause of action arising out of non-registration.
(d) 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 a prospectus issued by the
company.
Answer
Section 28 of the Companies Act, 2013 permits certain members of a company, in consultation
with Board of directors, to offer the whole or a part of their holdings of shares to the public. The
document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a
prospectus issued by the company.
Since public offer is not same as offer for sale. Though many provisions relating to issue of
prospectus does apply to such an offer, yet many provisions including requirement of minimum
subscription does not apply to the same.
All laws and rules made hereunder as to the contents of the prospectus and as to liability in
respect of misstatements in and omission from prospectus or otherwise relating to prospectus shall
apply as if this offer document is a prospectus issued by the company.
The section provides that the members, whether individuals or bodies corporate or both, whose
shares are proposed to be offered to the public, shall collectively authorize the company, whose
share were offered for sale to the public, to take all actions in respect of offer of sale for and on
their behalf and they shall reimburse the company all expenses incurred by it on this matter.
Rule 8 of The Companies (Prospectus and Allotment of Securities) Rules, 2014 in this context
provide that the provisions of Part I of Chapter III namely “Prospectus and Allotment of
Securities” and rules made there under shall be applicable to an offer of sale referred to in section
28 of Companies Act, 2013 except for the following, namely:-
1. The provisions relating to minimum subscription.
2. The provisions for minimum application value.
3. The provisions requiring any statement to be made by the Board of directors in respect of
the utilization of money; and
4. Any other provision or information which cannot be compiled or gathered by the offer or,
with detailed justifications for not being able to comply with such provisions.
Further the rules provide that such offer document or prospectus issued under the section shall
disclose the name of the entity bearing the cost of making the offer for sale along with reasons.
(a) 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
reserves. Explain whether decisions of the Board were justified referring to relevant
provisions.
Answer
Section 123 of the Companies Act, 2013 provides for the provisions relating to declaration of
dividends.
Since interim dividend is also a dividend, companies should provide for depreciation under section
123 of the Companies Act, 2013 before declaration of interim dividend. However, the first

proviso to the section 123(1) of the Companies Act, 2013 provides that a company may, before
declaration of any dividend in any financial year, transfer such percentage of its profits for that
financial year as it consider appropriate to the reserves of the company irrespective of the size of
declared dividend i.e. company is not mandatorily required to transfer the profit to reserves, and
it is only an option made available to the company to transfer such percentage of profit to reserves.
In the instant case, the Board has decided to pay interim dividend @12% of the paid up capital.
Assuming the company has complied with the depreciation requirement and other applicable
provisions, the interim or final dividend can be declared without transferring such percentage of its
profits as it may consider appropriate to the reserve of the company.
Thus, from the facts and provisions, it may be concluded that Prima Ltd is under no violation of law
by not transferring i.e. the company is free to transfer any amount of its profit to the reserves,
without any compulsion or restriction before declaration of any dividend.
Section 123(3) of the Companies Act, 2013 provides that the Board of Directors of a company may
declare interim dividend during any financial year or at any time during the period from closure of
financial year till holding of the annual general meeting out of the surplus in the profit and loss
account or out of profits of the financial year for which such interim dividend is sought to be
declared or out of profits generated in the financial year till the quarter preceding the date of
declaration of the interim dividend. The amount of dividend including interim dividend should be
deposited in a separate bank account within five days from declaration of such dividend for
compliance of section 123(4) of the Companies Act, 2013.
(b) What are the ‘related party disclosures’ required to be made by listed entities as per SEBI
Regulations ?
Answer
As per SEBI (LODR) Regulations, 2015, the Annual Report shall make certain Related Party Disclosures.
Further as per Regulation 27(2) of SEBI (LODR) Regulations, 2015 details of all material
transactions with related parties shall be disclosed along with the quarterly compliance report on
corporate governance in the format as specified by the Board from time to time to the recognised
stock exchange(s) within twenty one days from the end of each quarter.
1. The listed entity shall make disclosures in compliance with the Accounting Standard on
“Related Party Disclosures”.
2. The disclosure requirements shall be as follows:-
Disclosures of amounts at the year end and the maximum amount of loans/ advances/ investments
outstanding during the year, in the books of accounts of:
1. Holding Company: -
 Loans and advances in the nature of loans to subsidiaries by name and amount.
 Loans and advances in the nature of loans to associates by name and amount.
 Loans and advances in the nature of loans to firms/companies in which directors are
interested by name and amount.
2. Subsidiary : - Same disclosures as applicable to the parent company in the accounts of
subsidiary company.
3. Holding Company : - Investments by the loanee in the shares of parent company and subsidiary
company, when the company has made a loan or advance in the nature of loan.
For the purpose of above disclosures directors’ interest shall have the same meaning as given in
Section 184 of Companies Act, 2013.
Disclosures of transactions of the listed entity with any person or entity belonging to the
promoter/promoter group which holds 10% or more shareholding in the listed entity, in the format
prescribed in the relevant accounting standards for annual results. (Notified on 9th May, 2018,
applicable in respect of Annual reports filed for the year ended March 31, 2019 andthereafter.)

(c) 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 noncash
consideration in books of account. As a practising company secretary advise the company with
reference to the provisions of the Companies Act, 2013.
Answer
Pursuant to Section 62 read with rule 13(2) of Companies (Share Capital and Debentures) Rules
2014, where shares or other securities are to be allotted for consideration other than cash, the
valuation of such consideration shall be done by a registered valuer who shall submit a valuation
report to the company for justification of valuation.
Where the preferential offer of shares is made for a non-cash consideration, such non-cash
consideration shall be treated in the following manner in the books of account of the company-
1. Where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall
be carried to the balance sheet of the company in accordance with the accounting standards;
or
2. Where above clause is not applicable, it shall be expensed as provided in the accounting
standards.
The Practising Company Secretary can advise the Green Commercial Ltd. accordingly.
(d) What types of companies can be formed in Singapore as per the Singapore Companies Act ?
Answer
As per Singapore Companies Act, 1967 any person may, whether alone or together with another
person, by subscribing his name or their names to a constitution and complying with the
requirements as to registration, form an incorporated company.
A company may be –
1. A company limited by shares.
2. A company limited by guarantee.
3. An unlimited company.
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 the acquisition of gain by the company,
association or partnership, or by the individual members thereof, unless it is registered as a company
under the Singapore Companies Act, or is formed in pursuance of some other written law in
Singapore or letters patent.
(e) What are disqualifications for debenture trustees ?

Answer
The disqualifications for debenture trustees as referred in Rule 18 of the Companies (Share Capital &
Debentures) Rules, 2014, are as under:
1. Beneficially holds shares in the company.
2. Is a promoter, director or key managerial personnel or any other officer or an employee of
the company or its holding, subsidiary or associate company.
3. Is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee.
4. Is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary
of such holding company.
5. Has furnished any guarantee in respect of the principal debts secured by the debentures or
interestthereon.
6. Has any pecuniary relationship with the company amounting to 2% or more of its gross
turnover or total income or fifty lakh rupees or such higher amount as may be prescribed,
whichever is lower, during the two immediately preceding financial years or during the
current financial year.

7. Is relative of any promoter or any person who is in the employment of the company, as a
director, or as a key managerial personnel.
OR
(a) Who is a ‘Significant Beneficial Owner’ under the Companies Act, 2013? Is Significant
Beneficial Owner required to file BEN-1 to the reporting company ?
Answer
In terms of Section 90 of the Companies Act, 2013 every individual, who acting alone or together, or
through one or more persons or trust, including a trust and persons resident outside India holds
beneficial interests, of not less than 25% or such other percentage as may be prescribed, in shares
of a company or the right to exercise or the actual exercise of significant influence or control as
per as Section 2(27) of Companies Act, 2013, over the reporting company is a significant beneficial
owner.
Such an individual being the Significant beneficial Owner holding such beneficial interest is
required to make a declaration to the reporting company specifying the nature of his interest &
other particulars as required.
From commencement of the Companies (SBO) Amendment Rules, 2019, every SBO in a reporting
company, is required to give the requisite declaration of his beneficial ownership in Form No. BEN-
1 to the reporting company within 90 days from such commencement
(b) Can a contributory file a petition for winding up of the company ? Discuss.
Answer
Section 272(1) of the Companies Act, 2013 provides that subject to the provisions of this section, a
petition to the Tribunal for the winding up of a company shall be presented by, inter-alia, any
contributory or contributories.
As per Section 272(2) of Companies Act, 2013, a contributory shall be entitled to present a
petition for the winding up of a company, notwithstanding that he may be the holder of fully paid-
up shares, or that the company may have no assets at all or may have no surplus assets left for
distribution among the shareholders after the satisfaction of its liabilities, and shares in respect of
which he is a contributory or some of them were either originally allotted to him or have been held by
him, and registered in his name, for at least six months during the eighteen months immediately
before the commencement of the winding up or have devolved on him through the death of a
former holder.
(c) 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 (DDR) required to be created by the company now and how much should be
deposited or invested by the company ?
Answer
Section 71(4) of Companies Act, 2013, read with Rule 18(7) of the Companies (Share Capital &
Debentures) Rules, 2014 provides for creation of a Debenture Redemption Reserve (DRR) out of
the profits of the company available for payment of dividend. The amount credited to such account
shall not be utilised by the company except for the redemption of debentures.
The provisions for creation of DRR for manufacturing companies are 25% of the value of
outstanding debentures issued through public issue as per present SEBI (Issue and Listing of Debt
Securities) Regulations, 2008 and also 25% DRR is required in the case of privately placed
debentures by listed companies. For unlisted companies issuing debentures on private placement
basis, the DRR will be 25% of the value of outstanding debentures.

Every company required to create Debenture Redemption Reserve shall on or before the 30th day of
April in each year, is required to invest or deposit a sum which shall not be less than 15% of the
amount of debentures maturing during the current financial year ending 31st March of next year.
In case of partly convertible debentures, Debenture Redemption Reserve shall be created in

respect of non- convertible portion of debenture issue in accordance with this rule.
Since, only 50% of the debentures are convertible, for the non-convertible part the DRR is
required to be created. Hence, only for 3 crore worth of debentures DRR is required. Therefore,
25% of 3 crore is 75 lakhs to be created as DRR and 45 Lakhs (15%) deposited in the invested bank
account or in securities, etc. during the current financial year.
(d) ‘‘The Companies Act, 2013 attempts to maintain a balance between the rights of majority
and minority shareholders.’’ Discuss.
Answer
In India, the Companies Act, 2013 attempts to maintain a balance between the rights of majority and
minority shareholders by admitting in, the rule of the majority but limiting it at the same time by a
number of well-defined minority rights, and thus protecting the minority shareholders as well.
The rule of Foss V. Harbottle establishes the rule of majority but it is not absolute but subject to
certain exceptions and the minority shareholders are protected by
1. The common law.
2. The provisions of the Companies Act, 2013.
Section 241 to Section 245 of Chapter XVI of the Companies Act, 2013 deals with the provisions
relating to prevention of oppression and mismanagement of a company. Oppression and
mismanagement of a company mean that the affairs of the company are being conducted in a
manner that is oppressive and biased against the minority shareholders or any member or
members of the company. To prevent the same, there are provisions for the prevention and
mismanagement of a company.
(e) Reels India Ltd. is a wholly owned subsidiary of Wheels India Ltd. The auditor of Wheels India
Ltd. has intimated the Board of directors that the company will not be required to prepare
consolidated financial statements if provisions of section 129, Companies Act, 2013 are
complied with. As a company secretary give your comments in this regard.
Answer
The consolidation of financial statements of the company shall be made in accordance with the
provisions of Schedule III of the Act and the applicable accounting standards:
Provided that in case of a company covered under sub-section (3) of section 129 of Companies Act,
2013 which is not required to prepare consolidated financial statements under the Accounting
Standards, it shall be sufficient if the company complies with provisions on consolidated financial
statements provided in Schedule III of the Act.
The contention of the Auditor is justifiable as Section 129 (3) provides for not preparing the
consolidated financial statement if conditions are fulfilled. Which according to second proviso to rule
6 are as under:
Provided further that nothing in this rule shall apply in respect of preparation of consolidated
financial statements by a company if it meets the following conditions:-
1. It is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and
all its other members, including those not otherwise entitled to vote, having been intimated in
writing and for which the proof of delivery of such intimation is available with the company,
do not object to the company not presenting consolidated financialstatements.
2. It is a company whose securities are not listed or are not in the process of listing on any stock
exchange, whether in India or outside India.

3. Its ultimate or any intermediate holding company files consolidated financial statements
with the Registrar which are in compliance with the applicable Accounting Standards.
(a) 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 ?

Answer
Yes, Section 54 of Companies Act, 2013 permits issue of sweat equity shares to employees
or directors in recognition of their contribution for providing know- how etc. as aforesaid.
As the contribution made by employees/directors results in increased profits to the
company for a number of years, sweat equity shares provide a new form of adequate
return.
(ii) Is approval of shareholders required for issuing such shares ?

Answer
Yes, Rule 8(1) of Companies (Share capital and Debentures) Rules, 2014 states the special
resolution shall be passed authorizing the issue of sweat equity shares and shall be valid
for making the allotment within a period of not more than twelve months from the date
of passing of the special resolution.
(iii) If found eligible to allot such shares, what will be the quantum (value) of shares
that can be allotted ?
Answer
Rule 8(4) of Companies (Share capital and Debentures) Rules, 2014 states that the
company shall not issue sweat equity shares for more than fifteen percent of the existing
paid up equity share capital in a year or shares of the issue value of rupees five crore,
whichever is higher, The issuance of sweat equity shares in the company shall not exceed
twenty five percent, of the paid up equity capital of the company at any time.
As the paid-up capital of the company is Rs.30 crore. Hence he can be allotted with 15% of
existing equity i.e. (15% of 30 crore up to Rs. 4.5 Crore) value of shares or Rs. 5 crore
whichever is higher.
(iv) Can Russel sell such allotted shares in the market ?

Answer
Rule 8(5) of Companies (Share capital and Debentures) Rules, 2014 says that the sweat
equity shares issued to directors or employees shall be locked/non- transferrable for a
period of three years from the date of allotment and the fact that the share certificates are
under lock-in and the period of expiry of lock-in shall be stamped in bold or mentioned
in any other prominent manner on the share certificate. And hence the sweat equity
shares allotted to Russel can be sold in the market only after the expiry of the lock-in
period of three years from the date of allotment.
(v) Will the amount that he receives on sale of his shares be considered a part of his
remuneration ?
Answer
Yes, Rule 8(10) of Companies (Share capital and Debentures) Rules, 2014 states that the
amount of sweat equity shares issued shall be treated as part of managerial
remuneration for the purposes of sections 197 and 198 of the Act, if the following
conditions are fulfilled namely-
1. The sweat equity shares are issued to any director or manager.

2. They are issued for consideration other than cash, which does not take the form of an
asset which can be carried to the balance sheet of the company in accordance with the
applicable accounting standards.
(b) 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 ?
Answer
Rule 11 of Companies (Appointment and Qualification of Directors) Rules, 2014 allows
cancellation or surrender or deactivation of DIN under the following cases-
1. If DIN is found to be duplicated in respect of the same person provided the data related to both
the DIN shall be merged with the validly retained number.
2. If it is obtained in a wrongful manner or by fraudulent means
3. Death of the concerned individual.
4. Concerned individual has been declared as a person of unsound mind by a competent court.
5. Concerned individual has been adjudicated an insolvent.
6. On application made in Form DIR-5 by the DIN holder to surrender DIN along with
declaration that he has never been appointed as director in any company & said DIN has never
been used for filing of any document with any authority.
The issue raised in question is not covered in any of the above conditions. As Amitabh was appointed
as a director using his DIN (and presumably filed e-forms using the DIN), such DIN shall not be
deactivated and DIR-5 cannot be filed even though the name of the company has been struck off and
he does not hold directorship in any other Company. Hence, the action of the Registrar is correct.
(c) 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?
Answer
A controversy has arisen as to whether a public limited company had powers to insert an article
in its Articles of Association relating to expulsion of a member by the Board of Directors of the
company where the directors were of the view that the activities or conduct of such a member was
detrimental to the interests of the company.
The Department of Company Affairs (now, Ministry of Corporate Affairs) clarified that an article for
expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence
and is ultra vires the company, the reason being that such a provision will be against the
provisions of the Companies Act relating to the rights of a member in a company, the powers of the
Central Government as an appellate authority under Section 111 of the Act and the powers of the
Court under Sections 107, 395 and 397 of the Companies Act, 1956.
These sections correspond to sections 38, 58, 48, 235 & 241 of the Companies Act, 2013 respectively
having the same impact as earlier provisions.
Further, according to Section 6 of the Companies Act, 2013, the Act shall override the
Memorandum and Articles of Association and any provisions contained in these documents
repugnant to the provisions of the Companies Act, 2013 shall be void.
Therefore, any assumption of the powers by the Board of Directors to expel a member by alteration of
Articles of Association shall be illegal and void.
The Supreme Court in the case of Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Com Cases 1 has laid
down the law as to the conditions on the basis of which directors could refuse a person to be

admitted as a member of the company. The principles laid down by the Supreme Court in this case,
even though pertain to the refusal by a company to the admission of a person as a member of the
company, are applicable even with greater force to a case of expulsion of an existing member. As,
under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all
courts within the territory of India, any provision pertaining to the expulsion of a member by the
management of a company which is against the law as laid down by the Supreme Court will be
illegal and ultra vires. In the light of the aforesaid position, it is clarified that assumption by the
Board of directors of a company of any power to expel a member by amending its articles of
association is illegal and void.
If Ram Singh a files a suit against the company or the directors he will certainly win the case, as
expulsion of a member is illegal and void as per the Companies Act 2013.
PART - II
(a) 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.
Answer
According to section 185(1) of the Companies Act, 2013, no company shall, 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,—
1. Any director of company, or of a company which is its holding company or any partner or
relative of any such director.
2. Any firm in which any such director or relative is a partner.
Further, vide Exemption Notification dated 05th June, 2015, Section 185 of Companies Act, 2013 shall
not apply to Private Company meeting the following conditions:
1. In whose share capital no other body corporate has invested any money.
2. 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.
3. Such a company has not defaulted in repayment of such borrowings subsisting at the time of
making transactions under this section.
Now, considering that the Paid up Capital of the Company is 11 Crores and borrowing from HDFC
Bank is Rs. 15 Crore, it can be seen that the amount of borrowings by the company from Banks
(Rs. 15 Crores) is less than twice the amount of paid up capital (i.e. 2 X 11 Cr. = 22 Crores). So as
per exemptions conditions available to private company borrowing from the bank is less than 2
times of Paid up Capital of the Company.
To avail exemption, the company need to fulfill all conditions as provided in the Exemption
Notification. Hence, if all the above conditions are fulfilled, the loan to Rajesh Gowda is exempted
under section 185 and the company is not in violations of the provisions of the Companies Act,
2013 and the claim of CS is not justified.
(b) 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.
Answer
Section 96 of the Companies Act, 2013 provides that every company, other than a one person
company is required to hold an annual general meeting every year.

Secretarial Standards on General Meetings (SS-2) provides that the Board shall, every year,
convene or authorize convening of a meeting of its members called the Annual General Meeting
to transact items of ordinary business specifically required to be transacted at an annual general
meeting as well as special business, if any. If the Board fails to convene its Annual General
Meeting in any year, any Member of the company may approach the prescribed authority, which
may then direct the calling of the Annual General Meeting of the company.
Following are the key provisions regarding the holding of an Annual General Meeting:
1. Annual general meeting should be held once in each calendar year.
2. First annual general meeting of the company should be held within 9 months from the closing
of the first financial year. Hence it shall not be necessary for the company to hold any annual
general meeting in the year of its incorporation.
3. Subsequent annual general meeting of the company should be held within 6 months from the
date of closing of the relevant financial year.
4. The gap between two annual general meetings shall not exceed 15 months.
Additionally for listed entities SEBI vide recent notification provided that the top 100 listed entities
by market capitalization, determined as on March 31st of every financial year, shall hold their
annual general meetings within a period of five months from the date of closing of the financial
year. The top 100 listed entities shall provide one-way live webcast of the proceedings of the
annual general meetings.
Explanation
The top 100 entities shall be determined on the basis of market capitalization, as at the end of the
immediate previous financial year. (Notified on 9th May, 2018 effective from April 1, 2019)
Hence for the financial year 2018-19, the meeting should/ought to have been held within earlier
of the two dates given below i.e. Before 31.8.2019 - within 5 months from the close of financial
year 2018-19, OR Before 24.8.2019 - lapse of 15 months from date of last AGM
Hence, AGM ought to have been held before 24th August, 2019.
However, according to third proviso to section 96(1) of Companies Act, 2013, on an application
from the company, the Registrar may, for any special reason, extend the time within which any
annual general meeting, other than the first annual general meeting, shall be held, by a period of not
exceeding three months. The company may apply to the Registrar for extension for holding AGM,
justifying it as a special reason based on the facts of the case.
Accordingly, the company will be advised to hold its meeting on or before 24.08.2019 or such extended
period, as may be permitted by the Registrar on an application by the company.
(c) 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 25 Crore
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?
Answer
According to Section 182 of the Companies Act, 2013, a company, other than a government
company and a Company which has been in existence for less than three financial years,
may contribute any amount directly or indirectly to any political party.
The Finance Act, 2017 amended section 182 of the Companies Act, 2013, accordingly the
limit on the maximum amount that can be contributed by a company to a political party
has been removed. Hence a company now can contribute any percentage without any
limit.

(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 ?
Answer
Further, prior to the amendment to Section 182 by the Finance Act, 2017, the limit of
contribution to political parties was 7.5% of the average net profits during the three
immediately preceding financial years.
Hence, earlier to 2017, it can have contributed only 7.5% of average net profits at the
maximum.
(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 ?
Answer
As per Section 182(1) of the Companies Act, 2013 the contribution must be authorised
by board in its meeting by resolution and such resolution shall be deemed to be the
justification in law for making of such contribution.
As per Section 182(3A) of the Companies Act, 2013, further, contribution under this
section shall not be made except by an account payee cheque drawn on a bank or an
account payee bank draft or use of electronic clearing system through a bank account.
Accordingly, the chairman cannot direct the payment to be made unless he is duly
authorised by a Board resolution passed at a meeting and the payment is to be made
through account payee cheque/Bank Draft or through electronic clearing system only.
(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?
Answer
As per Section 183 of the Companies Act, 2013 the Board is authorised to contribute such
amount as it thinks fit to the National Defence Fund or any other fund approved by the
Government for the purpose of National Defence.
Further, the company is required to disclose in its profit and loss account the total
amount or amounts contributed by it during the financial year.
Accordingly, it is not possible to avoid the disclosure in the Profit and loss account about
the amount of the contribution made to the National Defence Fund.
(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 ?
Answer
If the expenditure incurred on advertisement in any publication souvenir, brochure, tract,
pamphlet or the like is deemed as political contribution if such publication is by or on
behalf of political party or if not, then for the advantage to such political party for a
political purpose.
Hence, this amount to be treated as political contribution and shown in profit and loss
account under the head political contribution.
(d) 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
Answer
As per Section 174 of Companies Act, 2013 the quorum for Board Meeting Requirement is as
under:

 Quorum for Board Meeting is 1/3rd of its Total strength or two directors, whichever is higher
 A Director participating through video conferencing/audio visual modes will also be counted
for quorum
 Any fraction of a member will be rounded off as one
 “Total strength” shall not include directors whose places are vacant
In JKJ Board meeting held on 19.10.19, the quorum is:

Total Strength = 10*1/3 is = 3.33 So, it is rounded of to 4 Directors. Hence, Directors required for
Quorum is 4 Directors.
Since two directors attended in person and one director through video conferencing there was an
absence of quorum. The claim of the Auditor is correct.
(a) 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.
Answer
In terms of Section 196 and 201 of the Companies Act, 2013 in case the provisions of Schedule V of
the Companies Act, 2013 are not fulfilled by company, w.r.t. appointment of a Managing Director, the
terms and conditions of such appointment and remuneration payable be approved by the Board of
Directors at a meeting which shall be subject to approval by a resolution at the next general
meeting of the company and by the Central Government. Further an application seeking approval to
the appointment of a managing director as aforesaid shall be made to the Central Government, in
E-Form No. MR.2, within a period of ninety days from the date of such appointment.
As per Section 201 of Companies Act, 2013, before such application is made to the Central
Government, there shall be issued by or on behalf of the company a general notice to the members
indicating nature of application proposed to be made. The general notice shall be published in at least
once in a newspaper in the principal language of the district in which, registered office of the
Company is situated and at least once in English in an English newspaper circulating in that district.
The copies of the notices, together with a certificate by the company as to the due publication
therefore, shall be attached to the application.
Therefore, Tirubuvani Sugars Limited will file an application seeking approval to the appointment
of Jackson as Managing Director to the Central Government in e-Form No. MR-2.
(b) 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.
Answer
As per Section 110 of Companies Act, 2013 and Rule 22(10) of the Companies (Management and
Administration) Rules, 2014, 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.
The scrutinizer shall maintain a register either manually or electronically to record their assent or
dissent received, mentioning the particulars of name, address, folio number or client ID of the
shareholder, number of shares held by them, nominal value of such shares, whether the shares
have differential voting rights, if any, details of postal ballots which are received in defaced or
mutilated form and postal ballot forms which are invalid.
Entries in the register should be made immediately after the opening of postal ballots. Separate folios
should be maintained for each resolution passed through postal ballot. The register should be kept
at the registered office of the company after the Scrutinizer has submitted his report.

The register, postal ballot forms and all other related records are not available for inspection.
All postal ballot forms should be authenticated by the Scrutinizer. Entries in the register should
be authenticated by the Scrutinizer.
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.
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.
The Scrutinizer should return the postal ballot forms and any related documents or records to the
designated person of the company for safekeeping until the resolution has been implemented.
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.
(c) ‘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?

Answer
Section 105(4) of Companies Act, 2013 specifies the time limit for deposit of proxy
forms. The instrument appointing the proxy must be deposited with the company, 48
hours before the meeting. Any provision contained in the articles, requiring a longer
period than 48 hours shall have effect as if a period of 48 hours had been specified.
Para 6.6.1 of SS-2 provides that proxies shall be deposited with the company either in
person or through post not later than forty-eight hours before the commencement of the
Meeting in relation to which they are deposited and a Proxy shall be accepted even on a
holiday if the last date by which it could be accepted is a holiday.
Articles of the company cannot prescribe a longer than 48 hours for lodging the proxy
forms. And so the refusal of the chairman is void. X can compel the chairman to accept
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.
Answer
If after appointment 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.
Since Mr. A i.e. a member himself attended a meeting and voted on resolution, it will
amount to revocation of proxy. Thus, any vote put by Mr. X i.e. proxy shall be invalid.
Chairman cannot invalidate both the votes. Vote of the shareholder has to be considered
and of the proxy should be invalidated. Decision of the Chairman is void.

(d) 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.
Answer
Section 139(2) of the Companies Act, 2013 provides that as on date of appointment of Auditors, no
audit firm having a common partner or partners to the other audit firm whose tenure has expired
in a company immediately preceding the financial year shall be appointed as auditor of the same
company for a period of five years.
Here M Ltd is a listed entity and thus rotational provisions are applicable. B is a partner in ABC &
associates whose tenure as statutory auditor in M Ltd has expired. He joined XY &Co. as partner 4
months after XY & Co. was appointed as statutory auditor of M Ltd.
It may be noted that there should not be a common partner in firms as on date of appointment. In
the given case, B has joined XY & Co. after 4 months of its appointment as statutory auditor of M Ltd.
Thus, XY &Co. can continue as statutory auditor of M Ltd for the remaining term after B joined
them as Partner.
(e) 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.
Answer
Section 186(5) of Companies Act, 2013 provides that no investment shall be made or loan or
guarantee or security given by the company unless the resolution sanctioning it is passed at a
meeting of the Board with the consent of all the directors present at the meeting and the prior
approval of the public financial institution concerned where any term loan is subsisting, is
obtained.
However, the prior approval of Public Financial Institution (FI) shall not be required where the
aggregate of loans and investments so far made, the amounts for which guarantee or security so
far provided to or in all other bodies corporate, along with the investments, loans, guarantee or
security proposed to be made or given does not exceed the limit of 60% of its paid-up share capital,
free reserves and securities premium account or 100% of its free reserves and securities
premium account, whichever is more and there is no default in repayment of loan installments or
payment of interest thereon as per the terms and conditions of such loan to the public financial
institution.
In the given case the Company is passing the special resolution under Section 186(2) of
Companies Act, 2013, indicating thereby that the proposed loan together with the loans already
given is already in excess of the limits given under Section 186 (2) of Companies Act, 2013.
Hence the contention of the director is correct as the company aggregate of loans and investments
so far made, exceed the limit under Section 186(2) of Companies Act, 2013.
However, if the aggregate loans/ investments are well within the limits approval and the company is
passing the Special Resolution either in terms of its Article of Association or voluntarily only due to
some other commercial requirement other than Section 186(2) of Companies Act, 2013, then the
prior approval from Financial Institution will not be required.

OR
(a) 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 ?
Answer
Second Proviso to section 149 of Companies Act, 2013 provides that such class or classes of
companies as may be prescribed in Rule 3 of Companies (Appointment and Qualification of
Directors) Rules, 2014, provides that the following class of companies shall appoint at least one
woman director-
1. Every listed company.
2. Every other public companyhaving:
a. Paid-up share capital of one hundred Crore rupees or more; or
b. Turnover of three hundred Crore rupees or more.
However, any intermittent vacancy of a woman director shall be filled-up by the Board at the
earliest but not later than immediate next Board meeting or three months from the date of such
vacancy, whichever is later.
In the given case, as Destinations Ltd is a listed company hence, the company is required to
appoint a woman director in its board irrespective of paid up capital, turnover and loss amounts.
The appointment of Ms. Lalita as woman director is to be made at the earliest but not later than
immediate next board meeting i.e. 15th January, 2019 or 3 months from date of cause of vacancy
i.e. 01st October, 2018; whichever is later, that means the appointment shall be made by 15th
January, 2019.
(b) 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.
Answer
As per section 135 of the Companies Act 2013, the CSR provision is applicable to companies
which fulfills any of the following criteria during the immediately preceding financial year:
 Companies having net worth of rupees five hundred Crore or more; or
 Companies having turnover of rupees one thousand Crore or more; or
 Companies having a net profit of rupees five Crore or more
Explanation to section 135 provides that for the purposes of this section "net profit" shall not
include such sums as may be prescribed, and shall be calculated in accordance with the provisions of
section 198.
The Section 198 of the Companies Act, 2013 read with CSR Rules have clarified the manner in which
a company's net profit will be computed to determine if it fits into the 'spending' norm. In order
to determine the 'net profit', dividend income received from another Indian company (which are
duly covered under and complying with the provisions of Section 135 of the Companies Act, 2013)
or profits made by the company from its overseas branches have been excluded. Moreover, the

2% CSR is computed as 2% of the average net profits made by the company during the preceding
three financial years.
Here, assuming that WB Ltd is duly covered under Section 135 of Companies Act, 2013 and is also
complying with the said provisions, the dividend received by Warner Ltd from WB Ltd shall be
deducted from the Net Profit of Warner Ltd so as to compute “net profit” & “average net profit” for
the purpose of Section 135 of Companies Act, 2013.
Hence, based on above assumption, Warner Ltd’s net profit shall be considered as rupees 7 Crore
minus 1 Crore (dividend from another Indian company) = rupees 6 Crore in the preceding financial
year, thus making it liable to comply with Section 135. It will therefore be required to spend on
CSR Activities
The CSR amount to be spent/created is 2% of Rupees 6 crores + 5 crores + 6 crores = 17/3 =

rupees 5.67 Crore (average profit of the preceding three years) i.e. 2% of Rs. 5.67 Crore being Rs.
11.33 Lakhs.
(c) 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 ?
Answer
Section 100(2)(a) of the Companies Act, 2013 provides that the Board shall, at the requisition
made by in the case of a company having a share capital, such number of members who hold, on
the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share
capital of the company as on that date carries the right of voting call an extraordinary general
meeting of the company within twenty-one days from the date of receipt of a valid requisition.
The requisition made under section 100(2) shall set out the matters for the consideration of
which the meeting is to be called and shall be signed by the requisitionists and sent to the registered
office of the company.
If the Board does not, within twenty-one days from the date of receipt of a valid requisition in
regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later
than forty-five days from the date of receipt of such requisition, the meeting may be called and held
by the requisiteness themselves within a period of three months from the date of the requisition.
The meeting by the requisitionists shall be called and held in the same manner in which the
meeting is called and held by the Board.
Accordingly, the requisitionists members holding more than 10% of the paid-up share capital, may
proceed to convene and hold the meeting themselves within 3 months from 5th October 2019, being
the date of requisition.
Rule 17 of the Companies (Management and Administration) Rules, 2014 provides the following
for Calling of Extraordinary general meeting by requistionists:
1. The members may requisition convening of an extraordinary general meeting in accordance
with sub-section (4) of section 100, by providing such requisition in writing or through
electronic mode at least clear twenty-one days prior to the proposed date of such
extraordinary general meeting.
2. The notice shall specify the place, date, day and hour of the meeting and shall contain the
business to be transacted at the meeting.
Explanation.- For the purposes of this sub-rule, it is here by clarified that requistionists
should convene meeting at Registered office or in the same city or town where Registered office
is situated and such meeting should be convened on any day except national holiday.
3. If the resolution is to be proposed as a special resolution, the notice shall be given as required
by sub-section (2) of section 114.

4. The notice shall be signed by all the requistionists or by a requistionists duly authorised in
writing by all other requistionists on their behalf or by sending an electronic request
attaching therewith a scanned copy of such duly signed requisition.
5. No explanatory statement as required under section 102 need be annexed to the notice of an
extraordinary general meeting convened by the requistionists and the requistionists may
disclose the reasons for the resolution(s) which they propose to move at the meeting.
6. The notice of the meeting shall be given to those members whose names appear in the Register of
members of the company within three days on which the requistionists deposit with the
Company a valid requisition for calling an extraordinary generalmeeting.
7. Where the meeting is not convened, the requistionists shall have a right to receive list of
members together with their registered address and number of shares held and the company
concerned is bound to give a list of members together with their registered address made as
on twenty first day from the date of receipt of valid requisition together with such changes, if
any, before the expiry of the forty-five days from the date of receipt of a valid requisition.
8. The notice of the meeting shall be given by speed post or registered post or through
electronic mode. Any accidental omission to give notice to, or the non- receipt of such notice
by, any member shall not invalidate the proceedings of the meeting.
(d) 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.
Answer
As per Section 46 of the Companies Act, 2013 read with Rule 6 of Companies (Share Capital and
Debentures) Rules, 2014, every company with a share capital should, from the date of its registration,
maintain a register of renewed and duplicate certificates.
The word ‘renewed’ includes consolidation and sub-division of shares and issue of certificate in
lieu thereof.
Particulars of every share certificate issued shall be recorded in a Register of Renewed and Duplicate
Share Certificates. Such register shall be maintained in Form No. SH-2 indicating against the
name(s) of the person(s) to whom the certificate is issued, the number and date of issue of the
share certificate in lieu of which the new certificate is issued, and the necessary changes
indicated in the Register of Members by suitable cross-references in the “Remarks” column. Such
register shall be kept at the registered office of the company or at such other place where the
Register of Members is kept.
The register shall be preserved permanently and shall be kept in the custody of the Company
Secretary of the company or any other person authorized by the Board for the purpose. All entries
made in the Register of Renewed and Duplicate Share Certificates shall be authenticated by the
company secretary or such other person as may be authorized by the Board for purposes of
sealing and signing the share certificate. The register is not open for inspection.
(e) 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 :
1. Would the company be liable to constitute an audit committee ?

Answer
Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of the
Board and its Powers) Rules, 2014, provides that the Board of directors of following companies
are required to constitute an Audit Committee of the Board-
1. Every listed Public companies.
2. All public companies with a paid up capital of 10 Crore rupees or more; or
3. All public companies having turnover of 100 Crore rupees or more; or
4. All public companies, having in aggregate, outstanding loans or borrowings or debentures
or deposits exceeding 50 Crore rupees or more.
Accordingly RPK Ltd. is liable to constitute the audit committee as its long term loan is more
than the prescribed limit of Rs. 50 Crore.

2. 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?
Answer
Yes, the company is liable to constitute an audit committee as it will then become a listed
company.
3. What is the quorum for meetings and number of meetings to be held in a year by the
audit committee ?
Answer
Para 2.2 of the Secretarial Standard-1 provides that Committee shall meet as often as
necessary subject to the minimum number and frequency prescribed by any law or any
authority or as stipulated by the board.
Para 3.5 of the Secretarial Standard -1, unless otherwise stipulated in the Act or the Articles or
under any other law, the Quorum for meeting of any Committee constituted by the Board shall
be as specified by the Board. If no such Quorum is specified, the presence of all the members
of any such Committee is necessary to form theQuorum.
Accordingly, RPK Ltd. In case of unlisted public companies, minimum number of meetings and
quorum may be decide by the Board of Directors.
PART - III
(a) 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.
Answer
A Company Secretary is expected to maintain highest standards of integrity even in his personal
affairs and any deviation from these standards even in his non-professional work would expose him
to disciplinary action.
A member of the Institute is subject to disciplinary action under section 21 of the Company
Secretaries Act, 1980 if he is found guilty of any professional or other misconduct.
As per Clause 2 of Part IV of the First schedule to the Company Secretaries Act, 1980, a member of
the Institute whether in practice or not shall be deemed to be guilty of other misconduct if in the
opinion of the council brings disrepute to the profession or the Institute as a result of his action
whether or not related to the professional work.
The question whether a particular act or omission constitutes other misconduct should be based
on facts and circumstances of each case.
Further, Part III of the Second Schedule to the Company Secretaries Act, 1980 provides that, a
member of the Institute whether in practice or not shall be deemed to be guilty of other misconduct
if he is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term exceeding six months.
Under Negotiable Instruments Act, 1881 where any cheque drawn by a person for the discharge
of any liability is returned by the bank unpaid either for insufficiency of funds or the cheque
amount exceeds the arrangements made by the drawer of the cheque the drawer of the cheque
shall be deemed to have committed an offence.

In the given case the cheque was dishonored with the remark insufficient funds. Therefore, CS
Rohan may be liable for misconduct under Clause 2 of Part IV of the First Schedule of the Company
Secretaries Act, 1980, if the Council is of the opinion that the offence under Negotiable Instruments
Act, 1881 is due to negligence or willful act of CS Rohan.
(b) 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.
Answer
Mega Firm can be described as a Partnership firm with more than twenty-five partners. A firm which
provides core professional service of a particular profession along with the allied and ancillary
services with equal competence under one roof is a multidisciplinary firm. For example, company
and corporate law is core for company secretaries, however, they can acquire expertise in any other
area like direct-indirect taxation, labour laws, economic laws, finance, accounting, insurance,
international business and IPRs and they may be in position to provide single window business
solutions.
Regulation 168B of Company Secretaries Regulations, 1982, which has introduced the concept of
multi-disciplinary firms or mega firms, determines the membership of professional body for
partnership. Accordingly for the purposes of entering into partnership under clauses (4) and (5) of
Part I of the First Schedule of the Company Secretaries Act, 1980, a person shall be a member of any
of the following professional bodies, namely:-
1. The Institute of Chartered Accountants of India established under the Chartered Accountants
Act, 1949 (No. 38 of 1949).
2. The Institute of Cost and Works Accountants of India established under the Cost and Works
Accountants Act, 1959 (No.23 of 1959).
3. Bar Council of India established under the Advocates Act, 1961 (No. 25 of 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 (No. 20 of 1972).
6. The Institute of Actuaries of India established, under the Actuaries Act, 2006 (No. 35 of2006).
7. Professional bodies or institutions outside India whose qualifications relating to Company
Secretary recognized by the Council under Sub-section (2) of Section 38 of the Act.
Therefore, the middle aged Practicing Company Secretary, who is considering to start a mega
professional firm can enter into partnership with the member(s) of any of the above professional
bodies which will help him to cater to the bigger assignments and meet the needs of clients and
assure timely and quality services to them.

Company Law
December – 2020
Exam Paper
PART – I
(a) Reduction of share capital and Diminution of share capital mean the same.
Answer
Section 66(1) of the Companies Act, 2013 states that subject to confirmation by the Tribunal on an
application by the company, a company limited by shares or limited by guarantee and having a
share capital may, by passing a special resolution, reduce the share capital in any manner and in,
particular, may—
(a) Extinguish or reduce the liability on any of its shares in respect of the share capital not
paid-up; or
(b) Either with or without extinguishing or reducing liability on any of its shares,—
 Cancel any paid-up share capital which is lost or is unrepresented by availableassets.
 Pay off any paid-up share capital which is in excess of the wants of thecompany.
Alter its memorandum by reducing the amount of its share capital and of its shares
accordingly.
While, Section 61(1)(e) of the Companies Act, 2013 provides that, a limited company having share
capital, if authorised by its Articles, may cancel shares, by passing an ordinary resolution in that
behalf, which have not been taken or agreed to be taken by any person, and diminish the amount of
its share capital by the amount of the shares so cancelled. Diminution needs no confirmation by the
Tribunal.
Further, Section 61(2) of the Companies Act, 2013 specifically states that the cancellation of
shares under section 61(1) of the Companies Act, 2013 shall not be deemed to be reduction of
share capital.
Thus, Reduction of Share Capital and Diminution of Share Capital is not thesame.
(b) Annual Return is a significant document in relation to the company.

Answer
Annual Return is a significant document in relation to the company
Annual Return is a significant document for the stakeholders of a company as it provides a very
comprehensive information about various aspects of a company. It is perhaps the most important
document required to be filed by every company with the Registrar of Companies. Apart from the
Financial Statements, this is the only document to be compulsorily filed with the Registrar of
Companies, every year irrespective of any events / happenings in the company. While the Financial
Statements give information on the financial performance of a company, it is the Annual Return
which gives extensive disclosure and greater insight into the non-financial matters of the
company and the people entrusted with the management of the company.
Annual Return contains the following particulars in consonance with the Section 92(1) of the
Companies Act, 2013:
1. Its registered office, principal business activities, particulars of its holding, subsidiary and
associate companies.
2. Its shares, debentures and other securities and shareholding pattern.
3. Its members and debenture-holders along with changes therein since the close of the previous
financial year.
4. Its promoters, directors, key managerial personnel along with changes therein since the close
of the previous financial year.
5. Meetings of members or a class thereof, Board and its various committees along with
attendance details.
6. Remuneration of directors and key managerial personnel.

7. Penalty or punishment imposed on the company, its directors or officers and details of
compounding of offences and appeals made against such penalty orpunishment.
8. Matters relating to certification of compliances, disclosures as may be prescribed.
9. Details, as may be prescribed, in respect of shares held by or on behalf of the Foreign
Institutional Investors and
10. Such other matters as may be prescribed.
(c) An encumbrance may be created by a charge, pledge or a mortgage.

Answer
An encumbrance means a restriction imposed on the owner's right over his property. All the three
words used above impose a restriction on the right of the owner over his ownproperty.
As per Clause 16 of Section 2 of the Companies Act, 2013, charge means an interest or lien created on
the property or assets of a company or any of its undertakings or both as security and includes a
mortgage.
A charge is called fixed or specific when it is created to cover assets which are ascertained and
definite or are capable of being ascertained and defined, at the time of creating the charge whereas a
floating charge is not attached to any definite property but covers property of a fluctuating type such
as stock in trade.
On the contrary, in case of a fixed or a floating charge the possession of the assets remains with the
borrower. The ownership of the property also remains with the borrower. In case of fixed charge he
has no right to sell or transfer the asset except with the consent of the charge holder. In case of a
floating charge the borrower can treat his floating assets as if they have not been charged. He loses
this right only when he commits a default and the charge holder decides to take action for recovery of
the money due. Inthis case we say the floating charge crystallizes.
A mortgage is the transfer of an interest in specific immoveable property for the purpose of
securing the payment of money advanced or to be advanced by way of loan, an existing or future debt
or performance of an agreement which may give rise to pecuniaryliability.
In a pledge the borrower loses possession of the goods pledged as a security for repayment of a
debt or performance of an obligation. The pawnor (pledgor) remains the owner of the property. He
is entitled to get back the possession on repayment of the debt. However, in all these cases if the
borrower commits a default in payment of the principal and interest thereof the lender gets a
right to sell the property and recover theamount due to him.
Thus, an encumbrance may be created by a charge, pledge or a mortgage.
(d) In the United Kingdom, the name of the company may be entered in its register of members
as a member in certain cases.
Answer
Section 724 of the U.K. Companies Act, 2006 deals with the Treasury Shares, a limited company
can makes a purchase of its own shares out of distributable profits. Thecompany may
(a) Hold shares (or any of them) or
(b) Deal with any of them, at any time,
in accordance with section 727 or 729 of the U.K. Companies Act, 2006 w.r.t. disposal and
cancellation of treasury shares.
Accordingly, when such Treasury Shares are held by the company, then the name of the company
must be entered in the register of members (or as the case may be, the company's name must be
delivered to the registrar) as the member holding those shares.

(a) 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 notbought from the company?
Answer
In the case of a subscriber, no application or allotment is necessary to become a member. Since,
by virtue of his subscribing to the memorandum, he is deemed to have agreed to become a member
and he becomes ipso facto member on the incorporation of the company and is liable for the shares
he has subscribed.
According to Section 10(2) of the Companies Act, 2013, all monies payable by any member to the
company under the Memorandum of Association or Articles of Association of the company shall be
debt due from him to the company. Further, a subscriber to the Memorandum must make payment
for his shares, even if the promoters have promised him the shares for services rendered in
connection with the promotion of the company. When the Subscriber subscribes to the
Memorandum, he gives an undertaking to the company that he will pay to the company for the
shares he has subscribed.
Further, Subscribers has to take these shares directly from the company and not through transfer
from other member(s).
In the instant case, Manmeet is not absolved from his liability to the company by purchasing the
shares from Sumeet. He has a statutory obligation to buy the shares from the company by making
payment to the company.
(b) The following summarized information is available in respect of a company for the year
ended 31st March, 2019:
Rs. Lakh
Equity Share Capital 10,000 shares of the face value of R s 100 each 10
Free Reserve 2
Revaluation Reserve 1
Profit and Loss Account (Dr.) 0.35
Net loss for the year 2018-2019 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.
Answer
As per Section 123 (1) of the Companies Act, 2013, a company can distribute dividends out of
profits of the current year or from profits of previous financial years.
In the event of inadequacy or absence of profits in any financial year, if the company wants to
propose declaration of dividend, it can pay it out of accumulated profits earned by it in previous
years and transferred by the company to the free reserves, according to the conditions prescribed
under Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014.
In the instant case, the net loss for the year 2018-19 is Rs. 25000.
According to Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 the
following conditions must be fulfilled:
(i) The rate of dividend cannot exceed the average of the rates at which dividend was
declared in the three years immediately preceding that year i.e. (8%+10%+12%)/3 =
10%, so in this case, the amount of dividend should not exceed Rs. 1 Lakh.

(ii) The total amount to be drawn from such accumulated profits shall not exceed one-tenth
of the sum of its paid-up share capital and free reserves as appearing in the latest audited
financial statement. Thus the company can draw only upto Rs. 1.2 lakh.
(iii) The balance of reserves after such withdrawal shall not fall below 15% of its paid up capital
as appearing in the latest audited balance sheet. Accordingly the maximum that may be
withdrawn cannot exceed Rs. 50000.
However, the amount so withdrawn must be used to set-off losses of the current year i.e.
`25000. Therefore, the maximum amount in this instant case that can be paid by way of
dividend is `25000.
(c) Arup entered into a transaction with Brilliant Merchandise Ltd. for a contract worth ` 51
lakh. The Articles of Association of the company stipulate that a contract above ` 25 lakh
should be approved by a meeting of the Board of directors. Anjaan, Deputy General
Manager (Commercial) produces a forged document which shows a resolution approving
the contract having been passed in a Board Meeting. Later, the forgery is discovered. Arup
pleads that his contract with the company is protected by the Doctrine of Indoor Management.
Will Arupsucceed ?
Answer
The doctrine of Constructive Notice protects a company from outsiders. The doctrine provides that an
outsider must read the Memorandum and Articles of the Company and satisfy himself that the
contract he is seeking to enter into with the company is within itspowers.
As far as internal procedures are concerned, an outsider is entitled to presume that everything has
been according to the procedures laid down and there is no irregularity. An outsider cannot find out
what is going on inside the doors as the doors of management are closed. This is known as the
doctrine of Indoor Management [also known as rule in Royal British Bank v. Turquand (1856) CI
& B 327].
However, in certain exceptional situations the doctrine of indoor management is not applicable and
one of them is when a person relies on a forged document. Nothing can validate forgery. A company
cannot be held liable for forgery committed by its officers. This has been established in the case
Ruben v. Great Fingall Consolidated case [1906]1 AC 439.
In the instant case Arup has relied on a forged document. Therefore he will not be protected and he
will not succeed in his pleading.
(d) KBC Ltd. filed Form PAS-3 with the Registrar of Companies (ROC), Mumbai as required under
the Companies Act, 2013 with late fees as it was not filed within the due date. The ROC on
examining the e-form, found it necessary to call for further information. He gave a notice to
the company directing it to furnish the required information within the prescribed time.
The company furnished only a part of the required information. Discuss the consequences
of the action in such circumstances under the provisions of the Companies Act, 2013.
Answer
Rule 10(2) of the Companies(the Registration offices and Fees) Rules, 2014 provides that, where the
Registrar on examining any application or e-form or document finds it necessary to call for
further information or finds such application or e form or document to be defective or incomplete in
any respect, he shall give intimation of such information called for or defect or incompleteness, by
e-mail on the last intimated e-mail address of the person or the company, which has filed such
application or e-form or document, directing him or it to furnish such information or to rectify such
defects or incompleteness or to re-submit such application or e-Form or document within the
prescribed time.
Rule 10(4) of the Companies (the Registration offices and Fees) Rules, 2014 provides that, in case
where such further information called for has not been provided or has been furnished partially or
defects or incompleteness has not been rectified or has been rectified partially or has not been
rectified as required within the stipulated period, the Registrar shall either reject or treat the

application or e-form or document, as the case may be, as invalid in the electronic record, and shall
inform the person or the company.
Accordingly, where any document is recorded as invalid by the Registrar, the document may be rectified
by the person or company by only fresh filing along with payment of fee and additional fee, as
applicable at the time of fresh filing, without prejudice to any other liability under the Companies
Act, 2013.
(e) 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 ?
Answer
With reference to the definition of a private company as provided under Section 2(68) of the
Companies Act, 2013, a private company is only authorised to exercise restriction by its Articles
on the transfer of shares of the company held by its members.
In other words, in public companies the shares are freely transferable and no restrictions can be
imposed on the members right regarding transfer of their shares.
In the instant case the agreement between P Realtors Ltd. and A Construction Ltd restricting their
rights to transfer their shares till completion of the project will be held subservient to the
provision contained in the Companies Act, 2013, which provide for free transferability of shares.
Therefore, A Construction Ltd. will not be able to restrain P Realtors from transferring their
shares in XYZ Builders Ltd. to PQR Builders Ltd.
OR
(i) An application has been made by a shareholder of a company to the National Company
Law Tribunal (NCLT) that the company which has been just incorporated has supplied
incorrect information in the documents filed for incorporation. Examine what action
can be taken by the NCLT if the contention of the shareholder is proved to be true?
Answer
According to Section 7(7) of the Companies Act, 2013, where a company has got incorporated
by furnishing any false or incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration filed or made for
incorporating such company or by any fraudulent action, the National Company Law Tribunal may
on an application made to it, on being satisfied that the situation so warrants:
(a) Pass such orders as it may think fit for regulation of the management of the company
including changes, if any, in its Memorandum and Articles, in public interest or in the
interest of the company and its members and creditors; or
(b) Direct that the liability of the members shall be unlimited; or
(c) Direct removal of the name of the company from the register of companies; or
(d) Pass an order for winding up of the company; or
(e) Pass any such orders as it deems fit.
(ii) DEF Traders Ltd. is incorporated as a small company. State with reference to the
relevant legal provisions whether it is required to set up a Corporate Social
Responsibility Committee ?
Answer
According to Section 135 of the Companies Act, 2013, only the following companies are required
to constitute a Corporate Social Responsibility Committee which in the immediately
preceding financial year have:
(a) Net worth of Rs. 500 crore or more; or

(b) Turnover of Rs. 1000 crore or more; or
(c) Net profit of Rs. 5 crore or more
A small company is defined in section 2(85) of the Companies Act, 2013 to mean a
company, other than a public company whose:
(a) Paid up share capital does not exceed Rs. 50 Lakh or such higher amount as may be
prescribed (two crore rupees) which shall not be more than Rs. 10 crore and
(b) Turnover of which as per profit and loss account for the immediately preceding financial
year does not exceed Rs. 2 crore or such higher amount as may be prescribed (twenty
crore rupees) which shall not be more than Rs. 100 crore
As DEF Traders Ltd. is incorporated as small company, it does not meet the criteria specified in
section 135 of the Companies Act, 2013 and would, therefore not be required to constitute a
Corporate Social Responsibility Committee.
(iii) HIJ Engineers Ltd. has a paid-up capital of ` 20 lakh, Free Reserves of ` 3 lakh and
Securities Premium of ` 2 lakh. It has granted a loan of ` 14 lakh to KLM Traders Ltd. The
Board of Directors is proposing the following transactions without securing approval of the
members :
(i) Sanctioning a loan of Rs. 2 lakh to KLM Cement Ltd. and
(ii) Sanctioning a loan of Rs. 3 lakh to an employee of the company.
Can the Board of Directors sanction the aforesaid loans ?
Answer
Section 186 (2) of the Companies Act, 2013 provides that, no company shall directly or
indirectly give any loan to any person or other body corporate exceeding 60% of its
paid-up share capital, free reserves and securities premium account or 100% of its
free reserves and securities premium account, whichever is more.
Further, Section 186(3) of the Companies Act, 2013 provides that where the aggregate of
the loans and investment so far made, along with the investment, loan, guarantee or
security proposed to be made or given by the Board, exceed the limits specified under
section 186(2), no investment or loan shall be made unless previously authorised by
a special resolutionpassed in a general meeting.
Hence, as per section 186(2) of the Companies Act, 2013, the limits for the loan and
investment will be the amount whichever is more of the following:
(a) 60% of paid up share capital, free reserves and securities premium account=
Rs. 15 lakh or
(b) 100% of free reserves and securities premium account = Rs. 5 lakh
In the instant case, since the company has already given loans of Rs. 14 lakh to KLM Traders
Ltd and further proposed to grant loan, of Rs. 2 Lakh to KLM Cement Ltd, it will exceed the
limit of Rs. 15 lakh, hence prior approval by special resolution in the general meeting will be
required to be passed by HIJ. Engineers Ltd. in terms of Section 186(3) of the Companies Act,
2013.
As per Explanation w.r.t. to Section 186(2) of the Companies Act, 2013, the word person, used
under this sub-section does not include any individual who is in the employment of the
company.
Accordingly, there are no limit imposed on the right of a company to sanction a loan to an
employee of the company under Section 186(2) of the Companies Act, 2013, the Board of
directors can grant a loan of Rs. 3 lakhs to the employee. It does not require any approval from
the members.

(iv) The following information as per latest balance sheet figures as on 31st March, 2019 is
made available to you:
Rs. Crore
Paid-up Share Capital 150
Free Reserve 50
Securities Premium Account 20
Capital Redemption Reserve 10
The company has not accepted any deposits as of now. The Board of Directors want to
know what is the maximum amount it can accept by way of deposits from (i) members
and (ii) the public. Advise them.
Answer
As per Rule 3(4) of the Companies (Acceptance of Deposits) Rules, 2014, no eligible company can
accept or renew-
(a) Any deposit from its members, if the amount of such deposit together with the amount of
deposits outstanding as on the date of acceptance or renewal of such deposits from
members exceeds 10% of the aggregate of the paid-up share capital, free reserves and
securities premium account of the company;
(b) Any other deposit, if the amount of such deposit together with the amount of such other
deposits, other than the deposit referred to in clause (a), outstanding on the date of
acceptance or renewal exceeds 25% of aggregate of the paid-up share capital, free reserves
and securities premium account of the company.
In the instant case, as the net-worth of the company is exceeding Rs. 100 crore, so the company is
assumed to be an eligible company. Further, aggregate of the paid-up share capital, free
reserves and securities premium account is Rs. 220 crores and the company has not accepted
any deposits as of now.
Accordingly, from the members, the eligible company can accept upto 10% of Rs. 220 crores i.e.
Rs.22 crores. From the public it can accept upto 25% of `220 crores i.e.Rs. 55 crores.
(v) Sunita sold her flat to NOP Televisions Ltd: on 1st April, 2016. The company appointed
Prakash (a registered valuer and also husband of Sunita) on 1st May, 2019 to determine
the value of the flat purchased from Sunita. Can Prakash validly undertake this
assignment? Would your answer differ if the appointment had been made on 1st March,
2019?
Answer
According to Section 247(2)(d) of the Companies Act, 2013, valuer shall not undertake valuation of
any assets in which he has a direct or indirect interest or becomes so interested at any time
during a period of three years prior to his appointment as a valuer or three years after the
valuation of assets was conducted by him.
In the instant case, Prakash had an indirect interest in the property because it was owned by
his wife (Sunita). However, he was appointed on May 01, 2019 as valuer of the property, since a
period of three years has already elapsed after the sale of property, Prakash can validly take
up the assignment of valuation of the property.
However, if the appointment had been made on March 01, 2019, the period of three years would
not have elapsed and he could not have taken up the assignment.

(a) In the course of business of the company, RST Logistics Ltd. received `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.
Answer
According to Rule 2(1) (xii) (e) of the Companies (Acceptance of Deposits) Rules, 2014. The term
'deposit' does not include any advance towards consideration for providing future services in the form
of a warranty or maintenance contract as per written agreement or arrangement, if the period for
providing such services does not exceed the period prevalent as per common business practice or
five years, from the date of acceptance of such service whichever is less.
In the instant case, the amount of Rs.2 lakh received on March 31, 2015 as advance
towards consideration for providing future services in the form of a warranty, is still lying
with the company until March 31, 2019 and the period prevalent as per common business
practice, for providing such service is 3 years, which has expired.
Accordingly, this amount has come within the ambit of the term 'deposit’. Hence, the
comments of the auditor are justified and the Vice-President (Finance) is advised to
immediately refund the advance amount along with the due interest thereon to Apurva.
(b) 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.
Answer
According to Section 124 of the Companies Act, 2013 dividends must be paid within 30 days from the
date of declaration and if any amount remains unpaid or unclaimed then the company is required to
transfer the unpaid dividend to a special account, known as Unpaid Dividend Account opened by
the company in any scheduled bank within seven days from the date of expiry of thirty days. If any
money transferred to this account remains unpaid or unclaimed for a period of seven years from the
date of transfer to such account it shall be transferred by the company to the Investor Education and
Protection Fund established under Section 125 (1) of the Companies Act, 2013 maintained and
administered by the Central Government.
In the present case, the amount of dividend for the first 3 years must have been transferred to the
Investor Education and Protection Fund. The amount for remaining period must be in the Unpaid
Dividend Account of the Company.
According, to Section 125 of the Companies Act, 2013 read with Rule 7 of the IEPF(Accounting,
Audit, Transfer and Refund) Rules, 2016, the person whose amounts has been transferred to
Investor Education and Protection Fund, shall be entitled to get refund out of the fund in respect of
such claims by submitting an online application in Form IEPF-5.
Manish should approach the company for amount of dividend for last 7 years.
(c) Every company is required to get pre-scrutiny and pre-certification of e-forms by a

practising professional before filing with the Registrar of Companies (ROC). Is this true?
Explain the relevant legal provisions.
Answer
Pre-Scrutiny - Pre-scrutiny is a functionality that is used checking whether certain core aspects are
properly filled in the e-form. It can be done by the company itself and no professional is required. Pre
scrutiny function is available for all forms and is to be doneby all class of companies.

Pre-Certification - Apart from authentication of e-forms by authorized signatories using digital
signatures, some e-forms are also required to be pre-certified by practicing professionals. Pre-
certification means certification of correctness of any document by a professional before the same is
filed with the Registrar of Companies. E-forms mentioned in Rule 8(12) of the Companies
(Registration Offices and Fees) Rules, 2014 such as INC-22, AOC-4, MGT- 14, DIR-12 etc., are
required to be pre-certified by Company Secretaries or Chartered Accountants or Cost Accountants
who are in whole-time practice by all class of companies except One Person Company and Small
Companies.
Thus, every company is required to do pre-scrutiny of e-forms but pre-certification of certain forms is
not mandatory for every class of company.
PART - II
(a) 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.'
Answer
According to Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015, the Board of Directors of the top 500 listed entities shall have at least one
independent woman director by April 1, 2019 and the Board of Directors of the top 1000 listed
entities shall have at least one independent woman director by April 1, 2020.
The top 500 and 1000 entities shall be determined on the basis of market capitalisation, as at the
end of the immediate previous financial year.
Thus, every listed public company is not required to appoint independent woman
director, but the listed entities falling under the above bracket must have an independent
women director.
According to Section 151 of the Companies Act, 2013 r/w Rule 7 of the Companies (Appointment
and Qualifications of Directors) Rules, 2014, a listed company may have one director elected by
small shareholders upon notice by not less than one thousand small shareholders or one-tenth of
the total number of such small shareholders, whichever is lower. However, a listed company may
opt to have a director representing smallshareholders suo-motu.
Thus, appointment of small shareholders by listed company is optional.
(b) 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.
Answer
Section 173(2) provides that the participation of directors in a meeting of the Board may be either
in person or through video conferencing or other audio visual means, as may be prescribed, which
are capable of recording and recognising the participation of the directors and of recording and
storing the proceedings of such meetings along with date and time.
In the instant case, Chairman and 4 other directors were personally present, the remaining 4
directors attending the meeting through Video Conferencing can participate in the meeting.

Accordingly, assent given by the Chairman and 4 directors participating through video-
conferencing to approve the financial statements shall be valid and the resolution shall be deemed
to be passed by requisite majority.
(c) RST Communications Ltd. has a total paid-up share capital of ` 6 crore consistingof 6 lakh shares
of ` 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
acton this notice? Explain with reference to the relevant legal provisions.
Answer
According to section 115 r/w Rule 23 of the Companies (Management and Administration) Rules,
2014 and with Section 169(2) of the Companies Act, 2013, the special notice with the intention of
removal of director of the company or to appoint somebody in place of a director so removed, is
required to be sent by the members to the company not earlier than 3 months but at least 14 days
before the date of the meeting at which the resolution is to be moved, exclusive of the day on which
the noticeis given and the day of the meeting.
A special notice required to be given to the company shall be signed, either individuallyor collectively by
such number of members holding not less than 1% of total voting power or holding shares on which
an aggregate sum of not less than `5 lakh has been paid upon the date of the notice.
In the instant case, since the two shareholders are jointly holding shares amounting to `5,50,000 and
have sent a special notice 20 days before the date of Annual General Meeting intimating their
intention to remove a director and appointing another person as director in place of director so
removed is in compliance with the provisions under Rule 23 of the Companies (Management and
Administration) Rules, 2014.
The company shall immediately after receipt of the notice, give its members notice of the resolution
at least seven days before the meeting, exclusive of the day of dispatch of notice and day of the
meeting, in the same manner as it gives notice of any general meetings. Where it is not practicable
to give the notice in the same manner as it gives notice of any general meetings, the notice shall be
published in English language in English newspaper and in vernacular language in a vernacular
newspaper, both having wide circulation in the State where the registered office of the Company is
situated and such notice shall also be posted on the website, if any, of the Company. The notice
shall be published at least seven days before the meeting, exclusive of the day of publication
of the notice and day of the meeting.
Hence, the company is required to act on such notice and follow the other procedures w.r.t. removal of
Director as prescribed under Section 169 of the Companies Act, 2013.
(d) The Annual General Meeting (AGM) of a company is scheduled to be held on 22nd August,
2019 at 2 p.m. Taking into account the relevant legal provisions contained in the Companies
Act, 2013 indicate the latest time for posting notices of the meeting to the members to ensure
legal compliance.
Answer
According to Section 101(1) of the Companies Act, 2013, a general meeting of a company may be
called by giving not less than clear twenty-one days' notice either in writing or through electronic
mode. For the purpose of reckoning twenty-one days clear Notice, the day of sending the Notice
and the day of Meeting shall not be counted.
Further in case the company sends the Notice by post or courier, an additional two days shall be
provided for the service of Notice in line with Rule 35(6) of the Companies (Incorporation) Rules,
2014 which provides that in case of delivery by post, such service shall be deemed to have been
effected, at the expiration of forty eight hours after the letter containing the same is posted.

In the instant case, the Annual General Meeting is called on August 22, 2019 at 2:00 P.M. Therefore,
the notice must be sent latest by July 31,2019. Further, if notice is sent by post or courier it must be
posted latest by July 29, 2019.
(a) Rajeev and his wife Surekha are the only two directors of Rajsur Pvt. Ltd. Rajeev went abroad
for two months. Before going abroad, he registered a general power of attorney in favour of his
son Ranbeer, aged 21 years, to execute all documents on his behalf as an individual as well as
director of Rajsur Pvt. Ltd. Ranbeer signed a contract on behalf of Rajsur Pvt. Ltd. by
exercising his power of attorney.Is this contract binding upon the company?
Answer
Section 166 (6) of the Companies Act 2013 prohibits assignment of office of director to any other
person. Any assignment of office made by a director shall be void. Authorizing any person to sign a
document as a director amounts to assignment of office of director.
Hence, in the instant case Rajeev cannot assign his office of directorship in Rajsur Pvt. Ltd. to his
son Ranbeer by a general power of attorney to sign documents on his behalf as director of the
company. Contracts signed by Ranbeer on behalf of the company are void and not binding upon the
company.
(b) Ratan is a member of Adarsh Club Ltd., a company formed for promoting sports and not for
profit. For the ensuing extraordinary general meeting to be held on 5th November, 2019, he
appointed his daughter Prema (not a member of the company) as proxy to attend the
meeting as he would be out of station on that date. Accordingly, Prema deposited the proxy
with the club on 2nd November, 2019. The club rejected the proxy instrument. Is the action
of the club valid ?
Answer
According to Section 105(1) of the Companies Act, 2013, any member a company who is entitled to
attend and vote at the meeting of the company is entitled to appoint another person as a proxy
(who may not be a member) to attend and vote at the meeting, though a proxy does not have the right
to speak at such meeting and shall not be entitled to vote except on a poll in the meeting.
However, according to the third proviso to Section 105(1) of the Companies Act, 2013, members
of certain class or classes of companies as may be specified by the Central Government shall not be
entitled to appoint any other person as a proxy. Accordingly, in case of companies incorporated under
Section 8 of the Companies Act, 2013 a member of a company is not entitled to appoint any other
person as a proxy unless such other person is also a member of such company as prescribed under
Rule 19 of the Companies(Management and Administration) Rules, 2014.
In the instant case, though the proxy has been deposited before the specified time period (i.e., at
least 48 hours before the meeting) Prema cannot act as a proxy as she herself is not a member of
the company. Therefore, Adarsh Club Ltd. is right in rejectingher proxy instrument.
(c) In a Board of Directors meeting of a private company held on 15th November, 2019 all the
directors present, unanimously decided that the next meeting of the Board of Directors
would be held on 29th November, 2019 at the registered office of the company. As a
Company Secretary do you think a notice of the meeting of the Board of Directors need be
sent to ensure legal compliance?
Answer
According to Section 173(3) of the Companies Act, 2013, a meeting of the Board shall be called by
giving not less than seven days’ notice in writing to every director at his address registered with the
company and such notice shall be sent by hand delivery orby post or by electronic means.
As per Secretarial Standard-1, the Notice of the meeting of the Board shall be given even if meetings
are held on pre-determined dates or at pre-determined intervals. Therefore, in the instant case even if
the directors have agreed unanimously to hold the meeting on November 29, 2019, then also the

Company Secretary need to send the Notice, Agenda and the Notes thereon separately for each
Meeting in the aforesaid manner to ensurelegal compliance.
(d) Owing to the resignation of Prashant, Managing Director of Beauty Herbals Ltd. on 15th
October, 2019, the company appointed one of its Senior Deputy General Manager Kristina
Kelly, aged 26 years and a Canadian citizen as its Managing Director with effect from 1st
November, 2019 at a meeting of the Board of Directors held on 31st October, 2019.
Kristina Kelly came to India for the first time for the purpose of taking up employment in
India on 1st January, 2018. She got appointed in the Company on 1st April, 2018. From 1st
December, 2018 she was sent for a training program for 6 months and she returned to India
on 1st June, 2019. Advise the management of the company whether her appointment by
the Board of Directors is valid and if any further compliances are required to validate her
appointment.
Answer
The Foreign national can also be appointed as a Managing Director of a company subject to the
compliance of conditions prescribed under Section 196 along with Part I of Schedule V of the
As per Part I (e) of Schedule V of the Companies Act, 2013, the person is required to be a resident of
India to be appointed as a Managing Director of the company.
As per Explanation I to the above schedule, resident in India includes a person who has been staying
in India for a continuous period of not less than 12 months immediately preceding the date of his
appointment as a managerial person and who has come to stayin India, —
(i) For taking up employment in India.
(ii) For carrying on a business or vacation in India.
In the instant case, Kristina Kelly who is a Canadian citizen, appointed as Managing Director of the
company w.e.f. November 01, 2019 has not stayed in India for a continuous period of 12 months
immediately preceding the date of her appointment. Thus, her appointment as Managing Director
by the Board of Directors of the Company is not valid as it is not in compliance with Part I of
Schedule V of the Companies Act, 2013.
Hence, to validate her appointment, the company is required to file an application in e-Form MR-2
within a period of 90 days from the date of such appointment to the Central Government seeking the
approval for such appointment as provided in Section 196 read with Rule 7 of the Companies
(Appointment and Remuneration of Managerial Personnel)Rules, 2014.
(e) What do you understand by the term “secured computer system' in the context of virtual
board meetings?
Can all matters required to be approved by meeting of Board of Directors be approved by
video conferencing?
Answer
According to Secretarial Standard-1, Secured Computer system in the context of virtual Board
Meetings means computer hardware, software and procedure that:
(i) are reasonably secure from unauthorised access and misuse;
(ii) provide a reasonable level of reliability and correct operation;
(iii) are reasonably suited to perform the intended functions; and
(iv) adhere to generally accepted security procedures
Section 173(2) of the Companies Act, 2013, prescribes that ehe participation of directors in a
meeting of the Board may be either in person or through video conferencing or other audio visual
means, as may be prescribed, which are capable of recording and recognising the participation
of the directors and of recording and storing the proceedings of such meetings along with date
and time.
Thus, all the matters as are required to be approved by meeting of Board of Directors can be
approved through video conferencing as well.

OR
(i) Dhanvantri is the Chairman of the Risk Management Committee of Advanced Solutions
Ltd. A meeting of this Committee of Directors has been scheduled to be held on 5th
December, 2019 at 3.00 p.m. At 3.10 p.m. though the requisite quorum is present,
Dhanvantri is not present. Can the meeting be still held or requires to be adjourned?
Answer with reference to the relevant provisions.
Answer
Regulation 72 of Table F of Schedule I to the Companies Act, 2013 provides that if at the meeting
of Committee, the Chairman is not present within five minutes after the time appointed for
holding the meeting, the members present may choose one of their members to be Chairman of the
Meeting.
In the instant case, the Chairman of the Risk Management Committee is not present within the 5
minutes of the scheduled time of the meeting and the requisite quorum is present. Hence, the
members present may elect any one among them to act as the Chairman of the meeting and
hold the meeting.
(ii) The Chairman of the Board of Directors of Jagruti Printers Ltd. has sent a draft of
Resolution along with necessary papers to all the ten directors of the company to get it
passed through a resolution by circulation. The last date for signifying the assent or
dissent is 20th November, 2019. On 15th November, 2019, six directors communicated
their assent while on 17th November, 2019 the remaining 4 directors requested that the
resolution must be decided at a meeting. Referring to the relevant provisions of the
Companies Act, 2013, decide whether the resolution can be deemed to have been
passed or requires to be decided at a Board of Directors meeting?
Answer
Section 175 of the Companies Act 2013 provides that, no resolution shall be deemed to have been
duly passed by the Board of Directors by circulation, unless the resolution has been circulated in
draft, together with the necessary papers, if any, to all the directors at their addresses registered
with the company in India, by hand delivery or by post or by courier, or through electronic
means which may include e-mail or fax and has been approved by a majority of the directors,
who are entitled to vote on the resolution.
However, where not less than one-third of the total number of directors of the company for the
time being require that any resolution under circulation must be decided at a meeting, the
Chairman shall put the resolution to be decided at a meeting of the Board.
In the given case, majority directors had communicated their assent but subsequently
before the due date more than one-third directors have requested that the resolution must
be decided at a board meeting. Hence, the resolution sought to be passed by circulation
will be required to be passed only at a Board meeting.
(iii) 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?
Answer
According to Section 168(2) of the Companies Act, 2013, the resignation of a director shall take
effect from the date on which the notice is received by the company or the date, if any,
specified by the director in the notice, whichever is later. Thus, in the given case, the
resignation of Kailash shall take effect from December 15, 2019.

Section 168(1) read with Rule 15 of the Companies (Appointment and Qualifications of
Directors) Rules, 2014 stipulates that the company shall within thirty days from the date of
receipt of notice of resignation from a director, intimate to the Registrar of Companies in Form DIR-
12 along with specified fees and post the information on its website, if any. Thus, in this case the
company will have to file form DIR-12 by January 14, 2020.
According to Rule 16 of the Companies (Appointment and Qualifications of Directors) Rules, 2014
the resigning director may also forward to the Registrar of Companies, a copy of his
resignation along with reasons for the resignation in form DIR-11 along with specified fees
within a period of thirty days from the date of resignation.
(iv) 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 ?
Answer
Section 100(2)(a) of the Companies Act, 2013 provide that the Board shall, at the requisition
made in the case of a company having a share capital, by such number of members holding,
on the date of the receipt of the requisition, not less than one-tenth of the paid-up share capital
of the company carrying right to vote, call an Extra-ordinary General Meeting of the company
within twenty-one days from the date of receipt of a valid requisition. Such meeting shall be
held on a day not later than forty-five days fromthe date of receipt of such requisition.
Accordingly, in the given case, the requisition has been made by 25 members of a company,
holding 11% of total paid-up equity share capital on December 05, 2019 to the Board of
Directors, thus, it is a valid request. Thus, the Board of directors are required to call the Extra-
ordinary General Meeting (EGM) within 21 days from the date of receipt of such valid requisition
i.e., by December 26, 2019 and the EGM shall be held on a day not later than 45 days from the
date of receipt of such requisition i.e., by January 19, 2020.
In case the Board fails to call and convene the Extra-ordinary General Meeting requisitioned
by the Members within the specified time period, it may be called and held by the
requisitionists themselves within a period of three months from the date of the requisition.
Therefore, in the present case, if the Board of Directors does not act upon the request, the
requisitionists may call and convene an Extra-ordinary General Meeting on their own within 3
months from the date of the requisition i.e. by March 04, 2020.
(v) Amit is having directorship of the following companies:
Nature of Companies Number of Companies

Public companies (including 2 dormant companies) 8
Private companies (including 2 subsidiaries of public 10
companies)
Alternate director (in a private company) 1
Section 8 company 1
Indicate how many more directorships Amit can undertake in public or private
companies.
Answer
According to Section 165(1) of the Companies Act, 2013, no person, can hold office as a director,
including any alternate directorship, in more than twenty companies at the same time. For
reckoning the limit of directorships in twenty companies, the directorship in a dormant
company is excluded.

Further, out of the above twenty companies, the maximum number of Public Companies in
which a person can be appointed as a director cannot be more than ten. For reckoning the limit
of ten Public Companies, directorship in Private Companies that are either holding or
subsidiary company of a Public Company shall also need to be included.
In the given case, Amit is holding a directorship in:

 8 Public Companies (including 2 Dormant Companies);
 10 Private Companies (including 2 subsidiaries of Public Companies);
 Alternate Director (in a Private Company);
 Section 8 Company
Accordingly, in Public Company presently he is holding 8 directorship and in Private Company 9

directorship. Hence, total number of directorships he is already holding is 17 (since,
directorship in Section 8 Company is excluded, from reckoning the limit of directorship of 20
companies).
Thus, Amit can take up directorship in 2 more Public Companies and 1 more Private
Company.
PART - III
(a) Kavita, a practicing company secretary, posted a request on whatsapp group of practicing
company secretaries for providing secretarial audit in any company. She also made a
similar request on whatsapp to her college friends. Has she committed professional
misconduct?
Answer
According to Clause 6 of Part I of the first Schedule to the Company Secretaries Act, 1980, a Company
Secretary in Practice shall be deemed to be guilty of professional misconduct, if he/she 'solicits
clients or professional work, either directly or indirectly, by circular, advertisement, personal
communication, interview or by any other means'. However, there are two exceptions. According
to the said clause, nothing contained inthis clause shall be construed as preventing or prohibiting
(i) Any Company Secretary from applying or requesting for or inviting or securing
professional work from another Company Secretary in practice.
(ii) A member from responding to tenders or enquiries issued by various users of
professional services or organizations from time to time and securing professional work as a
consequence.
Accordingly, when Kavita posted a request on WhatsApp group of Company Secretaries in

Practice, it would not amount to professional misconduct. However, when she sends
messages to her college friends seeking professional work it would amount to professional
misconduct.

(b) Piyush a practicing company secretary is planning to establish a multi-disciplinaryProfessional
firm to provide secretarial, financial and medico-legal services. For this purpose, he has
invited the following persons for forming the multidisciplinaryfirm:
(i) Atul, a practicing Chartered Accountant
(ii) Dr. Mukesh, a practicing physician
(iii) Pramod, an advocate enrolled on Bar Council of Kerala
(iv) Pratap, a medical insurance agent
(v) Shyam a member of the Institute of Actuaries of India
Can Piyush constitute a multi-disciplinary firm with these persons? Is there any upper limit
as to the number of partners who can constitute such a firm ?
Answer
Regulation 165A of The Company Secretaries Regulations, 1982 as inserted by the Company
Secretaries (Amendment) Regulations, 2020, provides that a Company Secretary in practice may
form multi- disciplinary firm with the member of other professional bodies as prescribed under
regulations 168A and 168B of The Company Secretaries Regulations, 1982, in accordance with
the regulating guidelines of the Council for functioning and regulation of such multidisciplinary
firm.
Regulation 168B of Company Secretaries Regulations, 1982, determines the membership of

professional body for partnership, accordingly for the purposes of entering into partnership under
clauses (4) and (5) of Part I of the First Schedule to the Company Secretaries Act, 1980, a person
shall be a member of any of the following professionalbodies, namely: -
 The Institute of Chartered Accountants of India established under the Chartered Accountants
Act, 1949;
 The Institute of Cost Accountants of India established under the Cost and Works Accountants Act,
1959;
 Bar Council of India established under the Advocates Act, 1961;
 The Institute of Engineers or Engineering from a University established by law or an institution
recognised by law;
 The Indian Institute of Architects established under the Architects Act, 1972;
 The Institute of Actuaries of India established under the Actuaries Act, 2006;
 Professional bodies or institutions outside India whose qualifications relating to Company
Secretary is recognised by the Council under Section 38(2) of the Company Secretaries Act,
1980.
Accordingly, in the present case Piyush can form a partnership only with Atul, a practicing
Chartered Accountant, Pramod, an Advocate enrolled under Bar Council of Kerala and Shyam, a
member of the Institute of Actuaries of India.
According to Section 464(1) of the Companies Act, 2013 read with Rule 10 of the Companies
(Miscellaneous) Rules 2014, no association or partnership can be formed, consisting of more than
50 persons for the purpose of carrying on any business that has for its objects the acquisition of
gain by the association or partnership or by individual members thereof, unless it is registered as
a company under the Companies Act, 2013 or is formed under any other law for the time being in
force. Provided that the number of persons which may be prescribed under this sub-section shall
not exceed 100.
However, the same shall not be applicable to an association or partnership, if it is formed by

professionals who are governed by Special Acts.
Accordingly, such a multi-disciplinary Professional firm formed by Piyush, Practicing

Company Secretary can have more than 50 partners, as it is formed by professionals who are
governed by their respective Special Acts. There is no upper limit on the number of partners in
such professional firm.

Company Law
June – 2021
Exam Paper
Time:- 3 Hrs. [100 Marks]
PART - I
(a) Amount lying in the securities premium account belongs to the shareholders and can be
used freely for their benefit.
Answer
In accordance with the provisions of Section 52(2) of the Companies Act, 2013, the securities
premium can be utilised only:
(a) Towards the issue of unissued shares of the company to the members of the company as
fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference
shares or of any debentures of the company; or
(e) For the purchase of its own shares or other securities under Section 68 of the Companies
Act, 2013.
Accordingly, the amount available in the securities premium is restrictive in nature and can only
be used for specified purposes.
(b) 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 `25 lakh for
violation of certain provisions of GST law. Due to cash crunch the CEO approached
Debapriya for a help of `12 lakh. Debapriya borrowed `7.50 lakh from his sister’s husband
and gave to the company. Thecompany recorded the same in its books of account.
Answer
Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules 2014, provides that any amount
received from a person who, at the time of receipt of the amount, was a director of the company
shall not be regarded as deposit, if the director from whom money is received, furnishes to the
company at the time of giving the money, a declaration in writing that the amount is not being given
out of funds acquired by him by borrowing oraccepting loans or deposits from others.
However, proviso to Section 73(1) read with Rule 1(3)(iii) of the Companies (Acceptance of Deposits)
Rules 2014 excludes a housing finance company registered with National Housing Bank established
under the National Housing Bank Act, 1987 from the provisions of Section 73 to 76A of the
Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.
So, the transaction of accepting money from the director recorded by Amal Housing Finance Ltd. in
its book of account is not regarded as non-compliance of the provisions of the Companies Act 2013.
(c) Dealing with dividend is the prerogative of Board of directors. However there are certain
parameters included in dividend distribution policy of a company.
Answer
Regulation 43A of the SEBI (LODR) Regulations, 2015 provides for formulation of policy for
dividend distribution 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.

The dividend distribution policy shall include the following parameters:
(a) The circumstances under which the shareholders of the listed entities may or may not
expect dividend;
(b) The financial parameters that shall be considered while declaring dividend;
(c) Internal and external factors that shall be considered for declaration of dividend;
(d) Policy as to how the retained earnings shall be utilized; and
(e) Parameters that shall be adopted with regard to various classes of shares.
Therefore, the top 1000 listed entities based on market capitalization (calculated as on March 31
of every financial year) is required to formulate a dividend distribution policy which shall be
disclosed on the website of the listed entity and a web link shall also be provided in their
annual reports.
The listed entities other than top 1000 listed entities based on market capitalisation may also
disclose their dividend distribution policies on a voluntary basis in their annual reports and on their
website.
(d) 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.
Answer
As per Section 134 read with Rule 8(5) (x) of the Companies (Accounts) Rules, 2014, every
company except (Small Companies and One Person Companies) is required to include the following in
its Director’s Report:
 Statement that the company has complied with provisions relating to the constitution of
Internal Complaints Committee under the Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013
Disclosure Requirements under the Sexual Harassment of Women at Workplace (Prevention,

Prohibition & Redressal) Act, 2013
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. The said Act provides for
constitution of a Committee to be known as the "Internal Complaints Committee”.
Section 21 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal)
Act, 2013 mandates that Internal Committee shall prepare an Annual Report and Section 22 of
the said Act provides that the employer shall include in its report the number of cases filed, if any,
and their disposal under this Act in the AnnualReport.
Rule 14 of Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal)

Rules,2013 provides that the annual report which the Complaints Committee is required to prepare
under Section 21 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition &
Redressal) Act, 2013 shall contain the following details:
(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 90 days;
(d) Number of workshops or awareness programme against sexual harassment carried out;
(e) Nature of action taken by the employer or District Officer.

(a) As a Company Secretary, explain the procedure of satisfaction of charge.

Answer
According to Section 82 of the Companies Act, 2013 read with Rule 8 of the Companies
(Registration of Charges) Rules, 2014, the company shall give intimation to the Registrar of
Companies of the payment or satisfaction in full of any charge within a period of 30 days from the
date of such payment or satisfaction in Form No.CHG-4 along with the specified fees.
The Registrar may, on an application by the company or the charge holder, allow such intimation
of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction
on payment of such additional fees as prescribed.
On receipt of intimation of satisfaction of charge, the Registrar of Companies shall issue a notice to
the holder of the charge calling upon him to show cause within such time not exceeding 14 days,
as may be specified in such notice, as to why payment or satisfaction in full should not be recorded
as intimated to the Registrar of Companies.
If no cause is shown, by such holder of the charge, the Registrar of Companies shall order that a
memorandum of satisfaction shall be entered in the register of charges maintained by the
Registrar of Companies under Section 81 of the Companies Act, 2013 and shall inform the company.
However, if the cause is shown to the Registrar, he shall record a note to that effect in the register
of charges and shall inform the company accordingly.
Further, Proviso to Section 82(2) of the Companies Act, 2013 provides that the aforesaid notice
shall not be required to be sent, in case intimation to the Registrar of Companies in this regard is
in the specified form along with the Letter of the charge holder stating that the amount has been
satisfied, which is a mandatory attachment in all cases of CHG-4 and is signed by the holder of
charge.
Where the Registrar of Companies enters a memorandum of satisfaction of charge in full, he shall
issue a certificate of registration of satisfaction of charge in Form No. CHG-5.
(b) Books of account have to be kept only at the registered office of the company. As a corporate
consultant give your comments in this regard.
Answer
Section 128(1) of the Companies Act, 2013 requires every company to prepare and keep the books of
accounts and other relevant books and papers and financial statements for every financial year at its
registered office.
However, all or any of the books of accounts and other relevant papers may be kept at such other
place in India as the Board of Directors may decide. When the Board so decides, the company
shall, within 7 days of such decision, file with the Registrar of Companies, a notice in writing
giving full address of that other place. Such intimation is to be made in e-form AOC 5 to the
Registrar of Companies.
Therefore, Board of Directors of the company may decide any place, other than the Registered
office of the company for keeping the books of accounts.

(c) 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 (` crore)

Paid-up Share Capital 1,000
Free Reserves – 340
Investment in another company 780
Examine.
Answer
As per section 186(2) of the Companies Act, 2013, no company shall, directly or indirectly:
(a) Give any loan to any person or other body corporate;
(b) Give any guarantee or provide security in connection with a loan to any other body
corporate or person; and
(c) Acquire by way of subscription, purchase or otherwise, the securities of any other body
corporate, exceeding 60% of its paid-up share capital, free reserves and securities premium
account or 100% of its free reserves and securities premium account, whichever is more.
Further, where the aggregate of the loans and investment so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate along with the investment,
loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified
under Section 186(2) of the Companies Act, 2013, no investment or loan shall be made or guarantee
shall be given or security shall be provided unless previously authorised by a special resolution
passed in a general meeting.
Particulars Amount in Rs. (Crore)
Paid-up share capital ........ A 1000

Free Reserves. ............. B -340
Securities Premium Account......... C 780
60% of paid-up capital, free reserves and securities premium
account (A+B+C) x 60%= D i.e.,1440 * 60% 864
100% of free reserves and securities premium account

(B+C) x 100% = E (780 - 340) i.e., 440 *100% 440
Higher of the two is D i.e., Rs.864 crore

Investment in another company 780
Therefore, further investment that can be made by Jupiter Ltd. without passing special
resolution will be higher of D or E reduced by investment already made i.e. (Rs.864-
Rs.780= Rs.84 Crore)
(d) 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.
Answer
As per Explanation appended to Section 32 of the Companies Act, 2013, Red herring Prospectus
means “a prospectus which does not include complete particulars of the quantum or price of the

securities included therein.” In simple terms, a Red herring Prospectus is a prospectus, which
does not include details of either price or number of securities being offered, or the amount of
issue.
According to section 32(1) of the Companies Act, 2013, a company proposing to make an offer of
securities may issue a Red herring Prospectus prior to the issue of a prospectus. Such company
proposing to issue a Red herring Prospectus shall file it with the Registrar of Companies at least 3
days prior to the opening of the subscription list and the offer.
Therefore, the advice given by CEO Santosh is correct.
(e) What are the requirements to form a proprietary company under the Australian
Corporations Act, 2001 ?
Answer
A proprietary company is a company that is registered as, or converts to, a proprietary company under
the Australian Corporations Act, 2001.
A proprietary company limited by shares must have at least one shareholder and must have at
least one director. That director must ordinarily reside in Australia.
A proprietary company must:
 Be limited by shares or be an unlimited company with a share capital;
 Have no more than 50 non-employee shareholders; and
Not do anything that would require disclosure to investors under the Chapter 6D of the Act (except
in limited circumstances).
OR
(i) Every company is required to have active website. Comment.

Answer
The Companies Act, 2013 does not mandate companies to have an active website, but the SEBI
(LODR) Regulations, 2015 requires that all listed entities shall maintain a functional website
containing the basic information about the listed entity:
As per the provisions of the SEBI (LODR) Regulation, 2015, the listed entity shall disseminate the
prescribed informations under a separate section on its website, including:
(a) Details of its business;
(b) Terms and conditions of appointment of independent directors;
(c) Composition of various committees of board of directors;
(d) Code of conduct of board of directors and senior management personnel;
(e) Details of establishment of vigil mechanism/ Whistle Blower policy;
(f) 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;
(h) Policy for determining ‘material’ subsidiaries;
(i) Details of familiarization programmes imparted to independent directors includingthe following
details:-
(i) Number of programmes attended by independent directors (during the year and on a
cumulative basis till date),
(ii) Number of hours spent by independent directors in such programmes (during the year and
on cumulative basis till date), and
(iii) Other relevant details.
(j) The email address for grievance redressal and other relevant details;

(k) Contact information of the designated officials of the listed entity who are responsible
for assisting and handling investor grievances;
(l) Financial information including:
(i) Notice of meeting of the board of directors where financial results shall be
discussed;
(ii) Financial results, on conclusion of the meeting of the board of directors
where the financial results were approved;
(iii) Complete copy of the annual report including balance sheet, profit and loss
account, directors report, corporate governance report etc.
(m) Shareholding pattern;
(n) Details of agreements entered into with the media companies and/or their associates,
etc.;
(o) The information, report, notices, call letters, circulars, proceedings, etc. concerning non-
convertible redeemable preference shares or non-convertible debt securities;
(p) All information and reports including compliance reports filed by the listed entity;
(q) Information with respect to the following:
(i) Default by issuer to pay interest or redemption amount;
(ii) Failure to create a charge on the assets;
It is important that the listed entity ensures the contents of the website are correct and updated
at any given point of time. The listed entity shall update any change in the content of its
website within two working days from the date of such change in content.
(ii) Appointed date and Effective date are very important in any merger or amalgamation
through a scheme of arrangement. Do you agree ?
Answer
Appointed date and Effective date are two significant dates in any scheme of Merger and
Amalgamation.
Mention of an appointed date is mandatory for the schemes falling under Section 232 of the
Companies Act, 2013. Schemes involving Merger or Amalgamation or division of undertaking are
required to fix an appointed date.
In Marshall Sons & Co. India Ltd. vs. ITO, it was held by the Hon'ble Supreme Court that every scheme
of amalgamation has to necessarily provide a date with effect from which the
amalgamation/transfer shall take place, and that such date may precede the date of sanctioning of
the scheme by the Court, the date of filing of certified copies of the orders of the Court before the
Registrar of Companies, and the date of allotment of shares, etc. It was observed therein that, the
scheme, however, would be given effectfrom the transfer date (appointed date) itself.
Section 232(6) of the Companies Act, 2013 states that the scheme shall be deemed to be effective
from the 'appointed date' and not a date subsequent to the 'appointed date'. This is an enabling
provision to allow the companies to decide and agree upon an 'appointed date' from which the
scheme shall come into force.
The “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 is dissolved by the
Registrar of Companies and certified copy of the order for the scheme of compromise and
arrangement is filed with ROC and all other required statutory authorities, if any.

(iii) Assistant Company Secretary of JKL Ltd. has made excess payment of `1 lakh to MCA for filing
of E-forms. What is the procedure of refund of MCA-21 fees ?
Answer
In order to claim refund of multiple payments or incorrect payment or excess payment of MCA-21 fees,
while using MCA services, following procedure is required to be followed:
 The Person is required to file the 'Refund Form' available on MCA21 portal for claiming
refund.
 The refund of MCA21 fees is available in the following cases:
(a) Multiple Payments -This includes cases where service seeker does multiple filings such as in e-
Form No. SH-7 and makes payments more than once (multiple times) for the same service.
However, refund shall not be allowedin respect of approved e-Forms.
(b) 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.
(c) 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.
 The refund form is to be filed within the stipulated time period. Also, there shallbe deduction
in the amount to be refunded based on time period within whichrefund e-form is filed.
(iv) ABC Products Ltd. has taken term loan of `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.
Answer
The Companies Act, 2013 does not limit a company to give any property situated in India or outside
India. An inference can be drawn from Section 77(1) of the Companies Act, 2013, which permit
registration of charges created on a property situated in or outside India.
Section 77(1) of the Companies Act, 2013, provides that it shall be the duty of every company
creating a charge within or outside India, on its property or assets or any of its undertakings,
whether tangible or otherwise, and situated in or outside India, to register the particulars of the
charge signed by the company and the charge-holder together with the instruments, if any,
creating/modifying such charge in Form CHG-1/CHG-9 , as the case may be, and is required to be
filed with the Registrar of Companies within a period of 30 days of the date of creation or
modification of charge along with the specified fees.
Therefore, ABC Products Ltd. can give the properties situated at Maldives for security of term
loan.
(v) Monika Ltd. wants to purchase its own 5,00,000 equity shares @ `10/- each out of the
following :
`lakh
Unsecured Loans 25
Balance of Free Reserves 15
Examine the legality of the above transactions for the buy-back of securities of the company
under the provisions of the Companies Act, 2013.
Answer
According to Section 68(1) of the Companies Act, 2013 a company may purchase its own shares or
other specified securities (known as "buy-back") out of:
1. Its free reserves; or
2. The securities premium account; or
3. The proceeds of the issue of any shares or other specified securities.
However, no buy-back of any kind of shares or other specified securities shall be made out of the
proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

Thus, in given case Monika Ltd. can purchase its own 5,00,000 equity shares @10 each out of free
reserves and from the securities premium account in accordance with the provisions of the
But it cannot do buy-back from the amount of Unsecured Loan as it will be contravention
of the provisions of Section 68 of the Companies Act, 2013.
(a) 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.
Answer
The Board Resolution for preparation of Annual Report in abridged form
“RESOLVED THAT pursuant to the provisions of second proviso of Section 136(1) of the
Companies Act, 2013 and Rule 10 of the Companies (Accounts) Rules 2014, the Annual Report
comprising of the Balance Sheet, Profit and Loss Account and other relevant documents to be
attached to the financial statements in abridged form for the financial year ended 31st March also,
to be prepared, finalised and audited in the prescribed Form No. AOC – 3 for sending to the
members of the company."
“RESOLVED FURTHER THAT the draft audited financial statement containing salient features of
financial statements for the year ended 31st March, , prepared in the prescribed Form No. AOC-3 as
submitted to the meeting, be and are hereby approved and the same be authenticated by the
directors of the company as required under Section 136 of the Companies Act, 2013 and be sent to the
statutory auditors of the company for their report thereon and thereafter be sent to the members of
the company for adoptionat the ensuing annual general meeting of the company."
(b) Advise whether the internal auditor is required to be appointed in the following scenarios :
Amount (` crore)
Name of the Status of Paid-upCapital Turnover Outstanding

Company the Company loans and
borrowings
Lala Ltd. Listed 49 195 99
Dilo Ltd. Unlisted public 23 200 56
Craft Ltd. Unlisted public 50 123 65
Wood Pvt. Ltd. Private 55 186 89
Can the following persons be appointed as internal auditor ?

(i) President (HR)
(ii) DGM (Finance).
Answer
Section 138 of the Companies Act, 2013 read with Rule 13 of the Companies(Accounts) Rules, 2014,
prescribes the following class of companies which is required to appoint an internal auditor
namely:-:
(a) Every listed company;
(b) Every unlisted public company having:
(i) paid up share capital of Rs.50 crore or more during the preceding financialyear; or
(ii) turnover of Rs.200 crore or more during the preceding financial year; or
(iii) Outstanding loans or borrowings from banks or public financial institutions exceeding
Rs. 100 crore or more at any point of time during the preceding financial year; or
(iv) Outstanding deposits of Rs. 25 crore or more at any point of time during the preceding
financial year; and
(c) Every private company having –
(i) Turnover of Rs.200 crore or more during the preceding financial year; or

(ii) Outstanding loans or borrowings from banks or public financial institutions exceeding
Rs.100 crore or more at any point of time during the precedingfinancial year.
Accordingly, in the given case, answer is as under:
Name of the company Requirement to appoint internal auditor

Lala Ltd. Yes, since it is a listed company
Dilo Ltd. Yes, since the turnover is Rs. 200 crore
Craft Ltd. Yes, since the paid-up capital is Rs. 50 crore
Wood Pvt. Ltd. No, since the turnover or loans / borrowings does not exceed the
threshold limits
An internal auditor, shall either be a chartered accountant or a cost accountant, or such other
professional as may be decided by the Board to conduct internal audit of the functions and activities
of the company. The internal auditor may or may not be an employee of the company.
So, if President (HR) and DGM (Finance) satisfying the above criteria, can be appointed as internal
Auditor.
(c) 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 (` crore)
Name of the Status of theCompany Paid-up Share- Turnover
Company Capital
Helo Ltd. Listed 49 120
Jam Ltd. Unlisted 38 500
Butter Pvt. Ltd. Subsidiary of Jam Ltd. 7 26
Advise the CFO.

Answer
Considering the increasing importance of Corporate Governance, Section 204 of the Companies Act,
2013 mandates every listed company and such other class of prescribed companies to annex a
Secretarial Audit Report, given by a Company Secretary in practice in Form MR-3 with its Board's
report.
As per rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014, the prescribed class of companies is as under:
(a) Every public company having a paid-up share capital of Rs.50 Crore or more; or
(b) Every public company having a turnover of Rs.250 crore or more; or
(c) Every company having outstanding loans or borrowings from banks or public financial
institutions of Rs.100 crore or more.
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 indicatedabove.
In light of the above provisions, applicability is given in the table below:
Name of Applicability of Reason

the Secretarial Audit
Company
Helo Ltd. Yes Secretarial audit is applicable to every listedcompany.
Jam Ltd. Yes Turnover exceeds the prescribed limit.

Butter Pvt. No Though it is a subsidiary of a public company, yet it does
Ltd. not fall under the prescribed threshold limit.
PART - II
(a) 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 arevalid ?
(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 CompaniesAct, 2013 ?
Answer
According to Section 165 of the Companies Act, 2013, no person shall hold office as a director,
including any alternate directorship, in more than 20 companies at the same time. Whereas the
maximum number of public companies in which a person can be appointed as a director shall not
exceed 10.
For reckoning the limit of public companies in which a person can be appointed as director,
directorship in private companies that are either holding or subsidiary company of a public
company shall be included.
Further, for reckoning the limit of directorships of 20 companies, the directorship in a dormant
company and section 8 companies shall not be included.
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) In the present case, holding of directorship of Rohan as on 30th September, 2020 is 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. shall also be included within the limit of 10 publiccompanies.
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) According to section 165(2) of the Companies Act, 2013 subject to the provisions of Section 165
(1), 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. So, the proposal of
Company Secretary is tenable.
(b) 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 ?
Answer
According to section 185(1) of the Companies Act, 2013, no company shall, 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.
(i) Accordingly, based on the above provisions of Section 185(1) of the Companies Act,
2013, Megha Ltd. cannot grant loan to M/s. Total, since it is a partnership firm in which
wife of Raman (Director of the lending company) is a partner.
Section 185(2) of the Companies Act, 2013 prescribes 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 thecondition that-
(c) 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 guaranteeor security and any other relevant fact; and
(d) The loans are utilised by the borrowing company for its principal business activities.
The expression “any person in whom any of the director of the company is interested”
includes any private company of which any such director is a director or member.
(ii) Accordingly, by complying with the conditions as prescribed above under Section 185(2) of
the Companies Act, 2013, Megha Ltd. can grant loan to Zimba Pvt. Ltd. in which Raman is
a member holding 100 shares.
(c) 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.
Answer
Section 135 of the Companies Act, 2013 pertaining to Corporate Social Responsibilitystipulates that:
(i) Every company having net worth of Rs.500 crore or more; or
(ii) Every company having turnover of Rs.1000 crore or more; or
(iii) Every company having net profit of Rs.5 crore or more.
During the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of 3 or more directors, out of which at least 1
director shall be an independent director.
However, where a company is not required to appoint an independent director under Section 149(4)
of the Companies Act, 2013, it shall have in its Corporate Social Responsibility Committee 2 or
more directors.
Further, as per Rule 5 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, a
private company having only 2 directors on its Board shall constitute its CSR Committee with 2
such directors.
With respect to a foreign company covered under these rules, the CSR Committee shall comprise of
at least 2 persons of which 1 person shall be as specified under clause (d) of section 380(1) of the
Companies Act, 2013 and another person shall be nominatedby the foreign company.
The role of the Corporate Social Responsibility Committee is—

(a) To formulate and recommend to the Board, a Corporate Social Responsibility Policy which
shall indicate the activities to be undertaken by the company in areas or subject, specified in
Schedule VII of the Companies Act, 2013;
(b) To recommend the amount of expenditure to be incurred on the activities referred to in clause
(a) above; and
(c) To monitor the Corporate Social Responsibility Policy of the company from timeto time.
After taking into account the recommendations of the CSR Committee, the Board shall approve the
CSR Policy for the company.

(d) Approval of the Audit Committee to a related party transaction can be granted by passing a
circular resolution. Discuss.
Answer
Section 188(1) of the Companies Act, 2013 prohibits the Board from dealing with an item of business
pertaining to a contract or arrangement with a related party through a circular resolution.
However, the law is silent on dealing with any item of business by the Audit Committee through a
circular resolution.
Here, the intention of the Legislature is required to be gathered from the language used; which
means that attention should be paid to what has been said as also to what has not been said. As a
consequence, though it cannot be added that the law imposes any restriction, the principle
applicable on meetings of the Board would be applicable to the meetings of the Audit Committee too,
while dealing with items of business on relatedparty transactions.
As per the Secretarial Standard on Meetings of the Board of Directors (SS-1), the Audit Committee
should discuss related party transactions which are not in the ordinary course of business or which
are not on arm's length basis at its meetings and not through circulation. However, there is no bar
on omnibus approval of limits being passedby a circular resolution by the Audit Committee.
(a) 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 feesper meeting (`)
Raja Nominee director 1,20,000
Raju Small shareholder director 1,00,000

Ritu Independent director 1,00,000
Shalini Independent director 75,000
Answer
Section 197(5) of the Companies Act, 2013 read with Rule 4 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 prescribes that a 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.
Provided that for Independent Directors and Women Directors, the sitting fee shall not be less than
the sitting fee payable to other Directors.
Based on the above stipulated provisions, the following mentioned sitting fees payable is:
Name Remarks
Raja (Nominee Director) Sitting fees exceeds maximum amount and shouldbe reduced
to Rs. 1,00,000
Raju (Small Shareholder Sitting fees is within limit

Director)
Ritu (Independent Director) Sitting fees is within limit
Shalini (Independent Director) Sitting fees is within limit but it should not be less than other
directors and hence should be Rs. 1,00,000

(b) 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 ?
Answer
As per Section 196(3) of the Companies Act, 2013, 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.
However, appointment of a person who has attained the age of 70 years may be made by passing
a special resolution in which case the explanatory statement annexed to the notice for such
motion shall indicate the justification for appointing such person.
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.
Accordingly, in the given case, appointment of Mr. Arjun in Yes No Ltd. can also be made by an
application made by the Board of Directors to the Central Government. Therefore, advice of
Company Secretary is not correct.
(c) Dim Dim Ltd. was incorportated 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?
Answer
The first directors of most of the companies are named in their Articles of Association. Regulation 60 of
Table F provides that the number of the directors and the names of the first directors shall be
determined in writing by the subscribers of the memorandum or amajority of them.
Further, Section 152(1) of the Companies Act, 2013 provides that, where no provision is made in the
Articles of Association of a company for the appointment of the first director, the subscribers to
the memorandum who are individuals shall be deemed to be the first directors of the company until
the directors are duly appointed.
Accordingly, in the given case, advice given by the advisor regarding first director is not correct.
Section 149(3) of the Companies Act, 2013 provides that every company shall 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 under this sub-section
shall apply proportionately at the end of the financialyear in which it is incorporated.
Hence, Dim Dim Ltd. which has been incorporated on December 31, 2019 can appoint a director
who has just stayed for 120 days in India during the financialyear, 2019-20.
(d) Himmat Ltd. has a paid-up capital of `50,00,000 dividend into `5,00,000 shares of `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.
Answer
Section 115 read with rule 23 of Companies (Management and Administration) Rules, 2014 deals with
resolutions requiring special notice.
Where a special notice is so required of any resolution, notice of the intention to move such
resolution shall be given to the company by such number of members holding not less than 1% of
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.

The instances which require a special notice under the provisions of the Companies Act, 2013
are as follows:
(a) Under Section 140(4) of the Companies Act, 2013, resolution for appointing a person as
auditor at the annual general meeting other than a retiring auditor or providing expressly that
the retiring auditor shall not be re-appointed.
(b) Under sub-section (2) and (5) of section 169 to remove a director before the expiry of the
period of his office and to appoint somebody in place of director so removed in the same
meeting.
Accordingly, there is no such provision of special notice under the Companies Act, 2013, for
removal of statutory auditor. However, the Articles of Association of company may provide for
additional matters which may require special notice, in terms of Section 115 of the Companies Act,
2013.
Section 140(1) read with Rule 7 of the Companies (Audit and Auditors) Rules, 2014, clearly
stipulates that the auditor appointed under section 139 of the Companies Act, 2013 may 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 by filling an
application in form ADT-2 within 30 days of the resolution passed by the Board. Hence, Rajesh &
Co. can be removed by following the prescribedprocedures.
Further, as per Section 139(8) of the Companies Act, 2013, Ritaban & Co. can be appointed by the
Board of Directors within 30 days to fill such casual vacancy.
(e) 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 followingpoints :
(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.
Answer
As per Section 151 read with Rule 7 of the Companies(Appointment and Qualifications of Directors)
Rules, 2014, the 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. Further,
such director shall not be liable to retire by rotation.
A small shareholders' director is included in the total limit of directorship of 20 companies as

prescribed under section 165 (1) of the Companies Act, 2013.
Based on the above provisions, answers to the questions are as under:
1. No, Shankar as small shareholder director cannot be re-appointed as on March 31, 2021.
2. No, Shankar is not liable to retire by rotation as on March 31, 2019.
Yes, Shankar's directorship will be counted in the over-all limit provided under Section 165 (1) of
the Companies Act, 2013.

OR
(i) Vasu is independent director in various companies and he seeks your opinion regarding
presence of independent director in different types of Committees. Advise.
Answer
Presence of Independent Director in various Committees of the Board
Independent Composition as per the Companies as per the SEBI(LODR)

Director in Companies Act, 2013 Regulations, 2015
various
Committees
Audit As per Section 177 of According to Regulation 18 of the SEBI (LODR)
committee Companies Act, 2013 The Regulations, 2015
Audit Committee shall a) The Audit Committee shall have
consist of a minimum of minimum three Directors as
three directors with members.
independent directors
forming a majority. b) Atleast Two-thirds of the members of
audit Committee shall be Independent
Directors
c) In case of a Listed Entity having
outstanding SR equity shares, the Audit
Committee shall only comprise of
Independent Directors.
d) All members of Audit committee shall
be financially literate and atleast one
member shall have accounting or
related management expertise.
d) The chairperson of the audit committee
shall be an independentdirector.

Nomination Section 178 of Companies Act, According to Regulation 19 of the SEBI (LODR)
and Remune- 2013 provides that: Regulations, 2015
ration
Committee The Nomination and Remu- The Board of Directors shall constitute the
neration Committee shall Nomination and Remuneration Committee
consist of three or more non- as follows:
executive directors out of
which not less than one - half (a) the Committee shall comprise of at least
shall be independent directors. three Directors and all Directors shall
be non-executive Directors;
(b) at least two third of the Directors
shall be Independent Directors; and
(c) The Chairperson of the nomination and
remuneration committee shall be an
Independent Director.
Stakeholders - Under Regulation 20 of the SEBI (LODR)

Relationship Regulations, 2015,
Committee (a) Stakeholders Relationship
Committee shall consist of at
least three directors, with at
least one being an independent
director, who shall be the
members of the Committee.
(b) In case of a listed entity having
outstanding SR equity shares, at
least two-thirds of the
Stakeholders Relationship
Committee shall comprise of
independent directors.
(c) The chairman of this committee
shall be a non-executive
director.
Risk The Risk Management Committee shall
Management consist of minimum three members with
Committee majority of them being members of the
board of directors, including atleast 1
independent directors and in case of a listed
entity having outstanding SR equity shares, at
least two-thirds of the Risk Management
Committee shall comprise of Independent
Directors.

Corporate As per Section 135 of the –
Social Companies Act, 2013, Corporate
Respon- Social Responsibility Committee
sibility shall consist of three or more
Committee directors out of which at least one
should be an independent director.
However, where a company is not
required to appoint an independent
director under section 149(4), it
shall have in its Corporate Social
Responsibility Committee two or
more directors.
(ii) Logic Ltd. wants to remove Radhika, Company Secretary of the Company. Explainthe procedure.
Answer
A Company Secretary can be removed or dismissed like any other employees of the organization.
Since he/she is appointed by Board, the Board of Directors of a company has absolute discretion to
remove a Company Secretary or to terminate his/her services at any time for any reason or without
any reason. However, principles of natural justice like show cause notice, hearing, reasoned order
etc. must be followed.
A Company Secretary can be removed in accordance with the terms of appointment and the Board
can record the same. The procedure for removal of Company Secretaryis:
 Convene a Board Meeting after giving notice to all the Directors of the company as per section
173 of the Companies Act, 2013, place the matter of removal of the Company Secretary and
pass a resolution to the effect. The resolution shall state the effective date of termination of the
Company Secretary.
 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.
 The Company Secretary shall cease to be in office from the date of expiry of notice.
 Company is required to file e-Form DIR-12 within 30 days of cessation with the Registrar of
Companies together with requisite filing fees along with evidence of Cessation. - Inform the
stock exchange, if the company is listed.
 Make entries in the Register maintained for recording the particulars of Company Secretaries
under section 170 of the Companies Act, 2013.
 Issue a general public notice, if it is so warranted, according to size and natureof the company.
Thus, Logic Ltd. has to follow above procedures to remove Radhika, Company Secretary of the
company.
(iii) Draft a postal ballot form of ZYX Ltd, a company in existence for last 10 years. Assume facts
and figures.
Answer
Postal Ballot Form
(On the letterhead of the Company)
1. Name and Registered Address of the Sole / First named Member
2. Name(s) of Joint-Holder(s), if any :
3. Registered Folio No. /DP ID No.* : / Client ID No.* (*Applicable to Members holding
shares in dematerialized form)
4. Number of equity shares held :
5. I/We hereby exercise my / our vote in respect of the under mentioned resolutions to be
passed through Postal Ballot as stated in the Notice dated (date

and year) of the Company by sending my / our assent or dissent to the said
Resolution by placing the tick ( ) mark in the appropriate box below:
Item No. Brief Particulars No. of Shares I/ We assent I/We dissent toof
the Resolution to the Resolu- the Resolution
tion (FOR) (AGAINST)
Place:
Date: Signature of Shareholder/Beneficial owner
(iv) Can an annual general meeting be called at a shorter notice ? Would your answer be different if
it were an extra-ordinary general meeting ?
Answer
Shorter notice
As per Section 101 (1) 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.
In the case of extra-ordinary general meeting, a shorter notice can be given if consent is accorded by
the members of the company:
(a) Holding, if the company has a share capital, 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) Having, if the company has no share capital, not less than 95%, of the total voting power
exercisable at that meeting.
However, 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.
(v) 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 thecompany :
(a) To invest the funds of the company for `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;
Answer
(a) As per Section 179(3)(e) of the Companies Act, 2013, the Board of Directors of a company shall
exercise the powers to invest the funds of the company of Rs. 15 Lakhs in ABC Mutual funds by
means of resolutions passed at meetings ofthe Board;
(b) As per Section 180(1)(d) of the Companies Act, 2013, the Board of Directors of a company shall
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 specialresolution;
(c) As per Section 180(1)(b) of the Companies Act, 2013, the Board of Directors of a company
shall exercise the power to invest otherwise in trust securities, the amount of compensation
received by it as a result of any merger or amalgamation with the consent of the company by a
special resolution;
(d) As per Section 179(3)(j) of the Companies Act, 2013, the Board of Directors of a company
shall exercise the powers 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.

PART - III
(a) 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.
Answer
Clause 6 of Part I of First Schedule to the Company Secretaries Act, 1980 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. Such a restraint has been put so that the
members maintain their independence of judgement and able to command respect from their
prospective clients.
Accordingly, CS firm 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.
(b) A complaint of professional misconduct is filed with ICSI against Swapan, a practising
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 `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 misonduct
mentioned inthe First Schedule to the Act, 1980 ?
Answer
As per section 21B(3) of the Company Secretaries Act, 1980 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 to the Company Secretaries Act, 1980, it
shall afford to the member an opportunity of being heard before making any order against him
and may thereafter take any one ormore 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) Lmpose such fine as it may think fit, which may extend to Rs. 5 Lakhs.
Applying above provisions to Swapan, a practising member, the order for permanent removal of
name from Register of members is valid but fine can be imposed maximum upto Rs. 5 Lakhs.
As per section 21A(3) 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 to the Company Secretaries Act, 1980, 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.

Company Law
December – 2021
Exam Paper
PART - I
(a) A private limited company incorporated under the Companies Act, 2013 may issue
debentures to any number of persons and can accept deposits from thepublic.
Answer
According to the definition of private company under Section 2(68) of the Companies Act, 2013, a
private limited company is prohibited to make an invitation to the public to subscribe for any
securities of the company.
‘Securities’ has been defined under section 2(81) of the Companies Act, 2013 to mean the
securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956. As per Section
2(h) of the Securities Contracts (Regulation) Act, 1956, “Securities” include debentures, debenture stock
or other marketable securities of a like nature.
However, under Section 42 of the Companies Act, 2013, a Private Company may issue such
securities on private placement basis only to a selected group of persons who have been
identified by the Board, and whose number shall not exceed 200 in the aggregate in a financial year
excluding the qualified institutional buyers and employees of the company being offered securities
under a scheme of employees stock option subject to prescribed conditions.
Further, as per Section 73 and 76 of the Companies Act, 2013, only the following may invite,
accept or renew public deposits from the public:
 A banking company,
 non-banking financial company as defined in the Reserve Bank of India Act, 1934,
 to such other company as the Central Government may, after consultation with the Reserve
Bank of India, specify in this behalf,
 Public company (Eligible Company) having Net worth not less than Rs. 100 Crores or
Turnover not less than Rs. 500 Crores and which has obtained the prior consent of the
company in general meeting by means of a resolution and also filed the said resolution with the
Registrar of Companies before making anyinvitation to the Public for acceptance of deposits.
Thus, a Private Company cannot accept deposits from Public.
(b) The privilege of Limited Liability for Business Debts is one of the principal advantage of
doing business under the corporate form of organization with some exceptions.
Answer
The company, being a separate person, is the owner of its assets and bound by its liabilities. The
liabilities of a member as shareholder, extends to the contribution to the capital of the company up
to the nominal value of the shares held and not paid by him. Members, even as a whole, are neither
owners of the company's undertaking, nor liable for its debts. In other words, a shareholder is liable
to pay the balance, if any, due on the shares held by him, when called upon to pay and nothing more,
even if the liabilities of the company far exceed its assets. This means that the liability of a member
is limited. If a person holds fully-paid shares, he has no further liability to pay even if the company is
declared insolvent. In case of a company limited by guarantee, the liability of members is limited to a
specified amount of the guarantee mentioned in the memorandum.
The exceptions to the principle of limited liability are –

1. As per section 3A of the Companies Act, 2013 (the Act), if at any time the number of members
of a company is reduced, in the case of a public company, below seven, in the case of a private
company, below two, and the company carries on the business for more than six months while
the number of members is so reduced, every person who is a member of the company during
the time that it so carries on business after those six months and is cognisant of the fact that it is
carrying on business with less than seven members or two members, as the case may be, shall
be severally liable for the payment of the whole debts of the company contracted during that
time, and may be severally sued therefor.
2. When the company is incorporated as an unlimited company under section 3(2)(c) of the Act.
3. As per section 7(7)(b) of the Act, where a company has been got incorporated by furnishing any
false or incorrect information or representation or by suppressing any material fact or
information in any of the documents or declaration filed or made for incorporating such
company or by any fraudulent action, the Tribunal may, on an application made to it, on being
satisfied that the situation so warrants, direct that liability of the members of such company
shall be unlimited.
4. Under section 339(1) of the Act, wherein the course of winding up it appears that any business of
the company has been carried on with an intent to defraud creditors of the company or any
other persons or for any fraudulent purpose, the Tribunal may declare the persons who were
knowingly parties to the carrying on of the business in the manner aforesaid as personally
liable, without limitationof liability, for all or any of the debts/liabilities of the company.
5. Under section 35(3) of the Act, where it is proved that a prospectus has been issued with
intent to defraud the applicants for the securities of a company or any other person or for any
fraudulent purpose, every person who was a director at the time of issue of the prospectus or
has been named as a director in the prospectus or every person who has authorised the issue
of prospectus or every promoter or a person referred to as an expert in the prospectus shall
be personally responsible, without any limitation of liability, for all or any of the losses or
damages that may have been incurred by any person who subscribed to the securities on the
basis of such prospectus.
6. As per section 75(1) of the Act, where a company fails to repay the deposit or part thereof or
any interest thereon referred to in section 74 within the time specified or such further time as
may be allowed by the Tribunal and it is proved that the deposits had been accepted with intent
to defraud the depositors or for any fraudulent purpose, every officer of the company who was
responsible for the acceptance of such deposit shall, without prejudice to other liabilities, also
be personally responsible, without any limitation of liability, for all or any of the losses or
damages that may have been incurred by the depositors.
7. As per section 224(5) of the Act, where the report made by an inspector states that fraud has
taken place in a company and due to such fraud any director, key managerial personnel, other
officer of the company or any other person or entity has taken undue advantage or benefit,
whether in the form of any asset, property or cash or in any other manner, the Central
Government may file an application before the Tribunal for appropriate order disgorgement of
such asset, property, or cash, and also for holding such director, key managerial personnel,
officer orother person liable personally without any limitation of liability.
(c) National Financial Reporting Authority (NFRA) has wide powers to recommend, enforce and
monitor the compliance of accounting and auditing standards.
Answer
The Central Government has introduced a new regulatory authority named as National Authority for
Financial Reporting known as National Financial Reporting Authority (NFRA) with wide powers to
recommend, enforce and monitor the compliance of accounting and auditing standards. The
Companies Act, 1956 empowered the Central Government to form a Committee for
recommendations on Accounting Standards which is National Advisory Committee on
Accounting Standards (NACAS). This is now being renamed with enhanced independent oversight

powers and authority as National Financial Reporting Authority (NFRA).The National Financial
Reporting Authority shall perform its functionsthrough such divisions as may be prescribed.
NFRA shall be responsible for monitoring and enforcing compliance of auditing and accounting
standards and for that purpose, oversee the quality of professions associated with ensuring such
compliances. The Authority has power to investigate professional and other misconducts which
may be committed by Chartered Accountancy members and firms. There is also a provision for
appellate authority.
The National Financial Reporting Authority is a quasi – judicial body to regulate matters related
to accounting and auditing. With increasing demand of non-financial reporting, it may be referred
to as a National level business Reporting Authority to regulate standards of all kind of reporting,
financial as well as non – financial, by the companiesin future.
National Financial Reporting Authority gives its recommendations on accounting standards and
auditing standards. It can only recommend and it is the Central Government who prescribes such
standards.
The objectives of National Financial Reporting Authority are as follows:

1. Make recommendations on formulation of accounting and auditing policies and standards for
adoption by companies, class of companies or their auditors;
2. Monitor and enforce the compliance with accounting standards and auditing standards;
3. Oversee the quality of service of professionals associated with ensuring compliance with such
standards and suggest measures required for improvementin quality of service; and
4. Perform such other functions as may be prescribed in relation to aforementionedobjectives.
(d) Signing of the Board's Report can be done by any one of the directors and be filed within 60
days of AGM.
Answer
As per Section 134(6) of the Companies Act, 2013, the Board's report and any annexures thereto,
shall be signed by the Chairperson of the company if he is authorised by the Board and where he is not
so authorised, shall be signed by at least two directors, one of whom shall be a managing director, or
by the director where there is one director.
Section 137(1) of the Companies Act, 2013 provides that a copy of financial statements, including
consolidated financial statement, if any, along with all documents required to be attached to such
financial statements under the Companies Act, 2013 duly adopted at the annual general meeting or
adjourned annual general meeting of the company shall be filed with the Registrar of Companies
within 30 days of annual general meeting or adjourned annual general meeting along with the
prescribed fees. The Board'sReport has to be attached to the financial statements.
However, where the financial statements are not adopted at annual general meeting or adjourned
annual general meeting, such unadopted financial statements along with the required documents
shall be filed with the Registrar within thirty days of the date of annual general meeting.
In case of a One Person Company a copy of the financial statements duly adopted by its member,
along with all the documents which are required to be attached to such financial statements, shall
be filed within one hundred eighty days from the closure ofthe financial year.

(a) The Board of Directors of Aakash Ltd., a listed company, in its meeting held on 1st April,
2021 announced a proposal for issue of bonus shares to all equity shareholders of the
company in the ratio of 1 : 1. On 1st May, 2021, the directors at another meeting passed a
resolution to reverse the proposal of bonus issue announced on 1st April, 2021. Discuss the
validity of the resolutions.
Answer
A listed company is required to comply with the requirements of the Companies Act, 2013, rules
made thereunder and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 for
issue of bonus shares.
In terms of section 63(2) of the Companies Act, 2013, no company shall capitalise its profits or
reserves for the purpose of issuing fully paid-up bonus shares, unless it has, on the
recommendation of the Board, been authorised in the general meeting of thecompany.
Further, as per Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014, a company
which has once announced the decision of its Board recommending a bonus issue, shall not
subsequently withdraw the same.
Also, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 provides that a
bonus issue, once announced, shall not be withdrawn.
In view of the above provisions, the Board of Directors of Aakash Limited once announced the
issue of bonus share on 1st April 2021 to all equity shareholders of the company in the ratio of 1:1
cannot subsequently reverse the proposal of such issue in another board meeting. Hence, the first
board resolution proposing the bonus share is valid but second board resolution for reversal is not
valid.
(b) XYZ Limited has an office building in London. The Company has been granted a term loan of
`15 crore from a Bank. The Company wants to mortgage office building of London. Examining
the provisions of the Companies Act, 2013, answerthe following :
(i) Whether the company can mortgage the above office building ?
(ii) Whether a charge can be created for property situated outside India ?
Answer
In accordance with the provisions of the Companies Act, 2013 as contained in Section 77(1) read
with Rule 3 of the Companies (Registration of Charges) Rules, 2014, it shall be the duty of every
company creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise, and situated in or outside India, to register the
particulars of the charge signed by the company and the charge-holder together with the
instruments, if any, creating or modifying such charge in Form No. CHG-1 (for other than Debenture)
or Form No. CHG-9 (For Debentures) as the case may be, and is required to be filed with the
Registrar of Companies within a period of 30 days of the date of creation or modification of charge
along with the specifiedfees.
(i) In light of the above mentioned provisions, XYZ Limited can mortgage the office building
situated in London (UK).
(ii) In light of the above mentioned provisions, a charge can be created for property situated
outside India. The e-form prescribed for the purpose of Registration of the charge is Form No.
CHG-1 and it will be filled within the prescribed period.

(c) X applied for 400 shares in XYZ Ltd and paid ` 2.50 on the face value of `10 but no allotment
was made to him. Subsequently 400 shares were allotted and issued to him without his
request and his name was entered in the register of members. X knew it but took no steps for
rectification of the register of members. The company went into liquidation and X was held
liable as a contributory. X claims that he is not liable as contributory. Whether his claim is
tenable ?
Answer
Section 95 of the Companies Act, 2013 provides that the register, their indices and copies of annual
returns maintained under section 88 and 94 shall be prima facie evidence of any matter directed or
authorised to be inserted therein by or under this Act.
A register of members is prima facie evidence of the truth of its contents. Accordingly, if a person's
name, to his knowledge, is there in the register of members of a company, he shall be deemed to be
a member and onus lies on him to prove that he is not a member. He must promptly appeal to the
Tribunal for rectification of the register under section 59 of the Companies Act, 2013 to take his
name off the register, failing which the doctrine of holding out will apply.
In Re. M.F.R.D. Cruz, A.I.R. 1939 Madras 803, the court held "when a person knows that his name is
included in the register of shareholders and he stands by and allow his name to remain, he is
holding out to the public that he is a shareholder and thereby he loses his right to have his name
removed".
(d) XYZ Ltd is an investment company whose principal business is acquisition of shares and
debentures of other companies. The following figures were derived from the books of XYZ
Ltd. :
Assets :
Investment in shares and debenture `95 Lakh
Other Assets `105 Lakh
Total `200 Lakh

Income :
Income from investment business `12 Lakh
Other Income `18 Lakh
Total `30 Lakh
Whether the company is an investment company as per section 186 and eligible to claim
exemption given thereunder ?
Answer
As per the explanation given under section 186 of the Companies Act, 2013, investment company
means a company whose principal business is the acquisition of shares, debentures or other
securities and a company will be deemed to be principally engaged in the business of acquisition
of shares, debentures or other securities, if its assets in the form of investment in shares,
debentures or other securities constitute not less than fifty per cent of its total assets, or if its
income derived from investment business constitutes not less than fifty per cent as a proportion
of its gross income.
In light of the above explanation, the assets of XYZ Ltd. in form of investment in shares or
debentures is less than fifty percent of the total assets of the company and also the income
derived from the investment business is less than fifty percent of the total income of the company.
Hence, either of the two conditions need to be satisfied to make an investment company and, in this
case, neither of this condition is satisfied. So, XYZ Ltd. cannot be an investment company for the
purpose of Section 186.

(e) XYZ Ltd. is carrying out a project under its CSR initiatives. Some of its employees are working in
this project. The company want to monetize and account it under the head of ‘CSR
expenditure’ ? Advice the company.
Answer
As per the Ministry of Corporate Affairs General Circular No. 01/2016 dated 12th January, 2016,
the contribution and involvement of employees in CSR activities of the company will no doubt
generate interest/pride in CSR work and promote transformation from Corporate Social
Responsibility (CSR) as an obligation, to Socially Responsible Corporate (SRC) in all aspects of
their functioning. Companies therefore, should be encouraged to involve their employees in CSR
activities. However monetization of such services of employees would not be counted towards CSR
expenditure.
OR
(i) Santosh Kumar, an employee of a listed company purchased certain shares of his company
through a member of a stock exchange and lodged with the company for transfer of shares in his
(employee’s) 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 and seek access to therecords of the company. Decide giving reasons :
(a) Whether the company’s contention shall be tenable; and
(b) What is the remedy available to the employee in the given case ?
Answer
The securities or other interest of any member in a public company are freely transferable.
Refusal to register share transfer on suspicion that the employee if admitted as a member will attend
general meetings of the company and may create nuisance by raising irrelevant issues and also
obtain access to the records to the company as a shareholder is not a valid reason.
(Appeal to the CLB No. 27, of 1975 dated 17th August, 1976, Shri Nirmal Kumar v. Jaipur
Metal and Electrical Limited.)
Accordingly, as per Section 58 (4) of the Companies Act, 2013, if a public company without sufficient
cause refuses to register the transfer of securities within a period of 30 days from the date on which
the instrument of transfer is delivered to the company, the transferee may, within period of 60 days
of such refusal or where no intimation has been received from the company, within 90 days of the
delivery of the instrument of transfer,can appeal to the Tribunal.
Hence taking into account the above-

(a) The refusal by the company to register the transfer shares in the name of the employee is not
tenable.
(b) Employee in this case can go for appeal to the Tribunal against the company's refusal.
(ii) The Board of Directors of XYZ Ltd is considering the proposal for making the investment in
ABC Ltd. The company has 5 directors on board and in the board meeting 4 directors were
present, three of them given consent to the proposal and one director abstained from
voting. Comment on the same.
Answer
As per section 186(5) of the Companies Act, 2013, no investment shall be made or loan or guarantee
or security given by the company, unless the resolution sanctioning it is passed at a meeting of the
Board with the consent of all the directors present at the meeting and the prior approval of the
public financial institution concerned where any term loan is subsisting is obtained.
So, in this case the Board of Directors of XYZ Ltd. while considering the proposal for making the
investment in ABC Ltd. has not complied with the provision of section 186(5) of the Companies

Act, 2013, where the consent of all the directors present at the meeting is required. The resolution
of the board of directors therefore is not valid and has no legal effect.
(iii) Examine the validity of the following :

(a) XYZ Ltd wants to declare the dividend out of the current year profit without adjusting
the previous year’s carry forwarded losses and depreciation.
(b) Board of Directors of XYZ Ltd wants to declare interim dividend after the end of
financial year.
Answer
(a) Section 123(1) of the Companies Act, 2013 provides that the dividend shall be declared or
paid by a company for any financial year out of the profits of the company for that year arrived at
after providing for depreciation or out of the profits of the company for any previous financial
year or years arrived at after providing for depreciation and remaining undistributed, or out
of both.
Proviso to this section provides that a company shall not declare dividend unless carried over
previous losses and deprecation not provided in previous year or years are set off against
profits of the company for the current year.
Therefore, XYZ Ltd has to set off the previous year’s carry forward loss and deprecation from
current year profit before declaration of dividend.
(b) As per section 123(3), the board of directors of a company may declare interim dividend
during any financial year or at any time during the period from closure of financial year till holding
of the annual general meeting out of surplus in the profit and loss account or out of profits of the
financial year for which such interim dividend is sought to be declared or out of profits
generated in the financial year till quarter preceding the date of declaration of the interim
dividend.
(iv) ABC Ltd. has not satisfied any conditions specified as per section 137 of the Companies Act
for current financial year. The company has filed financial statement as per XBRL
Taxanomy for the previous financial year. Is ABC Ltd. still required to file financial
statements as per XBRL Taxanomy for the currentfinancial year ?
Answer
As per Rule 3 of the Companies (Filing of Documents and Forms in XBRL) Rules, 2015, the
companies which have filed their financial statements as per XBRL taxonomy for the previous
financial year under Rule 3(1) of the said Rules shall continue to file their financial statements and
other documents in XBRL taxonomy though they may not fall under the class of companies
specified therein in succeeding years.
Hence, as per the above provisions ABC Ltd. though has not satisfied any conditions specified as per
Section 137 of the Companies Act, 2013 for current financial year, yet the company is required to
file financial statements as per XBRL Taxonomy for the current financial year as it has filed the
financial statements as per XBRL Taxonomy forthe previous financial year.
(v) Govt. of West Bengal filed an application for winding up of KTC Ltd in the Tribunal citing
sec. 271 of the Companies Act, 2013 in the interest of sovereignty and integrity of India which
was opposed by the company stating that state government cannot file a petition for
winding up. Is the claim of the company sustainable and why ?
Answer
Section 271(b) of the Companies Act, 2013 provides that a company may, on a petition under
section 272, be wound up by the Tribunal if the company has acted against the interests of the
sovereignty and integrity of India, the security of the State, friendly relations with foreign States,
public order, decency or morality.
Section 272(1) of the Companies Act, 2013 provides that subject to the provisions of this section, a
petition to the Tribunal for the winding up of a company shall be presented by—
(a) The company;
(b) Any contributory or contributories;
(c) All or any of the persons specified in clauses (a) and (b);

(d) The Registrar;
(e) Any person authorised by the Central Government in that behalf; or
(f) In a case falling under clause (b) of sub-section (1) of section 271, by the Central
Government or a State government.
In view of the above provisions, the claim of the company is not sustainable.
(a) Mention the requirements in relation to maintenance of minutes, as prescribed by

the Secretarial Standards Board.
Answer
The requirements in relation to maintenance of Minutes, as prescribed by the Secretarial Standard
Board are given below.
Minutes of Board Meeting

1. Minutes shall be recorded in books maintained for that purpose.
2. A distinct Minutes Book shall be maintained for meetings of the Board and each of its
Committee.
3. A company may maintain its Minutes in physical or in electronic form.
Minutes may be maintained in electronic form in such manner as prescribed under the
Companies Act, 2013 and as may be decided by the Board. Minutes in electronic form shall be
maintained with Timestamp.
A company shall however follow a uniform and consistent form of maintaining the Minutes.
Any deviation in such form of maintenance shall be authorised bythe Board.
4. The pages of the Minutes Book shall be consecutively numbered.

This shall be followed irrespective of a break in the Book arising out of periodical binding in case
the Minutes are maintained in physical form. This shall be equally applicable for maintenance of
Minutes Book in electronic form with Timestamp. In the event any page or part thereof in the
Minutes Book is left blank, it shall be scored out and initialled by the Chairman who signs the
Minutes.
5. Minutes shall not be pasted or attached to the Minutes Book or tampered with in any manner.
6. Minutes Book, if maintained in loose-leaf form, shall be bound periodically depending on the
size and volume and coinciding with one or more financial years of the company. There shall
be a proper locking device to ensure security and proper control to prevent removal or
manipulation of the loose leaves.
7. Minutes Books shall be kept at the Registered Office of the Company or at such other place as
may be approved by the Board.
Minutes of General Meeting

1. Minutes shall be recorded in books maintained for that purpose.
2. A distinct Minutes Book shall be maintained for Meetings of the Members of the company,
creditors and others as may be required under the Act. Resolutions passed by postal ballot shall
be recorded in the Minutes book of General Meetings.
3. A company may maintain its Minutes in physical or in electronic form. Minutes may be
maintained in electronic form in such manner as prescribed under the Act and as may be
decided by the Board. Minutes in electronic form shall be maintained with Timestamp.
A company shall, however, follow a uniform and consistent form of maintaining the Minutes.
Any deviation in such form of maintenance shall be authorised bythe Board.
4. The pages of the Minutes Books shall be consecutively numbered.
This shall be followed irrespective of a break in the Book arising out of periodical binding in case
the Minutes are maintained in physical form. This shall be equally applicable for maintenance of
Minutes Book in electronic form with Timestamp.

In the event any page or part thereof in the Minutes Book is left blank, it shall be scored out and
initialled by the Chairman who signs the Minutes.
5. Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner.
6. Minutes of Meetings, if maintained in loose-leaf form, shall be bound periodically at least once in
every three years. There shall be a proper locking device to ensure security and proper
control to prevent removal or manipulation of the loose leaves.
7. Minutes Books shall be kept at the Registered Office of the company.
(b) Highlight the aspects of corporate governance in USA as per SOX Act.
Answer
The Sarbanes-Oxley Act (SOX) is the primary federal law governing corporate governance and
accountability across multiple aspects of corporate business practice.
The primary objectives of SOX are to promote:

Fairness to Shareholders – SOX requires or promotes governance provisions that protect
shareholder rights and allow shareholders to exercise those rights through governance
procedures, such as shareholder meetings.
Fairness to Stakeholders – SOX requires or promotes governance provisions that take into
consideration the interests of employees, suppliers, buyers, and the local community.
Heightened Director and Board Responsibilities – SOX places specific requirements on the
composition of boards of Directors, including skill and independence requirements. Notably, in an
effort to promote Director Independence in decision making, SOX requires corporations to employee
committees for special purposes.
Director and Officer Ethics – SOX imposes additional obligations on corporations to establish and
maintain ethical standards for officer and Director conduct and decision-making.
Disclosure and Accountability – SOX places requirements on boards to increase transparency in

corporate governance practices. This includes implementing procedures for ensuring accurate
accounting practices and public disclosure mechanisms.
Accounting and Disclosure Procedures – SOX imposed a number of reforms on the accounting
and financial reporting requirements of public companies. The primary requirements are as
follows:
 The Public Company Accounting Oversight Board (PCAOB) - SOX established the PCAOB to
regulate auditors charged with reviewing the accounting procedures and disclosure statements of
public companies.
 External Auditing Firms – SOX now requires that a firm in charge of auditing the corporation
refrain from serving as independent consultants to that same firm. This includes refraining
from book keeping, system designs and implementation, appraisals and valuations, actuarial
services, human resources functions, and investment banking services for the audited
company. Further, the corporation must change auditing firms at least every 5 years. There are
also restrictions on the ability of company executives to have worked for the auditing firm
within theprior year.
Securities Regulations – Much of the regulatory process prescribed by SOX is carried out by the
Securities and Exchange Commission (SEC). SOX include provisions that strengthen the ability of
the SEC to oversee corporate governance matters and enforce violations.

(c) Answer the following with regard to appointment of auditor :
(i) X, a practising chartered accountant holds shares in ABC Ltd. The nominal value
of shares is `50,000. Whether ABC Ltd can appoint him as auditor ?
(ii) A, a practising chartered accountant has business relationship with XYZ Hotels
Ltd. The hotel used to provide services to A frequently on the same price as
charged from other customers. Whether XYZ Hotels Ltd appoint A as its auditor
?
(iii) X, a chartered accountant is working as a General Manager Accounts with ABC
Ltd. Could X be appointed as auditor in ABC Ltd ?
Answer
(i) Section 141(3) of the Companies Act, 2013 provides that a person shall not be eligible for
appointment as an auditor of a company when he himself or his relative or partner is holding
any security of or interest in the company or its subsidiary, or of its holding or associate
company or a subsidiary of such holdingcompany.
In this case Mr. X, a practicing Chartered Accountant holding shares in ABC Ltd cannot be
appointed as Auditor of that company.
(ii) Section 141(3) of the Companies Act, 2013 read with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014 provides that a person shall not be eligible for appointment as an auditor
of a company when he has business relationship with the company, or its subsidiary, or its
holding or associate company or subsidiaryof such holding company or associate company.
The term business relationship shall be construed as any transaction entered into for a
commercial purpose except –
 Commercial transactions which are in the nature of professional services permitted to
be rendered by an auditor or audit firm under the Act and the Chartered Accountant Act,
1949 and the rules or the regulations made underthose Act;
 Commercial transactions which are in the ordinary course of business of the company at
arm's length price – like sale of products or services to the auditors, as customer, in the
ordinary course of business, by companies engaged in the business of
telecommunications, airlines, hospitals, hotelsand such other similar businesses.
Since the transaction is at the arm length price so Mr. A can be appointed as an
auditor of XYZ Hotels Ltd.
(iii) As per section 141(3) of the Companies Act, 2013 provides that an officer or employee of the
company is not eligible for appointment as an auditor of a company.
In this case Mr. X, is working as a General Manager Accounts with ABC Ltd. so he cannot be
appointed as Auditor of that company.
PART - II
(a) The following figures were extracted from the books of X Ltd (audited).
Paid up share capital `100 Lakh
Reserve & Surplus
General Reserve `50 Lakh
Security Premium Account `25 Lakh
Re-valuation Reserve `25 Lakh
Total `200 Lakh
Long Term Borrowings `125 Lakh

Short Term Borrowings (Cash Credit Loan) `50 Lakh
Temporary Loan for construction of Building `25 Lakh
Total `200 Lakh

The Board of Directors further want to borrow a sum of ` 50 Lakh as Long Term Loan without
obtaining the consent of the members in general meeting by special resolution. Advice the
Board about the validity of this proposal. What will be your answer if it is a Private
Limited company ?
Answer
As per section 180(1)(c), the board of directors of a company with the consent of the company by a
special resolution shall borrow money, where the money to be borrowed, together with the money
already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves
and securities premium, apart from temporary loans obtained from the company's bankers in the
ordinary course of business.
Temporary loans means loans repayable on demand or within six months from the date of the loan
such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-
term loans of a seasonal character, but does not include loans raised for the purpose of financial
expenditure of a capital nature.
In view of the above provision the eligible amount which can be borrowed by the Board is given
below:
Paid up share capital Rs. 100 Lakh
Reserve & Surplus
General Reserve Rs. 50 Lakh
Security Premium Account Rs. 25 Lakh
Total Rs. 175 Lakh
Re-valuation Reserve is not treated as free reserve as per Section 2(43)
The total borrowing of the company for the purpose of this sub section is –
Long Term Borrowings Rs. 125 Lakh
Temporary Loan for construction of Building Rs. 25 Lakh
Total Rs. 150 Lakh
Short Term Borrowings (Cash Credit Loan) of Rs. 50 Lakhs is considered as temporary loan and loan for
construction of building in not consider as temporary loan as per the explanation for temporary
loan mentioned above.
Therefore, the company can borrow a further sum upto Rs. 25 Lakh without seeking the approval
from the members. So, the board cannot borrow a sum of Rs. 50 Lakhs as Long Term Loan without
obtaining the consent of the members in general meeting byspecial resolution.
In case of private company the provision of section 180 does not apply vide exemption notification
dated 05th June, 2015, hence the board can borrow without approval.
(b) X, proposes his candidature as a director of X Ltd. along with the deposit of `1 Lakh. Later X
failed to be appointed as director but received 39% of the total votes. X, claimed X Ltd. to
refund the deposit but the company denied to pay as he failed to be elected having obtained
only 39% of votes cast. Is the decision of the company valid ? Explain when the
requirement of deposit of amount is not applicable ?
Answer
As per section 160 of the Companies Act, 2013, a person who is not a retiring director shall be
eligible for appointment to the office of a director at any general meeting, if he, or some member
intending to propose him as a director, has, not less than fourteen days before the meeting, left at the
registered office of the company, a notice in writing under his hand signifying his candidature as a
director or as the case may be, the intention of such member to propose him as a candidate for
that office. Such notice must come along with the deposit of one lakh rupees or such higher amount
as may be prescribed which shall be refunded to such person or, as the case may be, to the
member, if the person proposed gets elected as a director or gets more than twenty five percent of
total valid votes cast either on show of hands or on poll on such resolution.

In the given case, Mr. X. has deposited a sum of Rs. 1 lakh with the company, but he failed to get
appointed as a director. However, Mr. X secured 39% of total valid votes i.e. condition of securing
more than 25% of total valid votes cast, has been satisfied. Hence the decision of the company not
to refund Rs. 1 Lakh to Mr. X is not valid.
As per the proviso to section 160(1) of the Companies Act, 2013, the requirements of deposit of
amount shall not apply in case of appointment of an independent director or a director
recommended by the Nomination and Remuneration Committee, if any, constituted under sub-
section (1) of section 178 or a director recommended by the Board of Directors of the company,
in the case of a company not required to constituteNomination and Remuneration Committee.
(c) X has been appointed as the Managing Director of XYZ Limited. The company does not have
any other whole time directors. The terms and conditions of his appointment are as under :
(i) Remuneration amounting to 5% of the net profits of the company.
(ii) A fees of `1,00,000 per annum towards actuarial services, even though X does not hold
any professional qualification in actuarial science.
(iii) Sitting fees of `50,000 for every meeting of the Board or the Committee thereof
attended by X.
The Company had defaulted in the repayment of interest and principal on term loans
borrowed from banks, which default is still subsisting.
Suggest, whether the above remuneration is in line with the provisions of the Companies
Act, if not also explain the remedial action required from the Company.
Answer
The overall limit of managerial remuneration as indicated under section 197 of the Companies Act,
2013 read with Schedule V of the Act inter alia includes the followingconditions:
 Except with the approval of the Company in general meeting by a special resolution, the
remuneration payable to any one managing director shall not exceed five percent of the net
profit of the Company The remuneration shall not include any fee for the services rendered
by such director in other capacity if the services are of professional nature and in the opinion
of the Nomination and Remuneration committee or the Board of Directors, as the case may be, the
director possesses the requisite qualification for the practice of the profession.
 A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board.
As per Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014, a Company may pay a sitting fee to a director which shall not exceed one lakh rupees per
meeting of the Board or Committee thereof.
Section 197(2) of the Companies Act, 2013 provides that the percentages aforesaid shall be exclusive
of sitting fees payable to Directors. Therefore, the sitting fees of Rs. 50,000 for every meeting of the
board or Committee thereof, is not included in the overallremuneration.
Further, considering the above provisions, the fee payable for actuarial services is to be added to
Mr. X remuneration as he does not hold any professional qualification topractice actuarial science.
In this case, the overall remuneration exceeds the limit of 5% of net profits as provided in the
section. Therefore, the company has to get the approval of the shareholders by way of a special
resolution in terms of Section 197 of the Act.
As the company has defaulted in payment of interest and principal on term loans to the banks, the
company should also take a prior approval of the banks for paying the above remuneration to Mr.
X before passing the special resolution by shareholders.
(d) R is a newly qualified CS and seeks your advice on passing of Resolution by Circulation.
Advise him suitably as to the procedure to be followed in this regard.
Answer
A company may pass the resolutions through circulation. As per Section 175 of the Companies Act,
2013, no resolution shall be deemed to have been duly passed by the Board or by a committee
thereof by circulation, unless the resolution has been circulated in draft form together with the

necessary papers to all the directors or members of committee at their addresses registered with
the company in India by hand delivery or by post or by courier or through electronic means which
may include E-mail or fax.
The said resolution must be approved by majority of directors or members who are entitled to vote.
However, where not less than one-third of the total number of Directors of the company for the
time being require that any resolution under circulation must be decided at a meeting, the
chairperson shall put the resolution to be decided at a meeting of the Board. The resolution passed
through circulation be noted at a subsequent meeting of the Board or the committee and made part
of the minutes of such meeting.
As per Secretarial Standard – 1, the decision of the Directors shall be sought for each Resolution
separately. Not more than seven days from the date of circulation of the draft of the Resolution
shall be given to the Directors to respond and the last date shall be computed accordingly. An
additional two days shall be added for the service of the draft Resolution, in case the same has been
sent by the company by speed post or by registered post or by courier. Passing of Resolution by
circulation shall be considered valid as if it had been passed at a duly convened meeting of the
Board. This shall not dispense with the requirement for the Board to meet at the specified
frequency.
The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the
Resolution, unless not less than one-third of the total number of Directors for the time being require
the Resolution under circulation to be decided at a Meeting.
The Resolution, if passed, shall be deemed to have been passed on the earlier of:
(a) The last date specified for signifying assent or dissent by the Directors, or
(b) The date on which assent has been received from the required majority, provided that on that
date the number of Directors, who have not yet responded on the resolution under
circulation, along with the Directors who have expressed their desire that the resolution under
circulation be decided at a Meeting of the Board, shall not be one third or more of the total
number of Directors; and
Shall be effective from that date, if no other effective date is specified in such Resolution.
(a) Indicate steps to file an application for seeking extension for calling Annual General
Meeting and mention the form in which such application needs to be filed with the
Answer
Section 96 of the Companies Act, 2013 provides that every company other than a One Person
Company shall in each year hold in addition to any other meetings, a general meeting as its annual
general meeting within a period of six months, from the date of closing of the financial year.
However, the Registrar may, for any special reason, extend the time within which any annual
general meeting, other than the first annual general meeting, shall be held, by a period not
exceeding three months.
The steps to file an application for seeking extension for convening Annual General Meeting (AGM)
are given below:
 The company shall call for a meeting of Board of Director for which a notice must be sent at
least 7 days before holding of Meeting of Board.
 Call a meeting of Board of Directors for considering the proposal of extension ofdate of AGM.
Pass a resolution for extension of time limit for holding annual general meeting specifying the due
reason for extension of AGM. File application in prescribedForm GNL- 1 with ROC concerned.

 Detailed application should contain the following details:
 Reasons of extension
 Period for which extension is required (Note: It should not exceed threemonths)
 The certified copy of the Board resolution passed be attached to such application. Other
document, if any, justifying the application be attached also.
 The ROC shall scrutinize the form and documents and then consider granting the extension
not exceeding 3 months.
 The Company shall conduct the AGM before completion of the extended time.
(b) A has been appointed as a Company Secretary in the Company by a circular resolution. In
addition, he has also been advised to act as a Group Company Secretary and head of the
parent Company and its subsidiary. Examine with reference to the provisions of the Act.
Answer
Section 179(3) read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014,
provides that the Board of Directors of a company shall appoint or remove key managerial
personnel (KMP) by means of resolutions passed at meetings of the Board.
Therefore, appointment of A as a Company Secretary in the company cannot be done by circular

resolution.
As per Section 203(3) of the Companies Act, 2013, a whole time key managerial personnel shall
not hold office in more than one Company except in its subsidiary companyat the same time.
In the given situation A has is also advised to act as a Group Company Secretary consisting of a
group of a parent company in which he has been appointed and its subsidiary. Therefore, he can
act as a Group Company Secretary to look after the parent company and its subsidiary.
Alternate Answer
Section 179(3) read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014,
provides that the Board of Directors of a company shall appoint or remove key managerial
personnel (KMP) by means of resolutions passed at meetings of the Board.
Therefore, appointment of A as a Company Secretary in the company cannot be done by circular

resolution.
In the given situation, A has been appointed as a Company Secretary in the company by a circular
resolution which is not valid hence he cannot be advised to act as a Group Company Secretary and
head of the parent Company and its subsidiary.
(c) XYZ Ltd wants to pay sitting fees to its women directors, less than the sitting fees payable
to other directors of the Company. And want to appoint X as its Managing Director of the
company for a term exceeding five years at a time. Advise the company on the above
proposals.
Answer
As per Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 a company may pay a sitting fees to a director for attending meetings of the Board or
committees thereof, such sum as may be decided by the Board of directors thereof which shall
not exceed one lakh rupees per meeting of the Board or committee thereof.
However, for Independent Directors and Women Directors, the sitting fees shall not be less than the
sitting fee payable to other directors.
So, XYZ Ltd. cannot pay sitting fees to its women directors less than the sitting fees payable to
other directors of the company.
As per Section 196 of the Companies Act, 2013 a company shall not appoint or reappoint any
person as its managing director for a term exceeding five years at a time. So, Mr. X cannot be
appointed as Managing Director of the company for a term exceedingfive years at a time.

(d) X is a company secretary of XYZ Ltd. He is of the opinion that the notice, agenda and notes
on agenda of the board meeting should be send only to the alternate director and not to the
original director of the company. Advice in thismatter.
Answer
As per Section 173, the notice of Board meeting is to be sent in writing to every director at his
address registered with the company.
SS-1 provides that the Notice, Agenda and Notes on Agenda shall be sent to the Original Director
also at the address registered with the company, even if these have been sent to the Alternate
Director. However, the mode of sending Notice, Agenda and Notes on Agenda to the original
director shall be decided by the company.
Hence it is advisable to send the Notice, Agenda and Notes on Agenda both to original and
alternate director of the company.
(e) X Ltd. is a listed company having 565 shareholders as on 31st December, 2019. The Board
of Directors ask you about the formation of Stakeholders Relationship Committee. Is it
necessary to constitute Stakeholders Relationship Committee ? Will your answer be same if
X Ltd is an unlisted company ? Whatshould be the composition of this committee ?
Answer
As per section 178(5) of the Companies Act, 2013, the Board of Directors of a company which
consists of more than one thousand shareholders, debenture-holders, deposit-holders and any
other security holders at any time during a financial year shall constitute a Stakeholder
Relationship Committee consisting of a chairperson who shall be a non-executive director and such
other members as may be decided by the Board.
Further, as per Regulation 20 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 every listed entity shall constitute a Stakeholders Relationship Committee to
specifically look into various aspects of interest of shareholders, debenture holders and other
security holders. The chairperson of this committee shall be a non-executive director.
In view of the above provisions, a listed company even if having less than 1000 shareholders is
required to constitute a Stakeholder Relationship Committee. In case X Ltd. is an unlisted company,
it is not required to constitute a Stakeholder RelationshipCommittee under Companies Act, 2013.
As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, at least three
directors, with at least one being an independent director, shall be members of the Committee and in
case of a listed entity having outstanding SR equity shares, at least two thirds of the Stakeholders
Relationship Committee shall compriseof independent directors.
OR
(i) X, a finance expert having experience of 30 years. XYZ Ltd wants to appoint him as a Chief
Financial Officer at a salary which is more than that of director of the company. State whether
the limits on managerial remuneration under section 197 of the Companies Act, 2013 and
Schedule-V apply to X.
Answer
Section 197 of the Companies Act, 2013 contains certain limits with respect to remuneration of
Directors including managing director and whole time director and manager. However, these
limits do not apply to other key managerial personnel i.e. the Chief Executive Officer, the Chief
Financial Officer and the Company Secretary.
Similarly, Schedule V contains certain limits with respect to remuneration of managing director, whole
time director and manager. However, these limits also do not apply to other key managerial
personnel, i.e. the Chief Executive Officer, the Chief Financial Officer and the Company Secretary.

Thus, the limits on managerial remuneration as contained in section 197 of the Companies Act,
2013 and schedule V shall not apply to Mr. X.
(ii) XYZ Ltd. issued a notice on 1st August, 2019 to hold its Annual General Meeting on 24th
August, 2019. The company had given the notice through email to all the members as per
the record of the company with read receipt. The same is received by all the members of
the company. Check the validity of the notice.
Answer
As per section 101 of the Companies Act, 2013, a general meeting of a company may be called by
giving not less than 21 clear days' notice either in writing or through electronic mode. Notice in
electronic mode shall be given in such manner as may be prescribed.
'Clear days' means days exclusive of the day of the notice of service and of the day on which the
meeting is held.
In this case the date of holding the Annual General Meeting is 24th August, 2019 and the date of
issue of notice is 01st August, 2019. Days to be excluded is day of holding the Annual General
Meeting i.e. 24th August, 2019 and day of issue of notice i.e. 01st August, 2019. Therefore, notice
of 22 days is given in this case.
Number of days' notice required under section 101 of the Act is 21 days. Therefore, it is a valid
notice.
(iii) The directors of your company is of the opinion that every public company having more
than `100 crore share capital have to provide for remote e-voting. Does the Companies Act
2013, make it compulsory or optional for such situations?Offer your comments.
Answer
Section 108 of the Companies Act, 2013 provides for Voting through electronic means. The
Central Government may prescribe the class or classes of companies and manner in which a
member may exercise his right to vote by the electronic means.
"Voting by electronic means" includes "remote e-voting" and voting at the general meeting
through an electronic voting system which may be the same as used for remote e-voting. "Remote e-
voting" means the facility of casting votes by a member using an electronic voting system from a
place other than venue of a general meeting.
Section 108 read with Rule 20 of the Companies (Management and Administration) Rules, 2014,
provides that, every company which has listed its equity shares on a recognised stock exchange
and every company having not less than one thousand members shall provide to its members,
facility to exercise their right to vote on resolutions proposed to be considered at a general meeting
by electronic means.
However, a Nidhi, or an enterprise or institutional investor referred to in chapter XB or chapter XC

of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 is not required to
provide the facility to vote by electronic means.
Thus, companies fulfilling abovementioned criteria have to mandatory opt for e- Voting.
Assuming that the company with Rs. 100 crore share capital may be having more than 1000
members, the company should provide for e-voting. If there are less than 1000 members, e-
voting is not compulsory.

(iv) X is being appointed as a proxy for an annual general meeting of XYZ Ltd. The said meeting is
being adjourned due to some reason. Now, Y is being appointed as a proxy to attend the
adjourned meeting. Who will be a valid proxy for adjourned meeting ? And in case the general
meeting of XYZ Ltd is scheduled on 22nd September, 2019 and the company has received 4
proxies for the same holdings of a member dated with 5th, 10th, 12th, and 19th September,
2019. Which proxy is valid ?
Answer
As per the Secretarial Standard on General Meeting (SS-2) an instrument of Proxy duly filled,
stamped and signed, is valid only for the Meeting to which it relates including any adjournment
thereof. However, if a proxy has been appointed for the original meeting and such meeting is
adjourned, any proxy given for the adjourned meeting revokes the proxy given for the original
meeting. A Proxy later in date revokes any Proxy/Proxies dated prior to such Proxy. Hence Mr. Y
will be a valid proxy for adjourned meeting.
As per the Secretarial Standard on General Meeting (SS-2) if a company receives multiple proxies
for the same holdings of a member, the proxy which is dated last shall be considered valid. So, the
proxy dated last i.e. 19th September, 2019 shall be consideredas valid.
(v) X has applied to the Indian Institute of Corporate Affairs (IICA) for inclusion of his name in
the data bank of independent directors. He is working as a director of X Ltd and Y Ltd, both
are unlisted public companies having the paid-up share capital of `10 crores since last 7
years. X says that he is not required to pass the online proficiency self-assessment test as
he is director of two unlisted companies with paid-up share capital of `10 crores since last
7 years. Explainwhether the contention of X is correct.
Answer
As per Rule 6(4) of the Companies (Appointment and Qualification of Directors) Rules, 2014.
every individual whose name is included in the data bank of independent directors of IICA shall
pass an online proficiency self-assessment test conducted by the IICA within a period of two
years from the date of inclusion of his name in the data bank, failing which, his name shall stand
removed from the data bank of the institute.
Proviso to this sub rule provides that the individual who has served for a period of not less than
three years as on the date of inclusion of his name in the data bank as director or key managerial
personnel in a listed public company or in an unlisted public company having a paid-up share
capital of Rs. 10 crores or more shall not be required to pass the online proficiency self-assessment
test.
It is further provided that for the purpose of calculation of the period of three years referred to in
the first proviso, any period during which an individual was acting as a director or as a key
managerial personnel in two or more companies or bodies corporate or statutory corporations at
the same time shall be counted only once.
In view of this proviso, the contention of director is valid as the experience of directoris 7 years.
PART - III
(a) Can a company secretary advertise himself as per the guidelines of the ICSI 2020 ?
Mention few of the restrictions in this regard.
Answer
As per the ICSI 2020 guidelines, the following activities are permitted for a company Secretary in
Practice as means to advertise:
1. Display the scope of work on his/her own website.
2. Creating a visual identity in compliance with the Guidelines for use of individual Logo issued by
the Council of ICSI.
3. Display of Location and decor of the workplace, meeting rooms, etc.

4. Display of Firm name, Logo or any other identity on Uniform, Office/s, office stationary&
equipment/ material and providing Training to Staff.
5. Professional Updates and Write ups in any mode.
6. Appearing on local radio or television.
7. Giving speeches/lectures at any platform including Seminars, Conferences, training
programmes, Workshops, Conventions, etc. so organised by any forum.
8. Holding professional seminars, conferences and workshops.
9. Sponsoring any event (cultural, professional or otherwise) or helping with community
programmes or doing voluntary work as a professional for charitableorganizations.
10. Use of social media like Facebook, Instagram, Linkedin, Twitter, Youtube, WeChat, Telegram
and Whatsapp or and other media of similar nature.
The restrictions are given below :

The Advertisement shall:
1. not be in violation of provisions of Company Secretaries Act, 1980;
2. not be false or misleading;
3. not claim superiority over any or all other Company Secretaries;
4. not be indecent, sensational or otherwise of such nature which may bring disrepute to the
profession or the Institute (ICSI);
5. not contain fabricated or false testimonials or endorsements concerning the Company
Secretary;
6. not refer the Company Secretaries in the terms such as "specialists" or "experts";
7. not represent that the quality of the professional services to be performed is greater than the
quality of professional services performed by other professionals. Statements comparing one
professional's services to that of another are not allowed;
8. not constitute a guarantee, warranty, or prediction regarding the outcome of any professional
assignment;
9. in no way indicate that the charging of a fee is contingent on outcome, or that no fee will be
charged in the absence of the desired outcome;
10. Not contain any reference to past successes or results which indicates a guarantee, warranty
or prediction of result of future professional assignments. eg. We made M/s. Xxx win the case,
Meet the masters;
11. not be designed for "pleasing customers," which might mislead or eventually harm
customers or third parties;
12. Not contain any humorous slogans. E.g. Save Rs. Xxxx Come to us, we will tellyou how.
(b) It is essential to device “performance, contribution and efficiency based” revenue sharing
model in MDFs. Explain.
Answer
In the long term success of the MDF the revenue sharing model has to be designed to suit the given
situation. Partners may adopt simple revenue sharing model to share profits and losses equally.
In this model it is assumed that each one is bringing equal business and generating equal
revenue. However, in reality if it doesn't happen it may give rise to sense of discomfort against the
person who is continuously showing less contribution but at the same time getting equal share of
profits.
Therefore, it is essential to device “performance, contribution and efficiency based" revenue sharing
model. Assume a situation where A,B,C,D and E are the partners expert in different disciplines. The
revenue sharing model could be the following:
1. Partner bringing new client shall be given referral or induction share, say, @ 15% of the fees
settled and received; it can be for the first year or for given number of years;
2. Certain percentage of fees, say 15% shall be retained in business in common pool for meeting
expenses;
3. 70% of the fees shall be given to the partner of partners who actually work on the
assignment (assignment share). When more than one partners are involved in an assignment
their share can be determined based on respective role;

4. At the year end after meeting expenses resultant profit shall be shared in proportion of
contribution of individual in the gross earnings/net profit of the firm;
5. Internally, different verticals can be created and surplus generated by each one can be assessed
as an independent cost centre.
This model motivates each partner to bring more and more business into the firm and also to
work for maximization of his share and wealth of the firm.
There could be more tailor made revenue sharing models, however, the model based on performance,
contribution and efficiency is likely to work better.

Company Law
June – 2022
Exam Paper
PART - I
(a) Articles of Association of a company limited by guarantee provides that entire income of
company shall be applied towards promotion of the objects of the company.
Answer
A company limited by guarantee is primarily used for non-profit purposes and the profits are
reinvested and used for promoting its non-profit activities. Although the Companies Act, 2013,
does not specifically prohibit distribution of dividend in such companies; however, the Articles of
Association of such companies usually provides that all the income of the company shall be
applied solely towards the promotion of the objects of the company and that no portion shall be paid
or transferred directly or indirectlyby way of dividend or bonus or by way of profit to its members.
Therefore, the statement is correct. Articles of Association of the company limited by guarantee
may provide that all the income of company shall be applied towards promotion of the objects of
company.
(b) Write any five differences between debenture the and loan.
Answer
Debenture Loan
Debenture means a document which A loan, creates a right in the creditor to demand
creates or acknowledges a debt. repayment.
Company can issue debenture as per the A loan, creates a right in the creditor to
provisions of the Companies Act, 2013. demand repayment.
Debenture can be classified as secured or Loan can be classified as secured or
unsecured; convertible or non- convertible; unsecured.
redeemable or perpetual.
Debenture trust deed is executed at the time No trust deed is executed at the time of
of issue of debenture. granting loan. Loan agreement is executed
between borrower and creditor.
Debenture trustee is appointed. No requirement to appoint trustee in case
of loan.
(c) 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 ?
Answer
The general principle of company law is that every member holds equal rights with other members
of the company in the same class. The scale of rights of members of the same class must be held
evenly for smooth functioning of the company. In case of difference(s) amongst the members the
issue is decided by a vote of the majority.
Since the majority of the members are in an advantageous position to run the company according to
their command, the minority of shareholders are often oppressed. The company law provides for
adequate protection for the minority shareholders when their rights are trampled by the majority.
But the protection of the minority is not generally available when the majority does anything in
the exercise of the powers for internal administration of a company.

In Pavlides v. Jensen (1956) Ch. 565, a minority shareholder brought an action for damages
against three directors and against the company itself on the ground that they have been negligent
in selling a mine owned by the company for £ 82,000, whereas its real value was about £ 10,00,000.
It was held that the action was not maintainable. The judge observed, it was open to the company,
on the resolution of a majority of the shareholders to sell the mine at a price decided by the
company in that manner, and it was open to the company by a vote of majority to decide that if
the directors by their negligence or error of judgement has sold the company's mine at an
undervalue, proceedings should not be taken against the directors".
Accordingly, the action of Ajit is not justified.
(d) Strike in the postal department could be a valid reason for delay in dispatch of dividend
warrants.
Answer
Section 127 of the Companies Act, 2013 provides that dividend shall be paid or dividend warrant
shall be posted within period of thirty days from date of declaration of dividend; otherwise the
company and the defaulting directors will be liable for default.
However, proviso to section 127 of the Act further provides a list of situations where no offence
under this section shall be deemed to have been committed:-
(a) where the dividend could not be paid by reason of the operation of any law;
(b) where a shareholder has given directions to the company regarding the paymentof the dividend
and those directions cannot be complied with and the same hasbeen communicated to him;
(c) where there is a dispute regarding the right to receive the dividend;
(d) where the dividend has been lawfully adjusted by the company against any sumdue to it from
the shareholder;
(e) where, for any other reason, the failure to pay the dividend or to post the warrantwithin the
period under this section was not due to any default on the part of thecompany.
In this case, delay has taken place due to strike in the postal department and it can be attributed as
"for any other reason" and without any default on the part of company. Hence, the Statement is
correct.
(a) Which of the following companies is eligible to issue shares with Differential Voting
Rights (DVRs) during the financial year 2022-23 ?
Type of company Nature of default Whether Articles of

Association of the company
authorised toissueshareswith
DVR?
A Ltd. – Unlisted Company has made default in filing Yes
company annual return for the financial years
2018-19 & 2019-20. Default was made
good during the financial year2020-
2021.
B Pvt. Ltd. ………….. No
Answer
Section 43 of the Companies Act, 2013 read with Rule 4 of Companies (Share Capital and Debentures)
Rules, 2014 provides that company can issue shares with Differential Voting Rights (DVRs) if
company's Articles authorise it to issue differential voting right shares. Shares with DVRs can be
issued by company limited by shares only.

Company cannot issue shares with DVRs if company has defaulted in filing financial statements and
annual returns for three financial years immediately preceding the financial year in which it is decided
to issue such shares. The provisions of section 43 of the Companies Act, 2013 are applicable to
public as well as private company.
In light of the above provisions:

 A Ltd. can issue shares with DVRs. Company would be ineligible to issue shares with s if it has
defaulted in filing financial statements and annual returns for three financial years
immediately preceding the financial year which it is proposed to be issued. A Ltd. has made
default during financial year 2018-19 & 2019- 20 only in respect of filing annual return, which
was made good during the financial year 2020-2021. Articles of Association of A Ltd. also
authorise the company toissue shares with DVRs.
 B Pvt. Ltd. cannot issue shares with DVRs unless it alter its Articles of Association in such a manner
so as to authorise it to issue shares with DVRs.
(b) Explain in brief : A company though a legal person is not a citizen.

Answer
The Statement is correct.
A company though a legal person, is not a citizen under the:
 Constitution of India; or
 Citizenship Act, 1955
However, company has "nationality", domicile and "residence".

In the matter of State Trading Corporation of India ltd. vs. C.T.O., the Supreme Court has held that
State Trading Corporation though a legal person, was not a citizen and can act only through
natural persons. Nevertheless, it is to be noted that certain fundamental rights enshrined in the
Constitution for protection of “person”, e.g., right to equality (Article 14) etc. are also available to
company. Section 2(f) of Citizenship Act, 1955 expressly excludes a company or association or body of
individuals from citizenship.
(c) The Articles of Association of Regular Ltd. provides that documents may be served upon
the company only through registered post. Ram dispatches a document to the company by
courier service. The company does not accept it on the ground that it is in violation of the
Articles of Association. Examine with reference to the provisions of the Companies Act, 2013
whether refusal of receiptof document by the company is valid ?
Answer
A document can be served on company or its officer thereof by sending it to the company or the
officer at its registered office by registered post or by speed post or by courier service or by
delivering at his office or address, or by such electronic or other mode as may be prescribed -
section 20 of the Companies Act, 2013. Here, "courier" means a document sent through a courier
which provides proof of delivery - Rule 35 ofthe Companies (Incorporation) Rules, 2014.
Further, communication to company and officer can be made by electronic transmission.

Electronic transmission means communication delivered by fax, email or by other means of
electronic communication.
Considering the above provisions, service of document by Ram by way of courier service to
company is valid service of document within the meaning of the Companies Act, 2013. Contention
of the company is not valid. Articles of association cannot supersede provisions of the Companies
Act, 2013.
(d) While sanctioning working capital limits, the rate of interest has been fixed at a specified
percentage above the bank rate as notified by the Reserve Bank of India (RBI). But later
on, there was a change in the interest rate due to RBI notification. The lending bank
insisted on filing necessary documents and forms for modification of charge under section 79
of the Companies Act, 2013. Decideif the claim of the lending bank is tenable.
Answer
The term "modification of charge" includes variation of any of the terms of the agreement entered
into between lender and borrower. It includes change (i.e., increase or decrease) in amount of

borrowing, change in security, extension of time for repayment. It also includes variation in rate of
interest taken place due to mutual agreement or by operation of law. Even if the rights of a charge
holder are assigned to a third party, it will be regarded as modification. The provisions applicable
to the registration of a charge under section 77 shall apply to the modification of a charge.
However, change in interest rate fixed by Reserve Bank India does not amount to modification of
charge in terms of the conditions of the charge under section 79 of the Companies Act, 2013. Hence,
claim of the lending bank to file documents for modificationof charge is not tenable.
(e) Local Ltd. is planning to issue its equity shares to persons residing outside India. In this
context, Chairman of the company wants to know on the followingmatters :
 What are the provisions relating to maintaining the foreign register of members?
 Can company discontinue maintaining foreign register of members ? If so, when ? Give
your inputs to the Chairman of Local Ltd.
Answer
Section 88(4) of the Companies Act, 2013 empowers a company to keep foreign registers of
members or debenture-holders, other security holders or beneficial owners residing outside India.
Company may maintain such register if it is authorised by its Articles of Association. It shall
contain the names and particulars of the members, debenture-holders, other security holders or
beneficial owners residing outside India. A foreign register is deemed to be a part of the company's
principal register and it should be kept in the same manner as the principal register and be likewise
open to inspection.
The company shall, within thirty days from the date of the opening of any foreign register, file
with the Registrar notice of the situation of the office in Form No. MGT.3 along with the fee where
such register is kept; and in the event of any change in the situation of such office or of its
discontinuance, shall, within thirty days from the date of such change or discontinuance, as the case
may be, file notice in Form No. MGT.3 withthe Registrar of such change or discontinuance.
A duplicate of such register should be maintained at the registered office in India and all entries
made in the foreign register should be made in the duplicate register at the registered office as
soon as possible. The company may discontinue the keeping of any foreign register; and thereupon
all entries in that register shall be transferred to some other foreign register kept by the company
outside India or to the principal register.
If a company does not maintain foreign register of members or fails to maintain them in
accordance as per the provisions of the Companies Act, 2013, the company and every officer of the
company who is in default shall be punishable with fine. Based on the above provisions, advice
may be given to chairman of Local Ltd.
OR
(i) Shyam was appointed as the statutory auditor of Ram 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.
Answer
Any vacancy arising in the office of auditor due to any reason except on account of expiry of his
term is known as casual vacancy. As per section 139(8) of the Companies Act, 2013, Board of
directors has power to fill casual vacancy in office of auditor withinthirty (30) days.
In case casual vacancy is occurred due to resignation of auditor, such appointment shall be
approved by the General Meeting convened within 3 months of the recommendation of the
Board. Appointment of auditors to fill casual vacancy shall be made after taking into account the

recommendation of audit committee, if any. The new auditor shall hold the office till the conclusion
of the next annual general meeting. Written and signed consent and certificate shall be obtained from the
auditor stating the appointment shall be in accordance with the conditions as may be prescribed
under Rule 4 of the Companies (Audit and Auditors) Rules, 2014 and satisfies the criteria provided
in section 141. Company shall inform the auditor concerned of his or its appointment.
Resigning auditor shall file Form ADT-3 with the company and the Registrar of Companies along
with valid reasons within the 30 days of the date of resignation. The company shall file a notice of
appointment (Form ADT-1) with the Registrar within fifteen days of the meeting in which the
auditor is appointed.
(ii) 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.
Answer
Subject to the provisions contained in the Memorandum of Association and Articles of Association
of the company, any person who is capable to contract can become a member of company.
1. Pawnee - A Pawnee cannot be treated as holder of shares pledged in his favour, and the pawner
continues to be member and exercise the rights of member. Pawnee has no right to
foreclosure since he never had the absolute ownership at law and his equitable title cannot
exceed what is specifically granted by law.
2. A partnership firm is not a legal person and as such it cannot, in its own name, become a
member of a company.
3. A trade union registered under the Trade Union Act, can be registered as member and can hold
shares but unregistered trade union cannot become member ofcompany.
(iii) Sita Ltd. intends to issue sweat 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 ?
Answer
According to Section 2(88) of Companies Act, 2013 Sweat equity shares means such equity
shares as are issued by a company to its Directors or employees at a discount or for
consideration, other than cash, for providing their know-how or making available rights in the
nature of intellectual property rights or value additions, by whatevername called.
Section 54 of the Companies Act, 2013 permits issue of sweat equity shares to employees or
directors of company in recognition for providing know-how etc. Company may issue sweat equity
shares at a discount or for consideration other than cash for providing know-how or making
available any Intellectual Property Rights or value additions. Company should get consent of its
member at General Meeting.
Further, as per Rule 8(9) of the Companies (Share Capital and Debentures) Rules, 2014, company
can issue sweat equity shares for non-cash consideration on the basis of valuation report in respect
thereof obtained from a registered valuer. Based on above provisions, we can conclude that the
view of the Managing Director is not correct.
(iv) 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 ?
Answer
As per section 2(87) of the Companies Act, 2013, "subsidiary company" in relation to any other
company (that is to say the holding company), means a company in whichthe holding company:
 controls the composition of the Board of directors; or
 exercise or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiaries.

The composition of company's Board of directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of director.
In the given case AV Pvt. Ltd is deemed to be subsidiary company of TV Ltd. as it controls the
composition of board of directors of AV Pvt. Ltd. Further, subsidiary of a public company is
deemed to be considered as a public company. Therefore, AV Pvt. Ltd is considered as a public
company.
(v) Company Secretary of Pumpkin Ltd. has made following entries into Register of members,
debenture holders and other security holders on happening of certainevents :
Event Date of event Date on which entrywas 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
Answer
Following are the relevant provisions regarding entries in the register of members, debenture
holders and other security holders as contained in Rule 5 of the Companies (Management and
Administration) Rules, 2014:
 The entries in register of members shall be made within seven (7) days of approval of
allotment or transfer of shares, debenture or other securities.
 Entry shall be made within seven (7) days in case of forfeiture or issue of duplicate or
new share certificates after the approval of board or committee.
Applying the above rules, it can be said that entries related to allotment of debentures, issue of
duplicate share certificates and forfeiture of shares shall be made within periodof seven (7) days.
In the present case, the entries for allotment of debentures and issue of duplicate shares are made
beyond the period of seven (7) days and hence not in order. Whereas the entry related to forfeiture
of shares is made within seven (7) days and the same is inorder.
(a) 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 ?
Answer
As per the Regulation 43(A) of SEBI (Listing Obligation and Disclosure Requirements) Regulations,
2015, the Dividend Distribution Policy shall include following parameters:
1. The circumstances under which the shareholders of the listed entities mayor may not expect
dividend;
2. The financial parameters that shall be considered while declaring dividend;
3. Internal and external factors that shall be considered for declaration of dividend;
4. Policy as to how the retained earnings shall be utilized; and
5. Parameters that shall be adopted with regard to various classes of shares.

(b) 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 `15 crore during each of the preceding 5
years. In this connection, Board of directors need your expert views on the following
matters :
(i) What is the meaning of ‘‘impact assessment’’?
(ii) Whether impact assessment is required to be undertaken by all thecompanies ?
(iii) Who can conduct impact assessment ?
Answer
(i) The impact assessment is exercise to assess the social impact of a particular project. Impact
assessment intends to evaluate "social return on investment". Impact assessment is the
exercise of taking a retroactive view on the Corporate Social Responsibility (CSR) activities
completed by the entity.
Impact assessment is seemingly another step to encourage companies to take considered
decisions before deploying CSR amounts and assess the impacts of their investments to
capture the impact being generated by them. This shall not only serve as feedback for
companies to plan and better allocate resources,but shall also deepen the impact of CSR.
(ii) Since impact assessment is cost-intensive and time consuming, the idea is to obligate only
certain classes of companies which have large amounts of spending and have completed their
large CSR projects. Accordingly, Rule 8(3) of the Companies (Corporate Social Responsibilities
Policy), 2014 requires followingclass of companies to conduct impact assessment:
 companies with minimum average CSR obligation of Rs. 10 crore or more in the
immediately preceding three (3) financial years; and
 having CSR projects of outlays of minimum Rs. 1 crore and which have been completed
not less than 1 year before undertaking impact assessment.
(iii) The impact assessment shall be conducted by an independent agency.
(c) 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 ` 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 repaymentof security deposits ?
Answer
As per section 186(8) of the Companies Act, 2013, a company which is in default in repayment of
public deposits and/or interest thereon is not permitted to make or give any loan or investment or
to provide any guarantee or security till the default is subsisting.
But it is to be noted that in the given question, company has defaulted in repaying security deposit
received from its dealers which were received for performance of contract of supply of goods or
provisions of services. Such security deposits accepted for performance of contracts for supply of
goods or provision of services are not considered as deposits within meaning of Rule 2(1)(c) of the
Companies (Acceptance of Deposits) Rules, 2014. Therefore, the provisions of section 186(8) are
not attracted.
Hi-Fi Ltd. can make investment into equity shares of Wi-Fi Ltd. subject to fulfillment of other

PART - II
(a) 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 II – Moon Ltd.

Date of Annual General Meeting 30th September, 2021 30th September, 2021
Date of sendingnotice by post 5th September, 2021 7th September, 2021
What would be your stand in case if Sky Ltd. and Moon Ltd. are section 8 companies ?
Answer
As per section 101 of the Companies Act, 2013, a General Meeting of company may be called by
giving not less than 21 clear days' notice either in writing or through electronic mode. Clear days'
means exclusive of the day of the notice of service and of the day on which the meeting is held. When
a notice of General Meeting is sent by post, it shall be deemed to be served at the expiration of 48
hours after the letter containing the same is posted - Rule 35 of the Companies (Incorporation)
Rules, 2014.
Each of 21 days must be full or complete days. The day on which the notice is deemed to be
served on the member and the day of the general meeting have to be inaddition to the 21 days.
Case-I - Sky Ltd. Case -11- Moon

Ltd.
No. of days from the date of sending notice
26 days 24 days
by post to the date of meeting
Less: Day of meeting 1 day 1 day
Less: Day of sending notice by post 1 day 1 day
Less: 2 days (equivalent to 48 hours)after
date of posting 2 days 2 days
Number of clear days 22 days 20 days

Length of notice Proper Shorter
In case of section 8 company, a General Meeting of company may be called by giving 14 clear
days' notice instead of 21 clear days. Hence, if Sky Ltd., and Moon Ltd. Are section 8 companies,
notice issued for General Meeting is proper.

(b) In compliance to the Companies Act, 2013, at least one-woman director shall be on the
Board of such class or classes 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 the Listing status Paid up share capital(in `) as Turnover (in `) asper the
company per the latestaudited financial latest audited financial
statements statements
Maya Ltd. Unlisted 50 Crore 100 crore
Manna Ltd. Listed 100 crore 150 crore

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 ?
Answer
As per section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors)
Rules, 2014 following class of companies must have at least one womandirector:
 All listed companies
 Public company-
 with paid up capital of Rs. 100 crore or more; or
 with turnover of Rs. 300 crore or more.
Applying the above provision, it can be suggested that:

 Maya ltd. is not compulsorily required to appoint woman director as its paid-up capital is less
than Rs. 100 crore and turnover is less than Rs. 300 crore.
 Manna ltd. is compulsorily required to appoint at least one woman director as it is a listed
company.
(c) 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.
Answer
A few advantages of buyback of shares are as under:
1. It is an alternate mode of reduction in capital without requiring approval of the court/NCLT.
2. To improve the earnings per share.
3. To improve return on capital, return on net worth and to enhance the long-term shareholders
value.
4. To provide an additional exit route to shareholders when shares are undervalued or thinly
traded.
5. To enhance consolidation of stake in the company.
6. To prevent unwelcome takeover bids.
7. To return surplus cash to shareholders.
8. To achieve optimum capital structure.
9. To support share price during periods of sluggish market condition.
10. To serve the equity more efficiently.
(d) ‘The Company Secretary and Chairperson shall take due and reasonable care while handling
virtual meeting.’ Evaluate the statement.
Answer
The Chairperson of the meeting and the Company Secretary while handling virtual meeting shall
take due and reasonable care with respect to the following:
1. to safeguard the integrity of the meeting by ensuring sufficient security and identification
procedures to record proceedings;

2. to ensure availability of proper video conferencing or other audio visual equipment or facilities for
providing transmission of the communications for effective participation of the directors and
other authorised participants at the Board meeting;
3. to record proceedings and prepare the minutes of the meeting;
4. to store for safekeeping and marking the tape recording(s) or other electronic recording
mechanism as part of the records of the company at least before the time of completion of audit
of that particular year;
(a) to ensure that no person other than the concerned director are attending or have access to
the proceedings of the meeting through video conferencing mode or other audio visual
means; and
(b) to ensure that participants attending the meeting through audio visual means are able to
hear and see the other participants clearly during the course of themeeting.
The directors, who are differently abled, may be facilitated by the Board to allow a person to
accompany him provided such Director requests the Board to allow a person to accompany him and
ensures that such person maintains confidentiality of the mattersdiscussed at the meeting.
(a) Happy Mobile Ltd. is engaged in the manufacturing of mobiles and accessories related to
mobile. The Board of the company consists of nine directors i.e. Rakesh (Director), Shyam
(Director), Mehul (Director), Jigisha (Director), Komal (Director), Kavita (Director), Ashish
(Independent Director), Gagandeep (Independent Director) and Anil (Small Shareholder’s
Director). Articles of Association of the company does not provide for retirement of all
directors at every Annual General Meeting. Calculate the number of directors liable to retire
at the Annual General Meeting to be held on 15th September, 2022.
Answer
Section 152(6) of the Companies Act, 2013-states that unless it is provided by the articles of the
company, 2/3rd directors are liable to retire by rotation and 1/3rd are liable to retire at every
general meeting after the meeting at which first directors are appointed.
Directors who are liable to retire by rotation are known as rotational directors. Any fraction while
calculating 2/3rd shall be rounded off to the one. Alternatively, it can be said that only 1/3rd of
the total number of directors can be non- rotational directors. Here, total directors mean directors
appointed by the company. 1/3rd of rotational directors shall retire at every General Meeting. The
directors who have been longest in office since their last appointment are liable to retire by
rotation at every Annual General Meeting. Small Shareholders' Director and Independent
Directors are non-rotational directors.
Applying above provisions, Ashish (Independent Director), Gagandeep (Independent Director) and
Anil (Small Shareholders' Director) are non-rotational directors.
Remaining six directors are liable to retire by rotation. 1/3rd of rotational directors are liable to
retire at the forthcoming Annual General Meeting (i.e. 1/3rd of 6 = 2).
Therefore, any two directors from Rakesh, Shyam, Mehul, Jigisha, Komal and Kavita will retire by
rotation.

(b) Naman is Managing Director, Manan is Whole-time Director and Ojas is Director of the Apollo
Ltd. Naman has resigned from his position with effect from 31st March, 2022 due to his ill
health. Doctor has advised him to take complete bed rest. Manan and Ojas also tendered
resignation with effect from 1st April, 2022 pursuant to a slump sale of one of the
undertakings of Apollo Ltd. to Nimbo Ltd. (a group company of Apollo Ltd.). Consequently,
Manan and Ojas were appointed as Whole-time Director and Director respectively in Nimbo
Ltd. w.e.f. 1 June, 2022. Manan and Ojas individually made an application to the Board of
Apollo Ltd. for compensation for loss of office. When, Naman came to know about the said
applications by Manan and Ojas demanding compensation, he also asked for the
compensation. Who will be eligible for such compensation as per the provisions of the
Companies Act, 2013 ?
Answer
Section 202 of the Companies Act, 2013 provides that company may make payment of compensation
for any loss of office. Such compensation is payable to Managing Director (MD) or Whole-time
Director (WTD) or Manager of company. However, no compensation shall be payable to any other
director for loss of office.
As per section 202(2), compensation is not payable in following circumstances:

 Where Managing Director or Whole time Director or Manager resigns his office in view of
reconstruction of the company or amalgamation with other company and he is appointed as
Managing Director or Whole time Director or Manager of the reconstituted company or body
corporate resulting from such amalgamation. In the present case, since Manan has taken up
directorship in Nimbo Ltd. Pursuant to a reconstruction within the group companies (in the
form of slump sale of one of the undertakings to another group company), he cannot ask for
the compensation for loss of office.
 Ojas is not eligible for compensation at all as per the provisions of section 202 of the
 When a director (MD/WTD) resigns from his office at his / her will (i.e., otherwise than because
of the reconstruction or amalgamation) he cannot claim compensation for the loss of office.
Accordingly, Naman also cannot claim any compensation for the loss of his office as he has
resigned voluntarily.
(c) Rajdeep, a director of the company, intimated his willingness to participate in the Board
meeting scheduled to be held in August, 2021 through video conferencing. He declared his
intention for participation in the scheduled Board meeting through video conferencing mode to
company in July, 2021. The Chairman of the company has informed Rajdeep that he has to
inform at least 3 months in advance to participate in the Board meeting through video
conferencing. Considering the applicable provisions of the Companies Act, 2013, decide
whether the action of the Chairman is valid ? Can Rajdeep attend the Board meeting
scheduled to beheld in August, 2021 through video conferencing ?
Answer
The provisions for conducting Board meeting through video conferencing has been specified in Rule
3 of the Companies (Meetings of Board and its Powers) Rules, 2014.
Director can attend Board meeting electronically. At the beginning of calendar year, director may
intimate his intention to participate in Board meeting through video conferencing. Such
declaration shall be valid for one year. If he does not intimate, it shall be presumed that the
director shall attend the Board meeting in person.
Para 1.3.4 of Secretarial Standard on Board Meeting states that, the notice of the Board meeting
shall inform the directors regarding the option available to them to participate through video
conferencing mode or other audio-visual means, and shall provide all the necessary information to
enable the directors to participate through videoconferencing mode or other audio-visual means.

A director intending to participate through video conferencing or audio-visual means shall
communicate his intention to the Chairperson or the Company Secretary of the company. If the
director intends to participate through video conferencing or other audio- visual means, he shall
give prior intimation to that effect sufficiently in advance so that company is able to make suitable
arrangements in this behalf.
It was held in case of Rupak Gupta vs. UP Hotels Ltd., Sub Rule 3(3)(e) of Companies (Meeting of Board
and its Powers) Rules, 2014 does not intend to say that if an intimation to participate in a meeting
through electronic mode is not given at the beginning of the year, the directors are not entitled to
participate in any meeting through electronic mode. Therefore, the director does not give intimation
at beginning of the calendar year, he can attend through video conference and preventing him from
appearing through video conferencing is improper.
Accordingly, one can say that the action of the Chairman is not valid. Rajdeep can participate in the
Board meeting through video conferencing.
(d) A director while leaving India for medical treatment abroad informed the Board of directors
that he would not be available for the next six months. During his absence, three Board
meetings were held and notices were not sent to him. Is there any default under the
Companies Act, 2013 ? What would be the consequences ?
Answer
Section 173(3) of the Companies Act, 2013 requires that not less than seven days’ notice in writing
shall be given to every director at the registered address (whether in India or outside India) as
available with the company and such notice shall be sent by hand delivery or by post or by
electronic means.
Further, notice of Board meeting shall be given even when meetings are held on pre- determined
dates or at pre-determined intervals. In Re Portuguese Consolidated Copper Mines (1889), it was
held that notice to director is necessary even if he has informed that he will not be able to attend
the Board meeting. If the notice of meeting is not given to one of its directors, meeting of Board of
directors is invalid and resolution passed at such meeting are inoperative (Parmeshwari Prasad
Gupta v. Union of India [1974] 44Comp Cas 1 [SC])
Therefore, notice of Board Meeting was required to be given despite the fact that while going
abroad, the director had already informed his non-availability during next sixmonths.
Consequences of not giving notice

 If the notice is not given there is violation of section 173. Every officer of company whose duty is
to give notice under this section and who fails to do so shall be liable to penalty of Rs.
25,000/-
 Failure to send notice would render the resolutions passed at the meeting nulland void.
(e) Advise the Board of directors of Clean Ltd. regarding appointment in the followingscenarios :
(i) Can Ram who is already director of Clean Ltd. be appointed as Chief Executive Officer
(CEO) or Chief Financial Officer (CFO) of the same company ?
(ii) Is it possible to appoint Ram as Managing director of Clean Ltd. when Shyam is already a
Manager of the same company ?
Answer
(i) "Chief Executive Officer" means an officer of company, who has been designated as such by
company - section 2(18) of the Companies Act, 2013. "Chief Financial Officer" means a person
appointed as the Chief Financial Officer of company - section 2(19) of the Companies Act, 2013.
The Companies Act, 2013 does not prohibit appointment of director as CEO or CFO of same
company but company has to comply with other provisions of Act (i.e. disclosure of interest,
office of profit or place etc.).
Further as per Regulation 77 of Table F, a director can be appointed as Chief Executive

Officer, Manager, Company Secretary or Chief Financial Officer of same company.
Accordingly, Ram who is the director of Clean Ltd. can be appointed as CEO or CFO in the
same company.

(ii) As per section 196(1) of the Companies Act, 2013 a company can appoint either Managing
Director or Manager, but not both at the same time. Accordingly, Ram cannot be appointed as
Managing Director of Clean Ltd. in case where Shyam is already appointed as a Manager of
Clean Ltd. in view of section 196(1) of the Companies Act, 2013.
OR
(i) 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. ?
Answer
Section 161(1) of the Companies Act, 2013, provides that the Articles of Association of a company
may confer on its Board of directors the power to appoint any person, other than a person who
fails to get appointed as a director in a General Meeting, as anadditional director at any time.
Person who is appointed as an additional director shall hold office up to the date of the next Annual
General Meeting or the last date on which the Annual General Meeting should have been held,
whichever is earlier. In case of default in holding Annual General Meeting, the additional director
shall vacate his office on the last day on which the Annual General Meeting ought to be held.
Further, as per section 96, the company is required to hold an Annual General Meeting (other
than First AGM) within a period of 6 months of closure of the relevant financial year. As per
section 2(41), "financial year" in relation to any company means period ending on 31st March
every year.
In the given case, since the Annual General Meeting was adjourned to and held on 30th September,
2021, Mohan can continue up to 30th September, 2021.
(ii) 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.
Answer
As per section 181 of the Companies Act, 2013, company can contribute to bonafide charitable
funds or other funds which are not directly connected to business of company upto 5% of its
average net profits during the preceding three financial years.
If the contribution is proposed for more than this limit, prior approval in General Meeting is
required.
In present case, we assume Well Ltd. has incurred Loss of Rs. 2,00,000 during the financial year
2021-22

Year Average Profits/Loss
2019-20 12,00,000
2020-21 5,00,000
2021-22 -2,00,000
Average net profits = 12,00,000+5,00,000-2,00,000/3= Rs. 5,00,000

5% of Average Net Profits = 5% of 5,00,000= Rs. 25,000
Pursuant to Section 181, if contribution to charitable trust is more than 5% of average net profits for
three financial years , it requires prior approval in General Meeting.
Hence, in the above case, where Well Ltd. wants to contribute more than Rs. 25000
i.e. Rs. 60,000 (in the present case) to charitable fund, the directors have to ensure that:
 Prior approval by ordinary resolution in the general meeting is obtained to make contribution to
charitable fund.
 The trust is bonafide.
Contribution towards Gratuity Fund for employees of company cannot be considered as contribution
towards charitable fund or trust. Gratuity Fund is directly related to business of company or welfare of
employees.
(iii) Indra 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 Company Number of Members Subject matter for whichresolution is

proposed
One Person company 1 Alteration of Articles ofAssociation
Unlisted Company 190 Buy-back of shares

Listed Company 12,340 Election of small shareholders’ Director
Answer
Company shall transact such items of business as the Central Government may, by notification,
declare to be transacted only by means of postal ballot. Provided that any item of business
required to be transacted by means of postal ballot under section 110(1)(a) of the Companies
Act, 2013, may be transacted at a general meeting by a company which is required to provide the
facility to members to vote by electronic means under section 108, in the manner provided in that
section.
As per Rule 22 of the Companies (Management and Administration) Rules, 2014 in relation to
alteration of Articles of Association of the company, resolution relating to buy-back of shares and
resolution relating to election of small shareholders' director shall be transacted through postal
ballot. However, One Person Company and Companies having members up to 200 are not required
to transact any business through postal ballot.
Accordingly, Indra Kumar can be informed that:

 One Person Company and Unlisted Company are not required to pass resolution through postal
ballot.

Listed Company is required to transact the business of election of small shareholders' director through
postal ballot since the number of members are in excess of 200.
(iv) 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 Company Paidup capital Turnover Aggregate outstanding
(Rs. in crore) (Rs. in crore) loan, debenture and
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
Answer
Section 177 of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of the Board
and its Powers) Rules, 2014 provides that the Board of directors of following companies are
required to constitute an Audit Committee of the Board:
 Every listed company;
 All public companies with paid up capital of Rs. 10 crore or more; or
 All public companies having turnover of Rs. 100 crore or more; or
 All public companies, having in aggregate outstanding loans, debentures and deposits
exceeding Rs. 50 crore or more
In view of the above provisions, it can be suggested that:

 A Ltd. is required to constitute Audit Committee as it has aggregate outstanding loans,
deposit and debenture of Rs. 55 crore (in excess of Rs. 50 crore).
 B Ltd. is required to constitute Audit Committee as it is a listed company.
 C Pvt. Ltd. is not required to constitute Audit Committee as it is a privatecompany.
 D Ltd. is required to constitute Audit Committee as it has a paid up capital of Rs. 10
crore.
(v) Explain the following terms with reference to a virtual meeting :

 Electronic mode
 Roll call.
Answer
 Secretarial Standard -1 (SS-l) defines "Electronic Mode” means Meetings through video
conferencing or other audio-visual means. "Video conferencing” or “other audio visual means”
means audio-visual electronic communication facility employed which enables all the persons
participating in a Meeting to communicate concurrently with each other without an intermediary
and to participate effectivelyin the Meeting.
 The requirement for roll call is in line with the requirement under Rule 3(4) and Rule 3(5) of
the Companies (Meetings of Board and its Powers) Rules, 2014. During the roll call, every
Director participating through Electronic Mode should state, for the record, the following
namely: (a) name; (b) the location from where he is participating; (c) that he has received the
Agenda and all the relevant material for the Meeting; and (d) that no one other than the
concerned Director is attending or having access to the proceedings of the Meeting at the
location mentioned in (b) above.
A roll call is nothing but identifying and confirming the attendance of the director participating
through Electronic Mode.

PART - III
(a) Kirti, who is a Practicing Company Secretary is specialized in the areas of Secretarial
Audit. On account of receiving many assignments and unable to handle the work alone, she
permits Mohan, her friend who is a Company Secretary but not in 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 assignments shall be passed on to Mohan and Kirti in equal proportion. Examine the
validity of this arrangement in light of the relevant provisions related to misconduct
under the Company Secretaries Act, 1980.
Answer
Part I of the First Schedule to the Companies Secretaries Act, 1980 deals with professional
misconduct in relation to Company Secretaries in practice.
Clause 1 of Part I of the First Schedule provides that a Company Secretary in Practice shall be
deemed to be guilty of professional misconduct, if he allows any person to practice in his name as
a Company Secretary unless such person is also a Company Secretary in Practice and is in
partnership with or employed by him.
This clause read with clause 11 allow another person to practice in the name of a Company
Secretary in Practice provided such other person is also a Company Secretary in Practice and is in
partnership with or is employed by the Company Secretary in Practice in whose name the work
is to be carried out. Two persons are said to be in Partnership when they work together on mutual
faith and agency. Sharing of remuneration does not make them partners. Thus, an associate who is
not a part of decision makingprocess does not become a partner.
In the given case, Practicing Company Secretary has engaged Mohan who is not a practicing
Company Secretary to carry Secretarial Audit in her name. It is a misconduct on her part. Moreover,
she has agreed to share 50% fees of assignment with Mohan.
Clause 2 of Part I of the First Schedule does not prohibit a Company Secretary in Practice from
sharing fees, commission or brokerage in the fees or profits of his professional business, with any
other member of the Institute or a partner or a retired partner or the legal representative of a
deceased partner. Accordingly, sharing of the fees with Mohan shall be seen as a professional
misconduct on the part of Kirti.
However, permitting Mohan to conduct the Secretarial Audit and give reports on her behalf will be
seen as a professional misconduct under the provisions of the CompanySecretaries Act, 1980.
(b) 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/ 016", "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 tocomply with SS-1 ?
Answer
As per para 1.2.1 of Secretarial Standard-l (SS-1), every Meeting of the Board should be serially
numbered for ease of reference. While numbering serially, the company may choose to follow its

existing system of numbering, if any, or any new system of numbering, which should be distinct and
enable ease of reference and/or cross reference. Here, a company may choose to either count and
give continuous numbering from its incorporation or give continuous numbering from Meetings held
on or after 1st July, 2015, this being the date from which SS-1 became effective. In any case, the
company should follow auniform and consistent system.
Accordingly, all styles {i.e. (i) to (iii)} presented for assigning serial number to the Board meeting by
the Company Secretary are valid and complying SS-1. It is advisable that the Board be informed
about the system of numbering of the Meeting and/or any change in the system of numbering;
and the same be recorded in the Minutes.
Serial number of the original meeting and the adjourned meeting should be the same.
For e.g.: In case the serial number of the original meeting is 12th Meeting, the serial number of the
adjourned meeting should be 12th Meeting (Adjourned).

Company Law
December – 2022
Exam Paper
PART - I
(a) Failure to distribute dividend always attracts punishment.

Answer
Section 127 of Companies Act, 2013 provides that, when a dividend has been declaredby a company but
has not been paid or the warrant in respect thereof has not been posted within thirty days from
the date of declaration to any shareholder entitled to the payment of the dividend, every director of
the company shall, if he is knowingly a party to the default, be punishable with imprisonment which
may extend to two years and with fine which shall not be less than one thousand rupees for every
day during which such default continues and the company shall be liable to pay simple interest at
the rate of eighteen per cent. per annum during the period for which such default continues.
Exceptions: Proviso to section 127 has provided a list where no offence under this section
shall be deemed to have been committed: -
1. where the dividend could not be paid by reason of the operation of any law;
2. where a shareholder has given directions to the company regarding the payment of the dividend
and those directions cannot be complied with and the same hasbeen communicated to him;
3. where there is a dispute regarding the right to receive the dividend;
4. where the dividend has been lawfully adjusted by the company against any sum due to it from
the shareholder; or
5. where, for any other reason, the failure to pay the dividend or to post the warrant within the
period under this section was not due to any default on the part of thecompany.
In case of a Nidhi Company, section 127 applies with the modification that where the dividend
payable is less than Rs. 100 or less, it is sufficient, if declaration of dividend is announced in local
language and the same is displayed in the notice board of the companyfor 3 months.
Hence, the statement is correct, failure to distribute dividend always attracts punishment but
subject to the exceptions under which the non- distribution of dividendshall not attract penalties.
(b) Niraj, who is a practicing Company Secretary has given an opinion to the Board of directors of
a company that in case of a merger of wholly owned subsidiary into parent company, there
is no requirement to convene meeting of Equity Shareholders, Secured and Unsecured
Creditors.
Answer
In the light of Section 232, when the 'Transferor and Transferee Company' involve a Parent Company
and a Wholly Owned Subsidiary, the meeting of Equity Shareholders, Secured and Unsecured
Creditors can be dispensed with if the rights of the Equity Shareholders of the 'Transferee
Company' are not being affected.
In the matter of Mohit Agro Commodities & Ors. NCLAT, dated June 28, 2021, the NCLAT has
observed that Section 232(1) of the Companies Act, 2013 uses the word 'may' which introduces
an element of discretion to the Tribunal to be exercised in the interest of justice in appropriate
situations. Section 232 is a specific provision carved out by the legislature when both conditions
maintained in clauses (a) and (b) of section 232(1) are met.
In the instant case the amalgamation sought for is between a Wholly Owned Subsidiary and the
Holding Company. The points which were considered in the above-mentioned judgment
were:
1. Whether such an arrangement alters the rights of the Stakeholders of the Company?

2. Whether such an amalgamation has any bearing internally on Creditors/Members of both the
Companies?
3. Whether not holding the subject meeting would amount to violation of any of the provisions of
the Companies Act, 2013?
4. Whether the Tribunal can exercise their discretion when the 'Transferor Company' is a Wholly
Owned Subsidiary of the Transferee Company and financial position of the 'Transferee
Company' is positive and the merger is not affecting the rights of the Shareholders or the
Creditors?
Therefore, it was held that the rights and liabilities of Secured and Unsecured Creditorswere not getting
affected in any manner by way of the proposed scheme as no new shares are being issued by the
'Transferor Company and no compromise is offered to any Secured and Unsecured Creditors of
the 'Transferee Company. Hence, when the ‘Transferor and Transferee Company’ involve a Parent
Company and a Wholly Owned Subsidiary, the meeting of Equity Shareholders, Secured Creditors
and Unsecured Creditors can be dispensed with as the rights of the Equity Shareholders of the
‘TransfereeCompany’ are not being affected.
Therefore, the opinion given by Mr. Niraj, Practicing Company Secretary to the board of the company
is correct.
(c) Ritesh was appointed as a Director, Finance of a listed company. During his meeting with
the statutory auditor, he represented that since Chief Financial Officer (CFO) who is a
Chartered Accountant has already finalized the financial statements, he as well as the Board
of directors doesn’t have any responsibilities in so far as preparation of financial statements
are concerned.
Answer
Section 134(5) of the Companies Act, 2013 specifically provides that the Director's Responsibility
Statement shall set out the following affirmations:
1. In the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
2. the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the company at the end of the financial year and of the profit and loss of
the company for that period;
3. the directors had taken proper and sufficient care of the maintenance of adequate accounting
records in accordance with the provisions of this Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities;
4. the directors had prepared the annual accounts on a going concern basis;
5. the directors, in the case of a listed company, had laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were
operating effectively; and
6. the directors had devised proper systems to ensure compliance with the provisionsof all applicable
laws and that such systems were adequate and operating effectively.
In light of above, it is the responsibility of the Board of directors to prepare proper financial
statement and maintain proper books of account in compliance with the statutory requirement. The
Board cannot absolve from its responsibility on the ground that a Chartered Accountant has been
appointed as CFO.
Therefore, Mr. Ritesh's representation to the statutory auditor is incorrect.
(d) Every holder of securities of a company may, at any time, nominate any person to whom his
securities shall vest in the event of his death.
Answer
Section 72(1) states that every holder of securities of a company may, at any time, nominate, in the
prescribed manner, any person to whom his securities shall vest in theevent of his death.

Section 72(2) states that when the securities of a company are held by more than one person
jointly, the joint holders may together nominate, in the prescribed manner, any person to whom
all the rights in the securities shall vest in the event of death of allthe joint holders.
Section 72(3) states that notwithstanding anything contained in any other law for the time being in
force or in any disposition, whether testamentary or otherwise, in respect of the securities of a
company, where a nomination made in the prescribed manner purports to confer on any person the
right to vest the securities of the company, the nominee shall, on the death of the holder of
securities or, as the case may be, on the death of the joint holders, become entitled to all the rights
in the securities, of the holder or, as the case may be, of all the joint holders, in relation to such
securities, to the exclusion of all other persons, unless the nomination is varied or cancelled in the
prescribed manner.
Section 72 (4) states that when the nominee is a minor, it shall be lawful for the holder of the
securities, making the nomination to appoint, in the prescribed manner, any person to become
entitled to the securities of the company, in the event of the death of the nominee during his
minority.
Rule 19 of Companies (Share Capital and Debentures) Rules, 2014 deals with Nomination by
securities holders. It provides that: -
1. Any holder of securities of a company may, at any time, nominate, in Form No. SH.13. any
person as his nominee in whom the securities shall vest in the eventof his death.
2. On the receipt of the nomination form, a corresponding entry shall forthwith be made in the
relevant register of securities holders, maintained under section 88.
3. Where the nomination is made in respect of the securities held by more than one person
jointly, all joint holders shall together nominate in Form No.SH. 13any person as nominee.
4. The request for nomination should be recorded by the Company within a period of two months
from the date of receipt of the duly filled and signed nominationform.
5. In the event of death of the holder of securities or where the securities are held by more than
one person jointly, in the event of death of all the joint holders, the person nominated as the
nominee may upon the production of such evidence as may be required by the Board, elect,
either-
 to register himself as holder of the securities; or
 to transfer the securities, as the deceased holder could have done.
6. If the person being a nominee, so becoming entitled, elects to be registered as holder of the
securities himself, he shall deliver or send to the company a notice in writing signed by him
stating that he so elects and such notice shall be accompanied with the death certificate of
the deceased share or debenture holder(s).
7. All the limitations, restrictions and provisions of the Act relating to the right to transfer and
the registration of transfers of securities shall be applicable to any such notice or transfer as
aforesaid as if the death of the share or debenture holder had not occurred and the notice or
transfer were a transfer signed by thatshareholder or debenture holder, as the case may be.
8. A person, being a nominee, becoming entitled to any securities by reason of the death of the
holder shall be entitled to the same dividends or interests and other advantages to which he
would have been entitled to if he were the registered holder of the securities except that he
shall not, before being registered as a holder in respect of such securities, be entitled in
respect of these securities to exercise any right conferred by the membership in relation to
meetings of thecompany.
 The Board may, at any time, give notice requiring any such person to elect either to be
registered himself or to transfer the securities, and if the notice is not complied with
within ninety days, the Board may thereafter withhold payment of all dividends or
interests, bonuses or other moneys payable in respect of the securities, as the case may be,
until the requirements of the notice have beencomplied with.

9. A nomination may be cancelled, or varied by nominating any other person in place of the
present nominee, by the holder of securities who has made the nomination, by giving a notice
of such cancellation or variation, to the companyin Form No. SH.14.
10. The cancellation or variation shall take effect from the date on which the notice of such variation
or cancellation is received by the company.
11. When the nominee is a minor, the holder of the securities, making the nomination, may appoint a
person in Form No. SH. 13 specified under sub-rule (1), who shall become entitled to the
securities of the company, in the event of death of the nominee during his minority.
(a) Ranveer, Chief Financial Officer (CFO) of the company has made the following observations
with respect to the appointment of an internal auditor.
Particulars Observations made by Ranveer

Existing employee of the company who is a Cannot be appointed
Chartered Accountant having experience of
doing internalaudit in past
Association of Chartered Accountants, Azad Can be appointed
Nagar specialized in internal audits
B Pvt. Ltd. (a company owned and managed by Can be appointed
Chartered Accountants engaged in the
business of providing internal audit services)
Examine, whether the observations are in accordance with the provisions of the Companies
Act, 2013 ?
Answer
As per the provisions of section 138 of the Companies Act, 2013 the correct answeris as under:
Particulars Observations Legality of the observation

madeby Ranveer
Existing employee of the Cannot be
As per section 138, a Chartered Accountant is eligible to
company who is a appointed
be appointed as internal auditor. Hence, He can be
Chartered Accountant
having experience of appointed.
doing internal audit in
past
Association of Chartered Can be appointed As per section 138 read with rule 13(1) of the Companies
Accountants, Azad (Accounts) Rules, 2014, the internal auditor may be
Nagar specialized in either a Chartered Accountant or Cost Accountant or
internal audits such other professional as may be decided by the Board and
further, the rule specifies for certain class of companies,
the internal auditor may be either an individual or a
partnership f i rm o r a body corporate. Since the
association does not fall within the above categories, it
cannot be appointed as Internal Auditor.
B Pvt. Ltd. (a company Can be appointed Yes, B Pvt. Ltd. can be appointed being a body corporate.
owned and managed by
Chartered Accountants
engaged in the business
of providing internal
audit services)

(b) Distinguish between transfer and transmission of shares as per the provisions of the
Answer
Distinction between transfer and transmission of shares are as under:
Transfer of shares Transmission of shares

Transfer of shares is a voluntary or deliberate Transmission takes place because of operation
act of the parties by way of a contract of law for instance on death, insolvency or
lunacy of a member
The execution of a valid transfer deed is No instrument of transfer is required in case of
necessary transmission
Stamp duty is payable where shares are No stamp duty is payable in case of
transferred by a member (except when the transmission of shares
shares are in demat form)
Transfer of shares is generally made for some Transmission of shares takes place without any
consideration consideration
(c) “Non-filing of particulars of a charge shall be void against the company as a going concern”
– Examine this statement in light of the provisions of the Companies Act, 2013.
Answer
According to Section 77 of the Companies Act, 2013, notwithstanding anything contained in any
other law for the time being in force, no charge created by a company shall be taken into account by
the liquidator [appointed under this Act or the Insolvency and Bankruptcy Code, 2016] or any other
creditor unless it is duly registered under sub- section (1) and a certificate of registration of such
charge is given by the Registrar undersub-section (2).
In the case of ONGC Ltd v. Official Liquidators of Ambica Mills Co Ltd (2006) 132 Comp Cas 606
(Guj), the ONGC had not been able to point out whether the so called charge, on the basis of which
it was claiming preference as a secured creditor, was registered or not. It was held that in the light
of this failure, ONGC could not be treated as a secured creditor in view of specific provisions of section
125 and the statutory requirement under the said section. This does not, however, mean that the
charge is altogether void and the debt is not recoverable. So long as the company does not go into
liquidation, thecharge is good and may be enforced.
Void against the liquidator means that the liquidator on winding up of the company can ignore the
charge and can treat the concerned creditor as unsecured creditor. The property will be treated as
free of charge i.e. the creditor cannot sell the property to recover its dues. Void against any creditor
of the company means that if any subsequent charge is created on the same property and the
earlier charge is not registered, the earlier charge would have no consequence and the latter charge
if registered would enjoy priority. In other words, the latter charge holder can have the property
sold in order torecover its money.
Thus, non-filing of particulars of a charge does not invalidate the charge against the company as a
going concern. It is void only against the liquidator and the creditors at the time of liquidation. The
company itself cannot have a cause of action arising out of non- registration. Hence, the statement is
not correct.

(d) ABCD Ltd. is a listed company and its financial results are about to be discussed and approved
in the board meeting to be held on 20th July, 2022. Referring to the provisions of the
Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 answer the following :
(i) Compliance requirement regarding intimation to the stock exchange about the meeting
of the board discussing annual financial results
(ii) Circulating the financial reports to the shareholders who hold shares in
dematerialized (demat) form.
(iii) Presenting financial reports by the listing company on its website, if the listed entity
has subsidiaries.
Answer
(i) Under Regulation 29 (2) of SEBI (LODR) Regulations, 2015, every listed company has to give
intimation to the stock exchange, at least five days before the date of the board meeting to be
held for discussing annual financial results, (excluding the date of meeting and date of notice).
Hence, ABCD Ltd. is required to complywith this requirement.
(ii) As per rule 11(a) of the Companies (Accounts) Rules, 2014, in case of all listed companies and
such public companies which have a net worth of more than one crore rupees and turnover of
more than ten crore rupees, the financial statements may be sent by electronic mode to such
members whose shareholding is in dematerialised format and whose email Ids are registered
with Depository for communication purposes. Hence, ABCD Ltd. is required to comply with
this requirement.
Further, regulation 36 of SEBI (LODR) Regulations, 2015, states that the listed entity shall send
annual report to the shareholders in soft copies to all those shareholder(s) who have
registered their email address(es) either with the listed entity or with any depository. This
Regulation also requires the listed entity to send annual reports to the holders of securities,
not less than twentyone days before the annual general meeting.
Hence, ABCD Ltd. is required to comply with this requirement.
(iii) As per section 136 of the Companies Act, every listed company having a subsidiary or subsidiaries
shall place separate audited accounts in respect of each of subsidiary on its website, if any.
(e) Amrutha has ceased to be a director of CSS Ltd. by resignation. However, she continues to be
the shareholder of the company. She now wants to inspect the minutes of the Board meeting
in electronic form which she had attended during her tenure as a director of the company. Is
she entitled to inspect the minutes of those Board meetings of CSS Ltd. as per the provisions
of the Companies Act, 2013 ?
Answer
As per para 7.7.1 of SS-1, the minutes of meetings of the Board and any committee thereof can be
inspected by the Directors.
Director is entitled to inspect the minutes of the meeting held before the period of his directorship. A
director is entitled to inspect the minutes of the meetings held during the period of his directorship
even after he/she ceases to be a director.
Inspection of the minutes may be provided in physical or electronic form. While inspection of
minutes book, the Company Secretary or the official of the company authorised by the Company
Secretary to facilitate inspection shall take all precautions to ensure that the minute’s book is not
mutilated or in any way tampered by any person.
Hence, Amrutha can inspect the minutes of the Board meetings held during her tenure as director
even after she ceases to be the director relating to her tenure as directorship.

OR
(i) A Ltd; B Ltd; C Ltd; and D Ltd; are group investment companies. A Ltd. has invested 52% of
B Ltd’s share capital and B Ltd. has invested 55% of share capital of C Ltd. Further C Ltd. has
invested 51% of share capital of D Ltd. In the light of the provisions of the Companies Act,
2013 explain the validity of the investments made by the above companies.
Answer
A company shall, unless otherwise prescribed, make investment through not more than two layers
of investment companies. [Sub-section (1) of section 186]
However, the aforesaid provisions shall not affect-

1. A company from acquiring any other company incorporated in a country outside India if such
other company has investment subsidiaries beyond two layers asper the laws of such country;
2. A subsidiary company from having any investment subsidiary for the purposes of meeting the
requirements under any law or under any rule or regulation framed under any law for the time
being in force. [Proviso to sub-section (1) of section186]
Therefore, Section 186 (1) restricts a company from making investment through more than 2
layers of investment companies.
As stated above, for the purpose of Section 186 of the Act, Investment Company means a company
whose principal business is the acquisition of shares, debentures or other securities and a company
will be deemed to be principally engaged in the business of acquisition of shares, debentures or
other securities, if its assets in the form of investment in shares, debentures or other securities
constitute not less than fifty per cent. of its total assets, or if its income derived from investment
business constitutes notless than fifty per cent. as a proportion of its gross income.
The definition of Investment Company is exhaustive. Further, the restriction under section 186(1)
is about investment through Investment Companies only. Therefore, investment through any
company other than the Investment Company is not covered under sub-section (1) of Section 186
of the Act.
A Ltd. is ultimate holding company of B Ltd., C Ltd., and D Ltd. Hence, investment of A Ltd. Into B Ltd.
and B Ltd. into C Ltd. is allowed. But, investment of C Ltd. into D Ltd. shall not be allowed/valid as
the investment will be beyond two layers.
(ii) Alama Ltd. was carrying on textile business which was acquired by another company by
paying suitable compensation. The directors of Alama Ltd. who had majority voting rights
changed the object of the company at the general meeting and utilized the compensation
received from textile business for the new object of the company while refusing to
distribute the compensation to its shareholders. The affected minority shareholders
approached the Tribunal for relief against oppression by the majority. Will the minority
shareholders succeedin their claim under the provisions of the Companies Act, 2013 ?
Answer
Chapter XVI of the Companies Act, 2013 deals with the provisions relating to the prevention of
oppression and mismanagement of a company. Oppression and mismanagement of a company
mean that the affairs of the company are being conducted in a manner that is oppressive and biased
against the minority shareholders or any member or members of the company. To prevent the
same, there are provisions for theprevention and mismanagement of a company.
An attempt to force new and more risky objects upon an unwilling minority may in circumstances
amount to oppression. This was held in Hindustan Co-operative Insurance Society Ltd., AIR. 1961 Cal.
443 wherein the life insurance business of a company was acquired in 1956 by the Life Insurance

Corporation of India on payment of compensation. The directors, who had the majority voting power,
refused to distribute this amount among shareholders, rather they passed a special resolution changing
the objects of the company to utilise the compensation money for the new objects. This was held to be
"Oppression". The court observed: "The majority exercised their authority wrongfully, in a
manner burdensome, harsh and wrongful. They attempted to force the minority shareholders to
invest their money in different kind of business against their will. The minority had invested their
money in a life insurance business with all its safeguards and statutory protections. But they were
being forced to invest where there would be no such protections or safeguards".
The minority shareholders will succeed in the case against the directors. "The essence of the matter
seems to be that the conduct complained of should at the lowest, involve a visible departure from
the standards of fair dealing, on which every shareholder who entrusts his money to the
company is entitled to rely."
Hence, the minority shareholders of Alama Ltd. can petition the National Company Law Tribunal
under section 241(1) of the Companies Act, 2013 and will succeed in theirclaim.
(iii) Explain the manner in which public limited companies may issue their securities as per the
previsions of the Companies Act, 2013.
Answer
As per Section 23(1) of the Companies Act, 2013, a public company may issue securities in the
following manner:
1. to public through prospectus ('public offer') by complying with the provisions of Part I of
Chapter III of the Companies Act, 2013; or
2. through private placement by complying with the provisions of Part II of Chapter III of the
Companies Act, 2013; or
3. through rights issue or a bonus issue in accordance with the provisions of the Companies Act,
2013 and in case of a listed company or a company which intends to get its securities listed
also with the provisions of the SEBI Act, 1992 and the rules and regulations made there under.
(iv) A company’s net profit calculated under section 198 of the Companies Act, 2013 as per the
audited financial statements was as under :
Year 2021-22 : net profit Rs. 8 crore.
Year 2020-21 : net profit Rs. 5 crore
Year 2019-20 : net profit Rs. 4 crore.
The profit for the financial year 2021-22 included the profit of Rs. 1 crore from its foreign
subsidiary company and Rs. 1 crore from an Indian company covered under section 135 of
the Companies Act, 2013, as dividend. Comment on the amount, if any, liable to be spent on
corporate social responsibility (CSR) activities by the company.
Answer
Every company (including foreign company) having net worth of Rs. 500 crore or more or
turnover of Rs. 1000 crore or more or net profit of Rs. 5 crore or more during immediately
preceding financial year needs to constitute CSR committee and will attract the provisions of section
135 for compliance. Profits from any overseas branch of the company shall not be included in the
computation of the net profits. So also, the dividend received from any Indian company will be
excluded. 2% CSR is computed on the average net profits made by the company during the
preceding three financial years. The net profit of the company during FY 2021-22 is Rs. 6 crore (8-
1-1). Hence, the company is liable to spend on CSR @ 2% of average net profit of preceding 3
years. As such the average net profit would come to Rs. 5 crore (i.e. 6+5+4=15/3). Hence, the
company isrequired to spend Rs. 10 lakh (i.e.2% of Rs. 5 crore)
(v) List out any three types of companies that may be formed under the Hong Kong Companies
Ordinance.
Answer
As per section 66 of the Hong Kong Companies Ordinance following types of companies may be
formed:
1. A public company limited by shares:
2. A private company limited by shares;

3. A public unlimited company with a share capital:
4. A private unlimited company with a share capital;
5. A company limited by guarantee without a share capital.
(a) Draft a specimen resolution for allotment of sweat equity shares to the Chairman and
Managing Director (CMD) of a listed company. Also state the type of meeting and kind of
resolution to be passed referring to the provisions of the CompaniesAct, 2013.
Answer
Type of meeting: General Meeting Kind of resolution:
Special ResolutionSpecimen resolution:
TO CONSIDER AND APPROVE ALLOTMENT OF SWEAT EQUITY SHARES TO MR. / MS….….(DIN:…..)
CHAIRMAN AND MANAGING DIRECTOR
"RESOLVED THAT subject to the provisions of section 54 of the Companies Act, 2013 read with
Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014, in accordance with the SEBI
(Share Based Employee Benefits and Sweat Equity) Regulations, 2021, Securities Board of India
(Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"),
and in accordance with the provisions of the Articles of Association of the Company and any other
regulatory approval if required, including any statutory modification(s) or reenactment(s)
thereto, and further subject to such other approvals, permissions and sanctions as may be
necessary from any other statutory authority and such conditions and modifications as may be
prescribed or imposed while granting such approvals consent of the members be and is hereby
accorded to allot Equity Shares as Sweat Equity Shares of Rs. /- each to
Mr./Ms. Chairman& Managing Director of the Company holding DIN :
_, for the value addition he / she continues to create in 4 years while in employment of the
Company, in such tranches as may be decided from time to time within the time permissible
under relevant regulation, at Rs. /- per share on the basis of the valuation reports dated
from (SEBI Category I Merchant Banker) & from Registered Valuer.
"RESOLVED FURTHER THAT the Equity Shares to be allotted shall rank paripassu with the existing
Equity Shares of the Company.
"RESOLVED FURTHER THAT the price of the same shall be determined as prescribed under
Regulation 33 of the SEBI (Share Based Employee Benefits and SweatEquity) Regulations, 2021.
"RESOLVED FURTHER THAT Mr./Ms. Company Secretary and/or any director of the Company
be and is/are hereby authorized to do all such acts and deeds as may be deemed necessary for
giving effect to the aforementioned resolution.”
(b) Lalchand Ltd. proposes to declare dividend in the current year and provides you the
following information :
Equity share capital-paid up Rs. 5 crore
10% Preference share capital-paid up Rs. 2 croreGeneral reserves Rs. 1.50 crore
Securities premium Rs.5 crore
Surplus as per Profit and Loss Account Rs.10 lakh
Dividend declared in the past years 2019-20, 2020-21, 2021-22 is 10%, 12% and 14%
respectively.
Calculate the amount available to be drawn out of reserves and the maximum rate of
dividend that can be declared by the company citing the relevant provisions of the Companies
Act, 2013. Assume that no adequate profit was available in the current year for distribution
of dividend.
Answer
According to third proviso to Section 123(1) read with rule 3 of Companies (Declaration and Payment
of Dividend) Rules, 2014, in case of inadequacy or absence of profits in any financial year, any
company proposes to declare dividend out of the accumulated profits earned by it in previous

years and transferred by the company to the reserves, such declaration of dividend shall be made
in accordance with such the following conditions, namely:-
1. The rate of dividend declared shall not exceed the average of the rates at which dividend was
declared by it in the three years immediately preceding that year. This sub rule shall not apply
to a company which has not declared any dividendin each of preceding 3 financial years.
2. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the
sum of its paid-up share capital and free reserves as appearing in the latest audited financial
statement.
3. The amount so drawn shall first be utilized to set off the losses incurred in the financial year
in which dividend is declared before any dividend in respect of equity shares is declared.
4. The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up
share capital as appearing in the latest audited financial statement.
Computation:
1. Average rate of dividend; (10%+12%+14%)/3=12%
2. 1/10th of paid up capital and free reserves: Rs. 86 lakh as computed below:
(i) Equity capital Rs. 5 crore + Preference Capital Rs. 2 crore + GR Rs. 1.50 crore + Surplus as
per P & L A/c Rs. 10 lakh=Rs. 8.60 crore
(ii) 1/10th *Rs. 8.60 crore = 86 lakh
3. Available reserve for drawing as computed below:

(i) General Reserve Rs. 1.50 crore
Less : 15% of paid up share capital of Rs. 7 crore (Rs.1.05 crore)
Balance reserve available Rs. 0.45 crore
(ii) Plus: Surplus Rs. 0.10 crore
(iii) Free ReservesAvailable Rs. 0. 55 crore
4. Distributable amount for dividend Rs. 55 lakh being lower than Rs. 86 lakh as computed under
point 2 above
5. Rs. 55 lakh – amount set aside for dividend to preference shareholders Rs. 20 lakh i.e. 10% of
share capital of Rs. 2 crore. Hence, available reserve for equitydividend is Rs. 35 lakh.
6. Rate of dividend, if Rs. 35 lakh is distributed: (Rs. 35 lakh/equity capital Rs. 5crore)*100=7%
7. Dividend @7% may be distributed being less than the average rate of dividend.
(c) AB Ltd. whose net worth is of Rs. 51 crore and annual turnover of Rs. 400 crore as per the
latest audited financial statements intends to accept deposits from the general public. In
this scenario answer the following questions as per the provisions of the Companies Act,
2013 (the Act).
(i) How much amount of deposit could be accepted by AB Ltd. from general public ?
(ii) If AB Ltd. is an eligible company for accepting deposits, and could not pass a special
resolution of its members, what other options are available to the company to borrow
funds beyond the limit prescribed under section 180 ofthe Act ?
(iii) As an eligible company for accepting deposits, what are the forms need to be filed by the
company for acceptance of deposits ?
(iv) How much quantum of money should be deposited in a separate account for deposits
maturing each year ?
(v) Is there any time limit for issuance of deposit receipts for money accepted?
Answer
(i) As per section 76(1) of the Companies Act, 2013 read with Rule 2(1)(e) of the Companies
(Acceptance of Deposit) Rules, 2014, a public company having net worth of not less than Rs.
100 Crore or turnover of not less than Rs. 500 Crore (Eligible Company) and which has obtained
the prior consent of the members in a general meeting by means of special resolution and has
also filed the special resolution with the Registrar of Companies before making any invitation
to the public for acceptance of deposits can obtain deposits from public. Eligible company,
which is accepting deposits within the limit specified under clause (c) of sub-section (1) of
section 180 (Borrowing Powers) may accept deposits bymeans of an ordinary resolution.
AB Ltd. is not an eligible company and hence, it cannot accept deposit fromgeneral public.

(ii) If AB Ltd is an eligible company and could not pass a special resolution, there are no other
options available. Hence, it cannot accept deposits beyond the limits prescribed under section
180.
(iii) The forms to be submitted are Form MGT-14, Form DPT-1 (Circular in the form of advertisement
inviting deposits), DPT-2 (Deposit Trust Deed), DPT-3 (Return of Deposits) and DPT-4
(Statement regarding deposits existing on the commencement of the Act), and CHG-1.
(iv) As per section 73(2)(c) of the Companies Act, 2013, on or before the thirtieth day of April
each year, the company to deposit such sum which shall not be less than twenty percent of the
amount of its deposits maturing during the following financial year and keeping it in a separate
bank account called Deposit RepaymentReserve Account.
(v) Yes, as per rule 12 of the Companies (Acceptance of Deposits) Rules, 2014, every company
shall, on the acceptance of a deposit, furnish to the depositor or his agent a receipt for the
amount received by the company, within a period of twenty one days from the date of receipt
of money or realisation of cheque.
PART - II
(a) A is a leading business man who is presently acting as director in five companies. He wants to
become the Chairman and Managing Director (CMD) of CKC International Ltd. which
undertakes several businesses. The company’s average annual turnover was Rs. 1,125 crore
in the preceding three financial years. The Company already have H, C and L as its Chief
Executive Officers for each of its business categories. As a Company Secretary advise A
regarding appointment of key managerial persons, feasibility of appointing him in CKC
International Ltd. as CMD and retaining the directorship of other companies referring to
theprovisions of the Companies Act, 2013.
Answer
Appointment of key managerial persons: Section 203 of the Companies Act, 2013 read with Rule 8
of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014,
mandates the appointment of Key Managerial Personnel and makes it obligatory for a listed
company and every other public company having a paid- up share capital of rupees ten crores or
more, to appoint following whole-time key managerial personnel:
(i) managing director, or Chief Executive Officer or manager and in their absence, a whole- time
director:
(ii) company secretary; and
(iii) chief financial officer
Every whole-time key managerial personnel of a company shall be appointed by means of a

resolution of the Board containing the terms and conditions of the appointment including the
remuneration.
Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, requires such
appointment by the Board of Directors only by means of Resolution passed at meeting of the
Board.
Feasibility of appointing as CMD : An individual shall not be appointed or reappointed as the

chairperson of the company, as well as the managing director or chief executive officer of the
company at the same time unless the Articles of such a company provide otherwise; or the
company does not carry multiple businesses. However, such class of companies engaged in
multiple businesses and which has appointed one or more chief executive officers for each such
business as may be notified by the Central Governmentare exempted from the above.
MCA vide its notification S.O. 1913(E) dated 25-7-2014 notified that public companies having paid up
Share capital of Rs. 100 Cr or more and annual turnover of 1000 Cr or more which are engaged in
multiple businesses and have appointed Chief Executive Officer for each such business can
appoint an individual as Chairperson and ManagingDirector.

Hence, A can be appointed in CKC International Ltd. as its CMD as the company's turnover is over
Rs. 1000 crore.
Retaining directorship of other companies : With the permission of the Board he can continue to
be the director of other companies.
(b) Company Secretary of Mask Ltd., a listed company, having the following unlisted subsidiary
companies, is seeking your advice whether an independent director is required to be
appointed in these unlisted subsidiary companies :
Name Net Worth as on 31st Consolidated Net Worth of Mask Ltd.

March 2022 (Rs. in crore) as on 31st March 2022 (Rs. in crore)
Cure Ltd. 120

Impact Ltd. 560 3,500
Taj Ltd. 800
Can wife of a director of a step-down subsidiary company take up the role of an independent
director in any of the above qualified companies ? Examine the issues referred to above in
light of the relevant provisions of the Companies Act, 2013 and SEBI (Listing Obligations and
Disclosure Requirements) Regulations,2015.
Answer
Provisions relating to Independent Directors are covered under section 149 of the Companies Act,
2013. However, listed companies are also required to follow relevantSEBI (LODR) Regulations.
As per Regulation 24(1) of the SEBI (LODR) Regulations, 2015 at least one independent director
on the Board of Directors of the listed company shall be a director on the Board of Directors of an
unlisted material subsidiary, whether incorporated in Indiaor not.
Explanation - For the purposes of this provision, notwithstanding anything to the contrary
contained in Regulation 16, the term 'material subsidiary' shall mean a subsidiary, whose income or
net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed
company and its subsidiaries in the immediately precedingaccounting year.
Further, spouse of an independent director cannot be appointed as an independent director. Section

149(6)(b)(ii) provides that an independent director in relation to a company means one who is not
related to promoters or directors in the company, its holding, subsidiary or associate company.
Name Net Worth as on Consolidated Net Correct Answer

31st March Worth of Mask Ltd.as
2022 (Rs in on 31st March 2022
crore) (Rs in crore)
Cure Ltd. 120 3,500 Not required
Impact Ltd. 560 Not required
Taj Ltd. 800 Required
Wife cannot take up a role of an independent director if spouse is already appointed as an

independent director in subsidiary of the qualified company.

(c) In the general meeting of CBD Ltd. six individual members were present and the meeting was
adjourned by the Chairman of the meeting at his own will, to the same day of the next week
as an important member was not present for the meeting. In this context, referring to the
provisions of the Companies Act, 2013answer the following questions :
(i) Could the Chairman adjourn the meeting, if the company’s shareholders (i.e. the
members) strength was 300 ?
(ii) For the adjourned general meeting is any fresh notice of meeting is to be sent ?
(iii) If only three members were present in the adjourned meeting, where in such a meeting
too the important member (shareholder) could not participate, would the meeting be
considered as duly convened and conducted ?
Answer
Notice of an adjourned meeting : As per para 15.3 of SS-2, If a Meeting is adjourned for a period
of less than thirty days, the company shall give not less than three days’ Notice specifying the day,
date, time and venue of the Meeting, to the Members either individually or by publishing an
advertisement in a vernacular newspaper in the principal vernacular language of the district in
which the registered office of the company is situated, and in an English newspaper in English language,
both having a wide circulation in that district. However, if a Meeting is adjourned for a period not
exceeding three days and where an announcement of adjournment has been made at the Meeting
itself, giving in the details of day, date, time, venue and business to be transacted at the adjourned
Meeting, the company may also opt to give Notice of such adjourned Meeting either individually
or by publishing an advertisement, as stated above.
No quorum in an adjourned meeting : If at the adjourned meeting also, a quorum is not present
within half- an-hour from the time appointed for holding meeting, the members present, being not less
than two in number, will constitute the quorum.
Para 15.1 of SS-2 provides that, a duly convened meeting shall not be adjourned unless
circumstances warrant. The chairman may adjourn the meeting with the consent of the members
present, at which quorum is present.
If a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the adjourned
Meeting shall be given in accordance with the provisions relating to Notice.
The words, personally present exclude proxies. In case two or more corporate bodies who are
members of a company are represented by single individual, each of the bodies corporate will be
treated as personally present by the individual representing it. If, for instance, he represents
three corporate bodies, his presence will be counted as three members being present in person for
purposes of quorum. In light of this the queries willbe answered as below:
(i) Where number of members of a public company is not more than 1000 the quorum for the
meeting shall be 5 members personally present. Hence, assuming that 6 members were personally
present the quorum was present at the general meeting. The chairman cannot adjourn the
meeting at his own will without the consent of the member if all the six members were
personally present, since the quorum is present. But in the event of disorder or other like
causes, when it
becomes impossible to conduct the Meeting and complete its business, The Chairman may
also adjourn a Meeting.
(ii) Yes, notice need to be sent individually or by publishing in news daily in compliance to Para
15.3 of SS-2.
(iii) If at the adjourned meeting, the quorum is not present within half- an hour from the time
appointed for holding meeting, the members present, being not less than two in numbers,
will constitute the quorum. In this case, 3 members are present in the adjourned meeting, it will
be considered as a valid meeting. [Section103(3)]

(d) Kuku, CFO of a company intends to make contribution to a political party as per details
shown below :
Name of the Amount to be Average net profit during the Manner in which
political party contributed (Rs. in three immediately preceding amount will be
crore) financial year (Rs. in crore) transferred
Hamara Jag 7.25 140 Bearer cheque
Sovereign 9.9 RTGS
Party
Female front 13 Account payee bank
party draft
Referring to the provisions of the Companies Act, 2013 advise Kuku,

(i) Whether contribution proposed as above can be made ?
(ii) Specify the penalty for which the company may be liable in case of violations in making
contribution to the political parties.
Answer
(i) company and a company which has been in existence for less than three financial years, may
contribute any amount directly or indirectly to any political party. Further the contribution
under this section shall not be made except by an account payee cheque drawn on a bank or an
account payee bankdraft or use of electronic clearing system through a bank account.
Accordingly, the answer is as under:
Name of the political party Remarks

Hamara Jag Contribution cannot be made through bearercheque
Sovereign Party Contribution can be made through RTGS
Female front party Contribution can be made through account payeebank draft
(ii) If the contribution is in contravention of the provisions of this section, the company shall be
punishable for an amount of which may extend to five times of the amount so contributed
and every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months and with fine which may extend to five times of the amount so
contributed.
(a) Pandole is serving as the managing director of a listed company and she would like to know
the answers for her following queries in light of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 :
(i) In how many other listed companies she could be appointed as an independent
director ?
(ii) Could she be appointed as non-executive director in five more privatecompanies ?
Answer
According to Section 165 of the Companies Act, 2013, no person shall hold office as a director,
including any alternate directorship, in more than twenty companies at the same time. The
maximum number of public companies in which a person can be appointed as a director shall not
exceed ten. For reckoning the limit of public companies in which a person can be appointed as
director, directorship in private companies that are either holding or subsidiary company of a public
company shall be included. For reckoning the limit of directorships of twenty companies, the
directorship in a dormant company shallnot be included.

Additionally, for listed entities SEBI vide recent notification in regulation 17A of SEBI (LODR)
Regulation, 2015 provides that the directors of listed entities shall comply with the following
conditions with respect to the maximum number of directorships, including any alternate
directorships that can be held by them at any point of time -
1. A person shall not be a director in more than eight listed entities with effect from April 1, 2019
and in not more than seven listed entities with effect from April 1,2020:
Further it has been provided that a person shall not serve as an independent director in more
than seven listed entities.
2. Notwithstanding the above, any person who is serving as a whole time director / managing
director in any listed entity shall serve as an independent director in not more than three listed
entities.
For the purpose of this regulation, the count for the number of listed entities on which a person
is a director / independent director shall be only those whose equity shares are listed on a
stock exchange.
 Pandole can be appointed in three more listed companies as independentdirector.
 She could be appointed in five more private companies as director which will be well within
the limits of total directorship.
(b) A company which has Rs. 13 crore of paid-up share capital is intending to have a board
meeting on 12th December, 2022. Its managing director wants to know the provisions of the
Companies Act, 2013 relating to notice of the meeting todirectors on the following points :
(i) The date before which the notice needs to be served either by electronic mode or by
post ?
(ii) If the company has a predetermined date of 12th of every alternate month for its board
meeting, unless otherwise changed, should the notice be sent to the directors every time
?
(iii) In case of urgent exigency can a board meeting be convened at a shorter notice to the
directors ?
(iv) Could the notice of Board meeting be issued/sent by any person in the company to the
directors ?
Answer
(i) As per section 173(3) of the Companies Act, 2013 read with SS-1 requires that not less than
seven days' notice in writing shall be given to every director at the registered address (whether
in India or outside India) as available with the company, unless the Articles prescribe a longer
period. The date of notice need not be excluded and the date of meeting is to be excluded while
computing length of notice. For the Board meeting on 12th December 2022, the notice is to be
sent on 5th December 2022 if sent by electronic mode and by 3rd December, 2022 if sent by post
(notice not to be sent by ordinary post).
(ii) As per para 1.3.5 of SS-1, the Notice of a Meeting shall be given even if Meetings are held on pre-
determined dates or at pre- determined intervals. If notice of meeting is not given to one of
its directors, meeting of board of directors is invalid and resolution passed at such meeting are
inoperative.
(iii) Yes, in case of-Board Meeting to transact urgent business, the Notice, Agenda and Notes on
Agenda may be given at shorter period of time than stated above, subject to following
conditions:
 at least one independent director, if any, shall be present at the meeting;
 In case of absence of independent director, decision taken at such meeting shall be
circulated to all the directors, and shall be final only on ratification thereof by at least one
Independent director.
 In case the company does not have an Independent Director, the decisions shall be final only
on ratification thereof by a majority of the Directors of the company, unless such decisions
were approved at the Meeting itself by amajority of Directors of the company.
(iv) No, notice shall be issued by the Company Secretary or where there is no Company Secretary,
by any Director or any other person authorised by the Board for the purpose.

(c) X is a 20 year old B. Com. graduate who is the son of Y aged 70, a top businessman in India.
Y intends to appoint his son X as the Managing Director (MD) of one of his group companies
and continues to be the Managing Director of another group company. Examine the validity
of the proposals explaining the procedure for such appointments as per the provisions of
the Companies Act,2013.
Answer
Section 196 of the Companies Act, 2013 provides that no company shall appoint or employ at the
same time a Managing Director and a Manager. Further, a company shall not appoint or re-appoint
any person as its Managing Director, Whole Time Director or manager for a term exceeding five
years at a time and no re-appointment shall be made earlier than one year before the expiry of his
term.
No company shall appoint or continue the employment of any person as managing director, whole-
time director or manager who —
(a) is below the age of twenty-one years or has attained the age of seventy years:
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent:
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a
composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more
than six months.
Appointment of a person who has attained the age of seventy years may be made by passing a special
resolution in which case the explanatory statement annexed to the notice for such motion shall
indicate the justification for appointing such person;
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 maybe made.
Hence, Mr.X cannot be appointed as MD, without approval of Central Government, since he is less
than 21 years and Mr. Y can be appointed by passing a special resolution.
(d) The Board of a company had total strength of 12 directors. There was a vacancy of two
directors in the Board. Referring to the provisions of the Companies Act, 2013 answer the
following :
(i) What is the quorum required for the board meeting of the company ?
(ii) In case, nine directors are interested in a particular matter which is to be discussed in
a meeting, what shall be the quorum for the meeting under such scenario ?
(iii) In a particular meeting, six directors participated and three of them participated through
video conferencing. Would the meeting be considered valid ?
(iv) In the attendance register meant for board meeting, whether directors participating
through video/audio-visual means will be entered ?
Answer
As per section 174 (1) of the Companies Act, 2013 the Quorum for Board Meeting shall be 1/3rd of
its total strength or two directors, whichever is higher.
Explanation — for the purposes of this section:
 Any fraction of a member will be rounded off as one
 Total strength shall not include directors whose places are vacant.
(i) The quorum for the Board meeting in this case shall be four.
(ii) According to Section 174(3) of Companies Act, 2013, where at any time the number of
interested Directors exceeds or is equal to two thirds of the total strength of the Board of
Directors, the number of Directors who are not interested Directors and present at the meeting,
being not less than two, shall be the quorum during such time. Hence, the interested
directors are excluded and hence, the remaining three directors will form the quorum.
(iii) As per clause 3.3 of SS-1, a Director participating through video conferencing/ audio visual
modes will also be counted for quorum. Thus, the meeting would beconsidered valid.
(iv) As per clause 4.1.2 of SS-1, the attendance register shall contain the following particulars: serial
number and date of the Meeting; in case of a Committee Meeting name of the Committee;

place of the Meeting; time of the Meeting; names and signatures of the Directors, the
Company Secretary and also of persons attending the Meeting by invitation and their mode of
presence, if participating through Electronic Mode.
The attendance register shall be deemed to have been signed by the Directors participating
through Electronic Mode, if their attendance is recorded in the attendance register and
authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman
or by any other Director present at the Meeting, if so authorised by the Chairman and the fact of such
participation is also recorded in the Minutes.
(e) The Annual General Meeting (AGM) was called by a proper and valid notice to be held on
Sunday, the 7th August, 2022. Due to lack of quorum for the meeting, it was adjourned for the
same day, time and place in the next week. In the adjourned meeting on a particular
resolution, two shareholders holding shares to the nominal value of Rs. 5,50,000 demanded a
poll, but the Chairman refused to conduct the poll. In the light of the provisions of the
Companies Act, 2013, give your opinion on the above happenings. Also, decide the validity of
the meeting,if it would have been called on Monday, the 15th August, 2022.
Answer
As per section 96 of the Companies Act, 2013, an Annual General Meeting can be called during
business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday. It
should be held either at the registered office of the company or at some other place within the city,
town or village in which the registered office of the company is situated. The Central Government
is empowered to exempt any company from these provisions, subject to such conditions as it may
impose.
"National Holiday" for this purpose means and includes a day declared as National Holiday by the
Central Government. According to SS-2, National Holiday means Republic Day i.e. 26th January,
Independence Day i.e. 15th August, Gandhi Jayanti i.e. 2nd October and such other day as may be
declared as National Holiday by the Central Government.
Further, as per section 109 of the Companies Act, 2013, before or on the declaration of the result of
the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of
the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that
behalf by the following person(s):
(a) in the case a company having a share capital: by the members present in person or by proxy,
where allowed, and having not less than one-tenth of the total voting power or holding shares on
which an aggregate sum of not less than Rs.5,00,000/- or such higher amount as may be
prescribed, has been paid-up; and
(b) in the case of any other company: by any member or members present in person or by proxy,
where allowed, and having not lessthan one-tenth of the total voting power.
In the above case, the Chairman cannot refuse to conduct the poll as the shareholders hold shares which
in aggregate sum is Rs. 5,50,000 which is higher than what is prescribed.
A poll when validly demanded shall be taken, even if the Chairman had refused to grant the poll.
Consequently, if a valid demand for poll is refused by the Chairman, the Meeting shall either be re-
convened or a new Meeting should be convened to hold the poll or to consider the item in respect of
which the valid demand for poll was not granted, as the case may be. [M. K. Srinivasan and Others v.
W. S. Subrahmanya Ayyar and Others (1932) 2 Comp. Cas. 147]
Further, holding of the Annual General Meeting on Sunday the 7th August, 2022 shall be valid as
Sunday is not a National Holiday. However, the meeting convened on 15th August, 2022 shall be
invalid being a National holiday.

OR
(i) Examine whether the following persons are eligible to be reappointed as an independent
director of Seamless Ltd. after the completion of cooling period as defined under the
Companies Act, 2013 ?
Name Activities performed during the cooling period

Ram Advisor to CFO of Seamless Ltd.
Kishan Started his own independent advisory business and was not
associated with Seamless Ltd.
Rakesh Completed a small valuation work on the multiple requests by the
Chairman of Seamless Ltd.
Answer
The re-appointment of independent director shall be on the basis of report of performance
evaluation. (Schedule IV - Code for Independent Directors).
Section 149(11) provides that the Independent Director shall be eligible for re- appointment on
passing of special resolution. He shall not hold office for more than 2 consecutive terms, but such
independent director shall be eligible for appointment after the expiration of 3 years (cooling
period) of ceasing to become an independent director.
However, he shall not, during the said period of 3 years, be appointed in or be associated with the
company in any other capacity, either directly or indirectly.
Accordingly, based on the above provision, correct answer is as under:
Name Activities performed during the Correct Answer

cooling period
Ram Advisor to CFO of Seamless Ltd. Not eligible, since he was associated
directly with the company
Kishan Started his own independent advisory Eligible
business and was not associated with
Seamless Ltd.
Rakesh Completed a small valuation work on the Not eligible, since he was associated
multiple requests by the Chairman of with the company
Seamless Ltd.
(ii) Amit, CFO of a company has sought your advice on the frequency of holding first as well as
second and subsequent annual general meetings. Provide your advice to Amit in light of the
relevant provisions of the Companies Act, 2013.
Answer
As per section 96 of the Companies Act, 2013, the Annual General Meeting should be held once in
each calendar year.
First annual general meeting of the company should be held within 9 months from the closing of
the first financial year. Hence it shall not be necessary for the company to hold any annual general
meeting in the year of its incorporation.
 Subsequent annual general meeting of the company should be held within 6 months from the
date of closing of the relevant financial year.

 The gap between two annual general meetings shall not exceed 15 months The above
mentioned points shall be suggested to Mr. Amit with respect to frequency of holding first as well
as second and subsequent annual general meetings.
(iii) A company has passed two resolutions by circulation with a majority of five directors
where total strength of the board is of nine directors. Two directors required that such a
resolution should be decided at the meeting of the Board. Answer the following questions
under such scenario referring to the provisionsof the Companies Act, 2013 :
(a) Whether the claim of the two directors that the resolution should be passed at the
meeting of the Board only is valid ?
(b) How the resolution passed by circulation will be recorded in the minutes of the board
meetings ?
(c) If the draft resolution was not sent to one director by inadvertent mistake, should the
resolution be considered invalid ?
(d) If the single approval has been given by the majority of directors for both the resolutions
together, whether such approval will be considered as valid ?
Answer
As per section 175 of the Companies Act, 2013 read with rule 5 of the Companies (Meetings of
Board and its Powers) Rules, 2014, a company may pass the resolutions through circulation. The
resolution in draft form together with the necessary papers may be circulated to all the directors or
members of committee at their address registered with the company in India by hand or by speed
post or by courier or through electronicmeans which may include e-mail or fax.
The said resolution must be passed by majority of directors or members entitled to vote. If not less
than one third of directors require that the resolution must be decided at the meeting, the
chairperson shall put the resolution to be decided at the meeting.
The resolution passed through circulation shall be noted at a subsequent meeting and made part
of the minutes of such meeting.
Further SS-1, requires that each business proposed to be passed by way of resolution by circulation
shall be explained by a note setting out details of the proposal, relevant material facts that enable
the directors to understand the meaning, scope and implications of the proposal, the nature of
concern of interest, if any, of any director in the proposal, which the director had earlier disclosed
and the draft of the resolution proposed.
Each resolution shall be separately explained. The decision of the directors shall be sought for each
resolution separately. Not more than seven days from the date of circulation of the draft of the
resolution shall be given to the directors to respond and the last date shall be computed
accordingly.
(i) The claim of the two directors need not be considered. Only one-third of the total directors
eligible to vote can alone require it.
(ii) The minutes will be recorded in the next board meeting.
(iii) All the directors should be sent with the draft resolution, otherwise the resolution will become
invalid.
(iv) Each resolution shall be separately explained. The decision of the directors shall be
sought for each resolution separately.
(iv) XY Ltd. is an unlisted company having 1100 shareholders. One of the directors of the
company is of the opinion that the company should constitute Stakeholders Relationship
Committee (SRC). However, the Secretary of the company claims that it is not mandatory for
the company to constitute SRC. Referring to the provisions of the Companies Act, 2013
answer the following questions :
(a) Whether the claim of the director is correct ?
(b) If XY Ltd. is a listed company how the SRC should be formed ?
(c) What is the quorum for SRC meeting ?
(d) What is the minimum number of meetings the SRC should conduct in ayear ?
Answer
Section 178(5) of the Companies Act, 2013 provides for constitution of the stakeholders
relationship committee.

(a) The company that has more than one thousand shareholders, debenture-holders, deposit- holders
and any other security holders at any time during a financial year is required to constitute a
Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive
director and such other members as may be decided by the Board. Hence, the claim of the
director is correct.
(b) As per regulation 20 of the SEBI (LODR) Regulations, 2015, the listed entity shall constitute a
Stakeholders Relationship Committee to specifically look into various aspects of interests of
shareholders, debenture holders and other securityholders.
 The chairperson of this committee shall be a non-executive director.
 At least three directors, with at least one being an independent director, shall be
members of the Committee.
 The Chairperson of the Stakeholders Relationship Committee shall be present at the annual
general meetings to answer queries of the security holders.
(c) The quorum for the SRC shall be as specified by the Board. If no such quorum specified than all
the members of the SRC will for the quorum as per SS-I.
(d) As per SS-1 para 2.2, Stakeholders Relationship Committee shall meet as often as necessary
subject to the minimum number and frequency prescribed by any law or any authority or as
stipulated by the Board.
(v) For the annual general meeting (AGM) of a company proxies were received from A, B, C and D. C
and D deposited their proxy forms 72 hours before the meeting, as the Articles of the
company requires for deposit of proxy forms 72 hours before the meeting. A and B
deposited proxy forms 50 hours before the meeting and hence the Chairman rejected their
proxy forms. C represented 48 shareholders, having 8% shareholding and D represented one
shareholder having 11% voting rights. In the light of the provisions of the Companies Act,
2013 explain the validity of the proxies.
Answer
As per section 105 of the Companies Act, 2013 read with rule 19 of the Companies (Management
and Administration) Rules, 2014, a Proxy can act on behalf of Members not exceeding fifty and
holding in the aggregate not more than ten percent of the total share capital of the company
carrying Voting Rights.
However, a Member holding more than ten percent of the total share capital of the company
carrying Voting Rights may appoint a single person as Proxy for his entire shareholding and such
person shall not act as a Proxy for another person or shareholder.
If a Proxy is appointed for more than fifty Members, he shall choose any fifty Members and confirm the
same to the company before the commencement of specified period for inspection. In case, the
Proxy fails to do so, the company shall consider only the first fifty proxies received as valid.
The instrument appointing the proxy must be deposited with the company, 48 hours before the
meeting. Any provision contained in the articles, requiring a longer period than 48 hours shall have
effect as if a period of 48 hours had been specified.
A company cannot refuse proxies if filed before 48 hours before the meeting. Hence rejection of the
forms of A & B is invalid. C and D are valid proxies.

PART - III
(a) A complaint was lodged against a member of the Institute of Company Secretaries of India
(ICSI) under section 21 of the Company Secretaries Act, 1980. The Disciplinary Committee
after investigation submitted its report to the Council of ICSI on the complaint lodged.
Explain as to what would be the further course of action on the complaint against the
member of ICSI ?
Answer
The Disciplinary Committee (DC) shall after investigation report the result of its enquiry to the Council
for its consideration.
After submission of report by the DC the following procedure shall be taken up by theCouncil.
1. The Council shall consider the report of the Disciplinary Committee and if in its opinion, a
further enquiry is necessary, may cause such further enquiry to be made and a further report
submitted by the Disciplinary Committee.
2. After considering such report or further report of the Disciplinary Committee, as the case may
be, where the Council finds that the respondent is not guilty of any professional or other
misconduct, it shall record its findings accordingly and direct that the proceedings shall be
filed or the complaint shall be dismissed asthe case may be.
3. After considering such report or further report of the Disciplinary Committee, as the case may
be, where the Council finds that the respondent has been guilty of a professional or other
misconduct, it shall record its findings accordingly and shall proceed in the manner as laid
down in the succeeding sub-regulations.
4. Where the finding is that the member of the Institute has been guilty of a professional or
other misconduct, the Council shall afford to the member an opportunity of being heard before
orders are passed against him in the case. The Council after hearing the respondent, if he appears
in person or after considering the representations, if any, made by him, pass such orders as it
may think fit, asprovided under Subsection (4) of Section 21.
5. The orders passed by the Council shall be communicated to the complainant and the
respondent.
(b) The Secretarial Standard-II prescribes the aspects related to the presence of directors,
auditors and chairman in the Annual General Meetings (the AGMs). As a Company Secretary
offer your views to the following questions :
1. Should the presence of secretarial auditor in person and company auditors in person is
mandatory in the Annual General Meeting (AGM) ?
2. Where the directors should be seated in the AGM ?
3. If the Chairman was late for the meeting by an hour, what should be done to conduct the
meeting ?
4. If the Chairman was interested in any matter for discussion in the meeting, what shall be
done at that stage ?
5. Whether the secretarial auditor has right to speak at the AGM ?
Answer
1. As per section 146 of the Companies Act, 2013 read with para 4.3 of SS-2, the Auditors, unless
exempted by the company, and the Secretarial Auditor, unless exempted by the company shall
either by themselves or through their authorised representative, attend the General Meetings
of the company. The authorised representative who attends the General Meeting of the
company shall also bequalified to be an Auditor / Secretarial Auditor.
Hence, presence of the Secretarial Auditor and company Auditors in persons isnot a must.
2. Directors who attend General Meetings of the company and the Company Secretary shall be
seated with the Chairman.
If any Director is unable to attend the Meeting, the Chairman shall explain such absence at the
Meeting.
3. The Chairman of the Board shall take the Chair and conduct the Meeting. If the Chairman is not
present within fifteen minutes after the time appointed for holding the Meeting, or if he is

unwilling to act as Chairman of the Meeting, or if no Director has been so designated, the
Directors present at the Meeting shall elect one of themselves to be the Chairman of the
Meeting. If no Director is present within fifteen Minutes after the time appointed for holding the
Meeting, or if no Director is willing to take the Chair, the Members present shall elect, on a
show of hands, one of themselves to be the Chairman of the Meeting, unless otherwise
provided in the Articles.
If a poll is demanded on the election of the Chairman it shall be taken forthwith in accordance
with the provisions of the Act and the Chairman elected on a show of hands shall continue to be
the Chairman of the Meeting until some other person is elected as Chairman as a result of the
poll, and such other person shall be theChairman for the rest of the Meeting.
In case of a private company, appointment of the Chairman shall be in accordance with this para,
unless otherwise provided in the Articles.
4. If the Chairman is interested in any item of business, without prejudice to his Voting Rights
on Resolutions, he shall entrust the conduct of the proceedings in respect of such item to any
Non -Interested Director or to a Member, with the consent of the Members present, and resume
the Chair after that item of businesshas been transacted.
5. The Secretarial Auditor shall have the right to be heard at such Meetings on that part of the
business which concerns them as Auditors / Secretarial auditor.

Company Law
June – 2023
Exam Paper
PART - I
(a) Explain the exceptions, if any, to the Majority Rule in Foss v. Harbottle case law.
Answer
Exceptions to the majority rule:
 The majority rule in Foss v Harbottle 67 E.R.189 ; (1843) 2 Hare 461 states that no action can
be brought by a minority member against the directors in respect of a wrong alleged to be
committed to the company. However, the rule in Foss v Harbottle is not absolute but is subject
to certain exceptions. Apart from the protection by the Companies Act, 2013, the minority
shareholders are also protected by common law i.e., unwritten customs and practices having
the force of law.
 In a noted case ICICI v Parasurampuria Synthetics limited, the Delhi High Court has ruled that
an automatic application of the rule of majority as enunciated in Foss v Harbottle to the
Indian corporate realities case would not be proper.
The Court has said that though financial institutions hold only a small percentage of the
shares in a company, they provide the bulk of finance as working capital for the continuous
day-to-day operations of the company and therefore, to exclude them or to render them
voiceless on application of the principles of Foss v Harbottle Rule would be unjust and unfair.
 The Rule also does not apply in case of ultra-virus acts. Where the directors representing the
majority of shareholders perform an illegal act or ultra-virus act for the company, an
individual shareholder has the right to bring an action / law suit to restrain the company by
an order or an injunction of the Court from the carrying on any ultra-virus act by the
company as decided in Bharat Insurance Limited v Kanhya Lal(A.I R 1935) case.
 When an act done by the majority amounts to a fraud on the minority shareholders, an action
to restrain the company or the wrong doers can be brought by even an individual
shareholder.
The Court will see whether the resolution passed by the majority is bonafide for the benefit of
the company as a whole (Allen v Gold Reefs of West Africa case law).
 If the wrong doers are in control of the company, the minority shareholders can take legal
action for fraudby the majority.
The Court may entertain the plea because, if the minority shareholders are denied the right of
legal action, their grievance would never reach the Court as the wrongdoers themselves being
in control of the affairs of the company, they will never allow the company to sue the majority
shareholders as decided in a caselaw (Edwards v Haliwell (1970) 2 AII E.R)
(b) Comment on the following:

(i) Credit rating at the time of accepting Deposit by a company is mandatory.
(ii) No company can invite Deposit without entering into a contract for deposit insurance
(iii) Creation of security for repayment of Deposit is not mandatory for all companies
while acceptingDeposit.
(iv) Trustees for Depositors can be removed by a simple majority.
(v) Only remedy for Depositors in case of default in repayment of Deposit by the company
is to file asuit.
Answer
(i) According to Rule 3 of the Companies (Acceptance of Deposit) Rules, 2014, every eligible
company shall obtain, at least once in a year, credit rating for deposits accepted by it and a

copy of the rating shall be sent to the Registrar of Companies alongwith the return of
deposits in Form DPT-3.
According to Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014 “eligible
company” means a public company as referred to in sub-section (1) of section 76, having a
net worth of not less than one hundred crore rupees of a turnover of not less than five
hundred crore rupees and which has obtained the prior consent of the company in general
meeting by means of a resolution and also filed the said resolution with the Registrar of
Companies before making any invitation to the Public for acceptanceof deposits.
Credit rating is not mandatory for private companies and other non-eligible public
companies which accept deposit only from its members.
(ii) The provision related to extent and manner of deposit insurance has been omitted according
to Companies (Acceptance of Deposits) Amendment Rules, 2018 dated 05.07.2018.
Therefore, the company can invite the deposits without entering into contract for deposit
insurance.
(iii) As per rule 6 of the Companies (Acceptance of Deposits) Rules, 2014: Every company
referred in Section 73(2) and eligible company as defined under Rule 2 of the Companies
(Acceptance of Deposits) Rules, 2014, accepting deposits from its members shall provide
security by creating charge on the assets of the company as referred to in Schedule III of the
Act excluding its intangible assets.
(iv) As per rule 7 of the Companies (Acceptance of Deposits) Rules, 2014: Trustees for depositors
can only be removed from office before the expiry of their term with the unanimous consent
of all directors present at the meeting of Board of Directors. In case the company is required
to have independent directors, at least one independent director shall be present in such
meeting of the Board.
(v) Section 73(4) of the Companies Act, 2013 states that, where a company fails to repay the
deposit or part thereof or any interest thereon, the depositor concerned may apply to the
Tribunal for an order directing the company to pay the sum due or for any loss or damage
incurred by him as a result of such non-payment and for such other orders as the Tribunal
may deem fit.
In addition to filing a suit before NCLT for repayment of deposit with accumulated interest,
hundred or more depositors or depositors holding at least five percent of the total
outstanding deposit can initiate a class action suit under section 245 of the Act before the
NCLT.
(c) Shortwalkers Limited was a listed company operating fitness centres all over India. In
their Meeting on 1st April, 2022 the Board of directors of the company approved purchase
of gym equipment for ₹ 75 crore from Fitness Solutions (Private) Limited a company
managed by Anita, wife of Sunil, the CFO of Shortwalkers Limited. The annual turnover of
Shortwalkers Limited for the last financial year is ₹ 500 crore. The entire shareholding of
Fitness Solutions (Private) Limited was held by Anita and two other directors. In his
report to the shareholders of Shortwalkers Limited, the auditor of the company made
adverse remarks on the transaction stating that the approval of the Audit Committee and
special resolution were not obtained before approving the deal. The Board, in their report
to the shareholders remarked that the purchase transaction was at arm’s length price and
Sunil, was not a related party and approval of audit committee and the shareholders was
not necessary. Referring to provisions of Companies Act, 2013, examine the submissions of
the Board.
Answer
Section 188 of the Act, provides that except with the consent of the Board of Directors given by a
resolution at a meeting of the Board and subject to such conditions as prescribed under Rule 15
of the Companies (Meetings of Board and its Powers) Rules, 2014, no company shall enter into
any contract orarrangement with a related party with respect to —
1. sale, purchase or supply of any goods or materials;
2. selling or otherwise disposing of, or buying, property of any kind;

3. leasing of property of any kind;
4. availing or rendering of any services;
5. appointment of any agent for purchase or sale of goods, materials, services or property;
6. such related party's appointment to office or place of profit in the company, its subsidiary
company or associate company; and
7. underwriting the subscription of any securities or derivatives thereof, of the company.
However, such approval by the Board of Directors will not be required for transactions entered in
the ordinary course of business and on an arm's length basis. In other words, approval of the
Board of Directors will only be required for related party transactions which are either not in the
ordinary course ofbusiness or not on an arm's length basis.
 Under regulation 23 of SEBI Listing Obligations and Disclosure Requirements) Regulations,

2015, (LODR), transaction with a related party shall be considered material if the
transaction(s) to be entered into individually or taken together with previous transactions
during a financial year exceeds rupees one thousand crore or ten percent of the consolidated
turnover of the listed entity as per the last audited financial statements of the listed entity,
whichever is lower. The transaction entered here in case of Shortwalkers Ltd., shall be
approved by Audit Committee as well as by the members in a general meeting, if the same
exceeds 10% (Rs. 500Crores* 10%= Rs. 50 Crores) of the annual consolidated turnover as
stated above.
 According to Section 2(76) of the Act, related party includes a KMP or his relative. As per
Section 2(77) of the Act, relative includes wife and daughters. Hence, the contention of the
Board that the supplier, i.e, Fitness Solutions (Pvt) Limited has neither a director nor his
relative of Shortwalkers Limited as its directoris not acceptable.
 Section 188(1) does not apply to any transaction entered into by the company in the
ordinary course of business which are on arm's length basis.
 According to Section 188(2) of the Act, arm's length transaction means a transaction between
two related parties that were conducted as if they were not related so that there was no
conflict of interest.
In the instant case, since the transaction was between two related parties, due process should have
been followed including approval of audit committee and approval of the company in general
meeting by an ordinary resolution. The contention of auditor is correct.
(d) State the provisions of the Companies Act, 2013 for the issue of bonus shares by a listed
company:
(i) Can a company declare bonus shares in lieu of dividend?
(ii) Is bonus shares same as stock dividend?
Answer
According to Section 63 of Companies Act, 2013: A company can issue fully paid-up bonus shares
to its members in any manner, out of its free reserves, security premium or capital redemption
reserve account. However, no bonus shares can be issued by capitalising reserves created by the
revaluation of assets.
A company can capitalise its profits by issuing fully paid-up bonus shares only when-
(a) It is authorized by its articles and the shares are fully paid-up;
(b) It has been, on the recommendation of the Board of Directors, authorized in the General
Meeting of the company by a special resolution;
(c) In case of listed company, an ordinary resolution will suffice;
(d) It is not defaulted on repayment of the principal or payment of interest on deposits or debt
securities issued by it;
(e) It has not defaulted on payment of statutory dues of its employees such as, contribution to
provident fund, gratuity and bonus.

(i) According to Section 63(3) of Companies Act, 2013, a company shall not issue bonus shares in
lieu ofdividend.
(ii) Yes, Stock dividend is the same as issue of bonus shares.
(a) Amar, Akash and Ashish were the owners of a coffee estate in Munnar. They
registered a new company called Mandoli Coffee Estate Private Limited and
transferred their coffee estate to the newly formed company.
They claimed exemption from paying Registration charges and Stamp duty on the
ground that since they were the only shareholders of the company, the
transaction was nothing but transfer by them from one name to themselves in
another name. Referring to the provisions of Companies Act, 2013, is their claim
tenable?
Answer
The facts of the case is similar to the case Re. Kandoli Tea Co Ltd (1886) ILR 13 Cal 43, which
is even earlier than the celebrated case law in Salomon v Salomon Co Ltd, the Calcutta High Court
rejected their plea and observed that the company was a separate person, a separate body
altogether different from the shareholders and the transfer was as much a conveyance, a transfer
of property, as if the shareholders were totally different persons.
It was recognized as the principle of “Lifting of the corporate veil.” According to this principle the
companyis a separate legal entity which confers its own rights and duties.
Based on the well settled principle that a company is a separate, distinct juristic person different
from itsshareholders, the argument of Amar and others, are not tenable.
(b) The Board of Customerlast Limited, an unlisted public company is exploring ways
to increase its paid- up share capital from ₹ 125 crore to ₹ 150 crore. The CFO of the
company suggested that instead of offering shares to all existing shareholders as a
rights issue the company can issue further shares by private placement to four
identified Qualified Institutional Buyers and the top 250 existing shareholders by
receiving cash without offering shares to other shareholders. The company
secretary of the company objects to the manner of raising further capital, i.e. the
offerings to the select shareholders as well as receiving cash. Referring to the
provisions of Companies Act, 2013 decide.
Answer
1. As per Explanation I under Section 42(3) of the Act, “private placement" means any offer or
invitation to subscribe or issue of securities to a select group of persons by a company (other
than by way of public offer) through private placement offer-cum-application (Form PAS-4),
which satisfies the conditions specified in this section. As per Rule 14(1) of Companies
(Prospectus and Allotment of Securities) Rules, 2014 a company shall not make an offer or
invitation to subscribe to securities through private placement unless the proposal has been
previously approved by the shareholders of the company, by a special resolution for each of the
offers or invitations. Hence, the proposal of CFO on further raising of share capital by private
placement is prima facie valid.
2. As per Rule 14(2) of Companies (Prospectus and Allotment of Securities) Rules, 2014: an offer or
invitation to subscribe securities under private placement shall not be made to persons more
than two hundred in the aggregate in a financial year: Provided that any offer or invitation made
to qualified institutional buyers, or to employees of the company under a scheme of employees
stock option as per provisions of section 62(1) (b) shall not be considered while calculating the
limit of two hundred persons. In light of above provisions, the proposal to issue offer letter to Four
QIBs is valid. But the company cannot issue securities under private placement to the top 250
shareholders.

3. As per Section 42(4) of the Companies Act, 2013: Every identified person willing to subscribe to
the private placement issue shall apply in the private placement and application issued to such
person alongwith subscription money paid either by cheque or demand draft or other banking
channel and not by cash. Hence, the suggestion of CFO on receiving consideration by cash
payment is not valid.
In the light of above provisions, the objection of CS in raising the further capital through private
placement is not correct. However, his objection to an offer or invitation to subscribe securities
under private placement to 250 members and receiving the same in cash is correct.
(c) Harsh is a promoter director of Himmat Pvt. Ltd. He borrowed some funds from
his friend for a certain purpose but the same is lying idle at present. Thus, he plans
to give loan to the company for working capital needs. Harsh has approached you, a
Practising Company Secretary, for suggestion, if there is any situation where such
loan will not constitute Deposit. Advise Harsh with reference to the provisions of
the CompaniesAct, 2013.
Answer
According to the section 2(31) of the Act read with Rule 2(1)(c) of Companies (Acceptance of
Deposits) Rules, 2014, ‘deposit’ includes inter alia any receipt of money by way of deposit or loan
or in any other form by a company, but does not include-
Rule 2(1)(c) (viii)- any amount received from a person who, at the time of the receipt of the
amount, was a director of the company or a relative of the director of the private company.
Provided that the director of the company or relative of the director of the private company, as
the case may be, from whom money is received, furnishes to the company at the time of giving the
money, a declaration in writing to the effect that the amount is not being given out of funds
acquired by him by borrowing or accepting loans or deposits from others and the company shall
disclose the details of money so accepted in the Board's report.
In the given case, Harsh has borrowed money from his friend. If he gives the same borrowed
money to the company, he cannot give declaration in writing under the above sub rule and
hence, if he does so, it will be in violation of the Act.
Rule 2(1)(c)(xiii)- Any amount brought in by the promoters of the company by way of unsecured
loan in pursuance of the stipulation of any lending financial institution or a bank subject to
fulfilment of the following conditions:- (a) the loan is brought in pursuance of the stipulation
imposed by the lending institutions on the promoters to contribute such finance ; and (b) the
loan is provided by the promoters themselves or by their relatives or by both; and (c) the
exemption under this sub-clause shall be available only till the loans of financial institution or
banks are repaid and not thereafter.
Thus, loan given by Harsh to Himmat Pvt. Ltd. will not be considered as Deposit if the loan
satisfies the conditions as per rule 2(1)(c)(xiii) of the Companies (Acceptance of Deposits) Rules,
2014.
(d) Magnificent Ltd. has filed various e-forms with Registrar of Companies due to
various events in the Company. With reference to e-filing of forms, State for which
services/ eforms, process for refund of fee isnot applicable.
Answer
The refund of MCA-21 fees is available in cases of multiple, incorrect and excess payments. It has
to be informed to Magnificent Ltd. that refund process is not applicable for the following
services/eforms:
 Public inspection of documents;
 Request for certified copies;
 Payment for transfer deeds;
 Stamp duty fee;
 IEPF payment;
 STP Forms;
 Form DIR-3.

(e) Stunning Commodities Ltd. gave notice seeking information from Ujjwal (not a
member of the Company) whom the company has reasonable cause to believe to
be having knowledge of the identity of a significant beneficial owner (SBO) of the
company. It is observed that information given by Ujjwal is not satisfactory. You
are General Manager (Secretarial) of the Company. The CEO of the Company asks
youfor further action to be taken by the company on this, if any. Please advise.
Answer
As per Section 90(5) of Companies Act, 2013,the Company shall give notice in Form BEN -4 to any
person (whether or not a member of the company) whom the company knows or has reasonable
cause to believe— to be having knowledge of the identity of a significant beneficial owner or
another person likely to have such knowledge; And according to Section 90(7) of the
Companies Act, 2013,the company shall—
(a) where that person fails to give the company the information required by the notice within
the time specified therein; or
(b) where the information given is not satisfactory,
apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the
notice (Form BEN-4), for an order directing that the shares in question be subject to restrictions
including:
(a) Restrictions on the transfer of interest attached to the shares in question;
(b) Suspension of the right to receive dividend or any other distribution in relation to the
shares inquestion;
(c) Suspension of voting rights in relation to the shares in question
(d) Any other restriction on all or any of the rights attached with the shares in question.
In the light of the above Stunning Commodities Ltd. gave notice seeking information from Ujjwal
(not a member of the company) whom the company has reasonable cause to believe to be having
knowledge of the identity of the Significant Beneficial Owner (SBO) of the Company. It is
observed that information given by Ujjwal is not satisfactory. Accordingly, the CEO has to be
informed that the company can apply to Tribunal for order direction the shares in question be
subject to restrictions.
2A. Attempt the following
(i) The legislative authority for enacting corporate laws and securities laws in India is
distinctly different from the authority for enactment of corporate laws and securities laws in
USA. Explain.
[4 Marks]
Answer
(i) In India both securities and corporate laws are centralized with the Parliament being the sole
authority for enacting these statutes.
For example, Companies Act, 2013, Securities Contract (Regulation) Act, 1956, Limited
Liability Partnership Act, 2008, Income Tax Act, 1961 are all important central laws
uniformly applicable across the States and Union Territories in India.
(ii) On the other hand, the corporate laws in USA is enacted and administered by the individual
States having their own Constitution with the Secretary of State for the individual states
looking after the incorporation and administration of Companies Act of that individual State.
Thus, in USA each State is competing with other states to attract companies to set up shop by
offering easier incorporation terms and tax incentives.
(iii) However, like in India, the security laws of USA are administered by a single, powerful central
Authority called Securities Exchange Commission (SEC) which oversees the administration of
stock exchanges. This is similar to Security Exchange Board of India (SEBI) which
administers securities listed on recognized stock exchanges while the Ministry of Corporate
Affairs (MCA) administers the Companies Act, 2013 and Allied Acts for regulating the
functioning of the corporate sector.

(ii) Mr. Raj who is a resident of Bengaluru, sent a Transfer Deed for registration of transfer of
shares, to the company at the address of its registered office in Delhi. He did not receive
the share certificates even after the expiry of six months from the date of dispatch of
transfer deed. He lodged a criminal complaint in the court at Bengaluru. Decide under the
provisions of the Companies Act, 2013, whether the court at Bengaluru is competent to
take action in the said matter?
[4 Marks]
Answer
According to Section 56(1) of the Companies Act, 2013 a company shall not register a transfer of
securities of the company, unless a proper instrument of transfer duly stamped, dated and
executed by or on behalf of the transferor and transferee has been delivered to the company by
the transferor or transferee within a period of 60 days from the date of execution along with the
share certificates relating to the securities, or if no such certificate is in existence, then along with
the related certificate or letter of allotment of the securities.
According to Section 56(4) of the Companies Act, 2013 every company unless prohibited by any
provision of law or of any order of court, Tribunal or other authority, shall deliver the
certificates of all shares transferred within a period of one month from the date of receipt by
the company of the instrument of transfer. Hence, in the given case, if all the required formalities
are duly complied with by the Transferor or Transferee, the Company was required to issue share
certificate(s) within the stipulated time period. Further, under section 56(6), where any default
is made in complying with the provisions of sub-section (1) to (5) of Section 56 (which deals
with transfer and transmission of shares), the company and every officer of the company who is
in default shall be liable to a penalty of fifty thousand rupees.
The jurisdiction binding on the company is that of the State in which the registered office of the
company is situated. Hence, in the given case the Bengaluru Court is not competent to take action
in the matter.
 As per Section 55(2) (c) of the Companies Act, 2013 (Act), where preference shares of a
company are proposed to be redeemed out of profits of the company, a sum equal to the
nominal amount of preference shares to be redeemed shall be transferred to Capital
Redemption Reserve account.
 The provision of the Act on reduction of capital under section 66 shall apply as if the Capital
RedemptionReserve account is part of the paid-up share capital of the company.
 Again, under section 69 of the Act dealing with buy-back regulations, where a company
purchases its own shares out of free reserves or security premium account, a sum equal to
nominal value of the shares bought back shall be transferred to Capital Redemption Reserve
account and also disclosed in the balance sheet.
 The amount in Capital Redemption Reserve account can be applied under section 69(2) of the
Act by the company in paying up unissued shares of the company to be issued to members of
the company as fullypaid-up bonus shares under section 63 of the Act.
(iii) As a Company Secretary, advise your client whether the following matters can be
transacted bygetting a resolution passed through postal ballots :
(a) Issue of shares with differential voting rights
(b) Sale of the whole of the undertaking of the Company
(c) Buy-back of own shares by the Company.
[4 Marks]
Answer
As per rule 22 of the Companies (Management and Administration) Rules, 2014 below mentioned
matterscan be transacted through postal ballot subject to certain conditions:
(i) Issue of shares with differential voting rights;
(ii) Sale of the Whole of the Undertaking of a company;
(iii) Buy back of own shares by the company.

The rule 22 also states that-
 Any aforesaid items of business, required to be transacted by means of postal ballot, may be
transacted at a general meeting by a company which is required to provide the facility to
members to vote by electronic means under section 108, in the manner provided in that
section.
 One Person Companies and other companies having members’ upto two hundred are not
required to transact any business through postal ballot.
In the light of above provisions, the company secretary can advise in following ways:
In case the company is having members less than 200: They are exempted to transact the
businessthrough postal ballot.
In case the company is listed company and is having members more than 1000: They may transact
thesebusiness in general meeting.
For the companies apart from above two categories are required to transact the business through
postalballot.
(iv) The Board of directors of ZED Ltd. (Listed Company) is actively considering a proposal to
buy back its shares. Naveen has recently joined the Board as an Additional Director. You
are the senior partner of a firm of Company Secretaries and Naveen has sought your views,
if there is any requirement for filing Declaration of Solvency by the company with any
regulatory authority and particulars thereof. Also, what would be the time gap between
two buy-backs. Advise Naveen in thelight of the provisions of the Companies Act, 2013.
[3 Marks]
Answer
This provision is covered under section 68(6) of the Companies Act, 2013 read with Rule 17(3) of
Companies (Share Capital and Debenture) Rules, 2014. When a company proposes to buy-back its
own shares or other specified securities under this section in pursuance of a special resolution or
board resolution as the case may be, it shall, before making such buy back, file with Registrar and
the Securities & Exchange Board of India (in case of listed companies), a declaration of solvency
signed by at least 2 directors of the company, one of whom shall be the managing director, if any,
in Form SH-9 and verified by an affidavit to the effect that the Board of Directors of the Company
has made a full inquiry into the affairs of the company as a result of which they have formed an
opinion that it is capable of meeting its liabilities and will not rendered insolvent within a period
of one year from the date of declaration adoptedby the Board.
As per proviso to section 68(2)(g) no offer of buy-back under section 68(2) shall be made within
a period of one year reckoned from the date of the closure of the preceding offer of buy- back, if
any.
Naveen who has recently joined the Board as an additional director should be apprised
accordingly.
(a) You are a Speaker on Corporate Laws at a Seminar. One person from the audience has
sought youropinion on the following matters:
(i) Can an Insolvent be a member in a company?
(ii) Can a Receiver be a member in a company?
(iii) How does an investor avail services of a Depository in case of pledge of shares?
Answer
(i) Insolvent as member: Yes, An insolvent may be member as long as he is on the Register of
members. He is entitled to vote, but he loses all beneficial interest in the shares and company
will pay dividend on his shares to the Official Assignee or Receiver (Morgan Vs. Gray, (1953)
ALL E.R. 213)
(ii) Receiver: A receiver whose name is not entered in the register of members cannot exercise
any of the membership rights attached to a share unless in a proceeding to which company is
a party and an order is made therein. Mere appointment of a receiver in respect of certain
shares of a company without more rights cannot, deprive the holder of the shares whose
name is entered in the Register of Members of the Company, the right to vote at the meeting

of the company. [Balakrishna Gupta v. Swadeshi Polytex Ltd. (19B5) 58 Com Cases 563
(S.C.))
(iii) In the case of pledge: Before creation of any pledge or hypothecation in respect of a security,
the beneficial owner is required to obtain prior approval of the depository and on creation of
pledge or hypothecation; the beneficial owner shall give intimation of such pledge or
hypothecation to the depository. The depository shall make appropriate entries in its
records which will be admissible as evidence.
(b) A newly appointed auditor of a listed company came across the evidence of under
invoicing of exports, round tripping of funds through tax heavens and fraudulent siphoning
of funds amounting to ten million USD. Explain the further course of action by the auditor.
Also explain what is fraud?
Answer
Meaning of Fraud:
According to Section 447 of Companies Act, 2013, fraud, in relation to the affairs of a company,
inter alia, includes any act, omission, concealment of any fact or abuse of position committed by
any person with intent to deceive, to gain undue advantage from of injure the interests of the
company or its stakeholders or its creditors or any other person whether or not there is any
wrongful gain or wrongful loss.
Following is the course of action to be taken by auditor:

 According to Section 143(12) read with Rule 13 of Companies (Audit and Auditors) Rules,
2014, if the statutory auditor has reason to believe that an offence of fraud which involves or
is expected to involve an amount of rupees One crore or more, is being or has been
committed against the company by its officers or its employees, the auditor shall report the
matter to the Central Government.
 The auditor shall report the matter to the audit committee immediately but not later than
two days of his knowledge of the fraud seeking the reply from the Board of Directors or the
audit committee seeking theirreply within 45 days.
 On receipt of such reply or observations, the auditor shall forward his report and the reply or
observations of the Board or the Audit Committee along with his comments (on such reply or
observations of the Board or the Audit Committee) to the Central Government within fifteen
days from the date of receipt of such reply or observations.
 In case the auditor fails to get any reply or observations from the Board or the Audit
Committee within 45 days, he shall forward his report to the Central Government along with a
note containing the details of his report that was earlier forwarded to the Board or the Audit
Committee for which he has not received any reply or observations.
 The report of auditor shall be in Form ADT-4 of the Companies (Audit and Auditors) Rules,
2014.
 In the instant case, as the company is a listed company, which is mandated under section 177
of the Companies Act to constitute an audit committee and the amount of fraud is about
rupees 80 crore, the auditor should report the matter to the Central Government in time,
whether or not a reply is received from the company.
(c) With reference to the provisions of Singapore Companies Act, explain when a Private
Company need not hold annual general meeting? What is the due date of holding the
annual general meeting of listed public company?
Answer
A private company need not hold annual general meeting for a financial year under section 175A
of the Singapore Companies Act under the following cases-
(a) If it is a private company in respect of which there is in force a resolution passed in
accordance with sub section (2) to dispense with the holding of annual general meetings;
(b) If, at the end of that financial year, it is a private company and has sent to all persons entitled
to receive notice of general meetings of the company the documents mentioned in section
203(1) within theperiod specified in section 203(1)(b); or
(c) If, at the end of that financial year, it is both a private company and a dormant relevant
company the directors of which are, under section 201A; exempt from the requirements of
section 201 for the financial year.

In accordance with section 175 of the Singapore Companies Act a general meeting of every
company to be called the “annual general meeting” must, in addition to any other meeting, be held
after the end of each financial year within 4 months in the case of a public company that is listed.
PART - II
(a) Rakesh Agarwal is a Non-Executive & Non-Independent director of Happy Travels Limited,
an unlisted company. The paid-up share capital of the company is ` 120 crore. The company
has availed a term loan of Rs. 65 crore. The Board of directors, in their meeting passed a
resolution to grant a housing loan of rupees one crore to Rakesh for purchase of an
apartment in Navi Mumbai at concessional interest rate. The company has implemented a
housing loan for its permanent employees at concessional interest rates. The Secretarial
Auditor has objected to the loan granted to Rakesh in his Secretarial Audit report.
Is the claim of Secretarial Auditor correct?
Will your answer differ if the company is a private limited company?
Answer
 As per Section 185 of Companies Act, 2013, no company shall advance any loan to a director
of the company or his relative.
 However, a company may advance any loan to a director of a company by passing a special
resolution by the company in general meeting. The explanatory statements to notice for the
general meeting shall disclose full particulars of the proposed loan.
 As per Section 185(3) of the Act, the provisions of subsection shall not apply to giving of any
loan to the Managing Director or Whole Time Director by the company as part of service
conditions extended by the company to all its employees or as per any scheme approved by
members by a special resolution.
As Rakesh is neither the Managing Director nor a whole time director of the company, the
provisions of Section 185(1) & 185(2) are applicable to it. Hence, without passing a special
resolution in the general meeting, no loan can be given to Rakesh.
If Happy Travels Ltd would have been a private company, the private company can give loan to a
directoras per Notification dated 5th June 2015 subject to the following conditions:
(a) No other body corporate has invested in the share capital of the private company
(b) The borrowings from banks is less than twice the paid up capital or rupees 50 crore
whichever islower.
(c) The private company has not defaulted on its borrowings from banks.
As Happy Travels Limited has availed a term loan of rupees 65 crore from a bank which is more
than the ceiling of rupees 50 crore as per Notification dated 5th June 2015, it cannot grant the
housing loan to Rakesh even if it is a private company.
(b) Draft minutes of 19th meeting of the Board of directors of Zwiggy Foods Ltd held on 28th
January, 2022 were circulated on 5th February, 2022. In this backdrop, answer the
following:
(i) Sonali, an independent director, who attended the meeting communicated her
comments on 15thFebruary, 2022. Do you think her comments can be considered?
(ii) Sujata, a small shareholder director, communicated her comments on 10th February,
2022 but she was absent in the meeting without obtaining leave of absence. Can her
comments be taken on record?
Answer
Finalization of Minutes
 As per Para 7.4 of SS-1: Within fifteen days from the date of the conclusion of the Meeting of
the Board or the Committee the draft minutes thereof shall be circulated by hand or by speed
post or by registered post or by courier or by email or by any other recognised electronic
means to all members of the Board or the Committee as on the date of the Meeting, for their
comments.

 The Directors, whether present at the Meeting or not, shall communicate their comments, if
any, in writing on the draft Minutes within seven days from the date of circulation thereof, so that
the Minutes are finalized and entered in the Minutes Book within the specified time limit of
thirty days.
 If any director communicates his comments after the expiry of the said period of seven days,
the Chairman, if so authorised by the Board, shall have the discretion to consider such
comments.
 The draft Minutes should also be sent to those Directors who were not present at the Meeting
for information and comments thereon, if any. This is because all the Directors are
responsible for the decisions taken at any Board Meeting, whether or not they attended the
Meeting.
 In the event director does not comment on the draft Minutes, the draft Minutes shall be
deemed to have been approved by such director. A director who ceases to be a Director after
a Meeting of the Board is entitled to receive the draft Minutes of that particular Meeting and to
offer comments thereon, irrespectiveof whether he attended such Meeting or not.
 Minutes shall be entered in the Minutes Book within 30 days from the conclusion of the
Meeting.
 The date of entry of the Minutes in the Minutes Book shall be recorded by the Company
Secretary.
 Minutes, once entered in the Minutes Book, shall not be altered. Any alteration in the Minutes
as entered shall be made only by way of express approval of the Board at its subsequent
meeting and the fact of such alteration shall be recorded in the Minutes of such subsequent
meeting.
Hence, (i) the comments given by Sonali are beyond the specified time limit and may be
considered onlysubject to the discretion of the Chairman.
(ii). Comments of Sujata can be considered even if she did not attend the meeting.
(c) The Board of directors of ABC Limited met thrice in the year 2021 and 4th meeting though
called but could not be held for want of quorum. Examine with reference to the relevant
provisions of the Companies Act 2013, whether any provision of the Act has been
contravened?
Answer
In terms of section 173(1) of the Companies Act, 2013, a company must hold a minimum number
of four meetings of its Board of directors every year in such a manner that not more than 120
days shall elapse between two consecutive meetings of the Board.
The proviso to this sub-section provides that the Central Government may by notification, direct that
these provisions will not apply in relation to any class or description of companies or may apply
subject to suchexceptions, modifications or conditions as may be specified in the notification.
As per section 174(4) of the act, if a meeting of the Board could not be held for want of quorum
then, unless the articles otherwise provide the meeting shall automatically stand adjourned till
the same day in the next week, at the same time and place, or if that day is a National Holiday till
the next succeeding daywhich is not a national holiday, at the same time and place.
If there is no Quorum at the adjourned Meeting also, the Meeting shall stand cancelled. An
adjourned Meeting being a continuation of the original Meeting, the interval period in such a
case, shall be counted from the date of the original Meeting. Thus, in case of an adjourned Meeting,
the gap of one hundred and twenty days for the purpose of fixing up the date of the next Meeting
or for any other purpose should be counted from the date of the original Meeting.
In this case, the Board meeting of ABC limited was held 3 times and for the 4th time meeting was
calledbut could not be held for want of quorum.
Hence, as per the provisions of the Companies Act, 2013 the Company has violated the provisions
with respect to the convening the Board Meetings.

But if the 4th Board meeting was adjourned due to want of quorum and the adjourned meeting
was duly held within the stipulated time, then the company has not contravened the provisions
of the Act.
(d) The CFO of a well-known public company (one among top 20 listed companies) suggested
to the Board of directors to constitute a Risk Management Committee with only the CFO
and General Manager (HR) as its members. The Company Secretary of the company,
however insisted that he should not only be included in the Risk Management Committee
but should also be made the chairman of the committee as he is well versed in corporate
laws. Referring to the provisions of Companies Act, 2013 and the Relevant Rules, examine
the proposal.
Answer
 As per Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 (LODR), the Board of top 1000 listed companies shall constitute a Risk Management
Committee (RMC). The top 1000 listed entities shall be determined on the basis of market
capitalization as at the end of immediate preceding financial year and high value debt listed
entities.
 The Risk Management Committee shall have minimum three members with majority being
members of Board of Directors (BOD) including at least one independent director. In case of a
listed entity having SR equity shares, at least two thirds of the members of RMC shall be
independent directors.
 The chairman of RMC shall be a member of the BOD. Senior executives may be members of
RMC.
 The RMC shall meet at least twice in a year. The quorum for the meeting of RMC shall be
either two members or one third of the members of the RMC whichever is higher including at
least one member of the BOD in attendance. Not more than 180 days shall lapse between two
consecutive RMC meetings.
 The BOD shall define the role and responsibility of RMC and may delegate monitoring the
risk management plans of the company to the RMC including cyber security.
In the instant case, as the company is among the top 20 public listed companies based on market
capitalization, it is required to constitute RMC with independent directors, members of Board of
Directors and senior executives. However, the Chairman of RMC has to be a Director of the
company. Hence, the Company Secretary may be included as a member of the RMC, his contention
that he should be made Chairman is wrong.
Also, the contention of the CFO to constitute RMC only with senior officers of the company is not
correct.

(a) Zero Motors Limited, a listed company has three manufacturing divisions:
(i) Cycle Division
(ii) Motorcycle Division
(iii) Electric Scooter Division.
The following information is given: (Rupees in crore)

Equity share capital: 300
Preference share capital: 120
General Reserve: 500
Revaluation Reserve: 200
Profit and Loss A/c (CR): 300
Long term loan: 480
Short term loan: 620
Gross revenue in last FY: 2010
Investment in Cycle division: 40
Turnover of Cycle division 450
The Board of directors of the company have decided by unanimous resolution the
following in their meeting held on 31st May, 2023:
(i) To obtain a further long term loan of Rupees 300 crore from financial institution.
(ii) To invest in trust securities the compensation received as a result of divestment of
Cycle Division. Referring to the provisions of Companies Act, 2013, decide if the board
resolution is sufficient forthe above proposals.
Answer
(i) According to Section 180 of the Companies Act, 2013, the Board of Directors shall exercise
their powers only with the consent of the members of the company by a special resolution in
the following cases:
 To sell, lease or otherwise dispose of the whole or substantially whole of the company;
 To invest otherwise than in trust securities the amount of compensation received as a
result of merger oramalgamation;
 To borrow money, where the money borrowed, together with the money already
borrowed by thecompany will exceed aggregate of paid-up capital and free reserves.
However, a board resolution is sufficient if the company wants to borrow money, where the
money to be borrowed is less than the aggregate of the paid-up share capital, free reserves
and securities premium.
In the instant case, the money to be borrowed together with the money already borrowed as long
term loans from financial institutions is rupees 780 Crore (480+300) and aggregate of the paid-
up capital andfree reserve rupees 1220 crore (300+120+500+300 = rupees 1220 crore.
Hence, a special resolution is not required. Board Resolution is sufficient.

(ii) According to section 180 of the Act, a Special Resolution is required only in case the
compensation on account of merger or amalgamation is invested otherwise than in trust
securities.
In the instant case, as the compensation money on account of divestment of Cycle Division
was investedonly in trust securities, board resolution is sufficient.

(b) Prapti Hotels Ltd. want to appoint Susmita as an independent director from 1st
January, 2022. It came to the knowledge of Vice President (Commercial) of the company
that Susmita stayed at their hotel at Ooty for three days from 1st June to 3rd June, 2021 at
room rent of ` 2,500 per day and thus had entered into a transaction with the company. The
Hotel charged same room rent from other members of the general public during that time.
Advise the Vice President (Commercial), if Susmita can be appointed as an independent
director of the company from 1st January, 2022.
Answer
Section 149(6) of the Companies Act, 2013 provides that Independent Director, in relation to a
company, means a director other than a managing director or a whole time director or a nominee
director who has or had no pecuniary relationship other than remuneration as such director or
having transaction not exceeding ten per cent. of his total income or such amount as may be
prescribed, with the company, its holding, subsidiary or associate company or their promoters or
directors during the two immediately preceding financial years or during the current financial
year.
This provision inter alia requires that an ‘ID’ should have no ‘pecuniary relationship’ with the
company concerned or its holding/subsidiary/associate company and certain other categories
specified therein during the current and last two preceding financial years. Clarifications have
been sought whether a transaction entered into by an ‘ID’ with the company concerned at par
with any member of the general public and at the same price as is payable/paid by such member
of Public would attract the bar of ‘pecuniary relationship’ under section 149(6)(c). The matter
was examined and it was clarified by MCA vide its circular no. 14/2014 dated 9th June, 2014 that
in view of the provisions of section 188 which take away transactions in the ordinary course of
business at arm's length price from the purview of related party transactions, an ‘ID’ will not be
said to have ‘pecuniary relationship, under section 149(6)(c) in such cases.
Therefore, staying of Susmita at the hotel in Ooty of Prapti Hotels Ltd. and making transactions
with the company 6 months prior to her proposed appointment in the board as Independent
Director cannot be termed as pecuniary relationship as those were at par with members of
general public.
So, the Vice President (Commercial) should be advised that Susmita can be appointed as
Independent Director in the Company from 1st January, 2022.
(c) With respect to E-Voting, explain the following:

(a) E-Voting
(b) Agency
(c) Cut-off date
(d) Cyber security
Answer
(a) E-Voting
means a secured system based process of display of electronic ballots, recording of votes of
the members and the number of votes polled in favour or against, in such a manner that the
entire voting exercised by way of electronic means gets registered and counted in an electronic
registry in a centralised server with adequate cyber security.
(b) Agency
The National Securities Depository Limited, the Central Depository Services (India) Limited
or any other entity approved by the Ministry of Corporate Affairs subject to condition that
the National Securities Depository Limited, the Central Depository Services (India) Limited
or such other entity has obtained a certificate from the Standardisation Testing and Quality
Certification Directorate, Department of Information Technology, Ministry of
Communications and Information Technology, Government of India including with regard to
compliance with parameters under Explanation.

(c) Cut-off date
with respect to e-voting it means a date not earlier than seven days before the date of the
general meeting for determining the eligibility to vote by electronic means either remotely or
at the general meeting.
(d) Cyber Security

means protecting information, equipment, devices, computer, computer resource,
communication device and information stored therein from unauthorised access, use,
disclosures,disruption, modification or destruction.
(d) Mercury Limited is incorporated in USA and having its registered office in Los Angeles.
Board of directors of Mercury Limited taken a decision to merge Mercury Limited with
Mars Limited, a company incorporated in India having its registered office in New Delhi.
Referring to the provisions of the Companies Act 2013, advice the Board of directors of
Mercury Limited for Merger.
Answer
Yes, Mercury Limited a foreign company can merge with Mars Limited, an Indian Company as per
Section 234 of Companies Act, 2013.
Section 234(2) of Companies Act, 2013 states that subject to the provisions of any other law for
the time being in force, a foreign company may with the prior approval of the Reserve Bank of
India, merge into a company registered under this Act or vice versa and the terms and conditions
of the scheme of merger may provide, among other things, for the payment of consideration to
the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash or
partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the
purpose.
For the purpose of sub section (2), the expression “foreign company’ means a company or body
corporate incorporated outside India whether having a place of business in India or not.
Section 234(1) states that the provisions of this Chapter unless otherwise provided under any
other law or the time being in force, shall apply mutatis mutandis to schemes of merger and
amalgamations between companies registered under this Act and companies incorporated in the
jurisdictions of such countries as may be notified from time to time by the Central Government.
The Central Government may make rules, in consultation with the Reserve Bank of India, in
connection with mergers and amalgamations provided under this section.
(e) The Board Meeting followed by the Annual General Meeting of a large listed company has
just concluded and the Chairman is reluctant to call an Extra Ordinary General meeting or
a Board Meeting any time soon. The Chairman of the company sought your advice on
appointing Paritosh who has just retired as CMD from a large commercial bank as an
independent director on the Board of the companyfor the period of seven years. Advice.
Answer
 With effect from 1" January 2022 an independent director can be appointed on the board of a
listed company only by a special resolution passed by the members at a general meeting as
per Regulation 25(2A) read with Regulation 17 of SEBI (Listing Obligations and Disclosure
Requirements), 2015 (LODR). Hence, approval of special resolution by the members in the
general meeting is mandatory.
 However, as the Board Meeting and the Annual General Meeting (AGM) of the company has
just concluded and as the chairman is unwilling to call an Extra Ordinary General meeting or
the Board meeting in the near future, an alternative approach to solving the problem is
appointing Paritosh as an additional director under section 161(1) of the Act by passing a
board resolution by circulation under section 175 of the Act.
 According to Para 6.5 of Secretarial Standards 1 issued by ICSI, passing a resolution by
circulation shall be considered valid as if it had been passed at a duly convened meeting of
the Board of Directors.

 The maximum tenure of an independent director shall be for a period of five years as per
Section 149(10) of the Companies Act, 2013. Hence, the suggestion of the chairman to appoint
Paritosh for a period of seven years is not valid.
 The additional director shall hold office up to the date of next annual general meeting. In the
next AGM, Paritosh can be appointed as an independent director for a further period of four
years by passing a special resolution by the members.
OR
(i) The Chief Financial Officer of a listed company be appointed as its Compliance Officer.
Comment.
Answer
(i) According to Section 203 of the Companies Act, 2013, the functions of the company
secretary, interalia, shall include -
(a) Reporting to the Board of Directors (BOD) of the company compliance with the Rules
made underthe Act and other applicable laws.
(b) To ensure that the company complies with applicable Secretarial Standards issued by the
Instituteof Company Secretaries of India and approved by the Central Government.
(ii) On the other hand, according to Regulation 6 of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015, a listed company shall appoint a qualified company
secretary as the compliance officer of the listed company. He shall be responsible for-
(a) Ensuring conformity with the regulatory provisions applicable to the listed entity in letter
and spirit
(b) Co-ordination with and reporting to the SEBI, Stock Exchanges and depositors on
compliance withapplicable rules, regulations and directions of the Authorities.
Ensuring that the listed entity has followed correct procedures resulting in correctness,
authenticity and comprehensiveness of publicly available information, statements and
reports filed by the listedentity under these regulations.
(c) monitoring email address of grievance redressal division as designated by the listed entity
for the purpose of registering complaints by investors.
(iii) Thus, the compliance officer should be a duly qualified company secretary in employment of
the listed company. According to Rule 8 of Companies (Appointment and Remuneration of
managerial personnel) Rules, 2014, a company with a paid-up capital of rupees ten crore or
more is required to appoint a company secretary.
(iv) On the other hand, only a listed company is mandated to appoint a qualified company
secretary in itsemployment as its compliance officer.
Hence, unless the CFO is also a qualified company secretary, he cannot be appointed as the
complianceofficer of the listed entity.

(ii) Following particulars are extracted from the financial statements of Surat Gold and
Diamonds limited for the year ended 31st March, 2023 :
(Unit in Rupees)
Salaries and perquisites paid to managing director ₹ 1,50,000 and whole time director ₹
1,20,000. Provision for bonus ₹ 1,00,000 and gratuity ₹ 1,00,000 (included the bonus ₹
10,000 and gratuity ₹ 12,000 for the above directors)
Provision for doubtful debts ₹ 60,000 Profit on sale of forfeited shares ₹ 10,000 Short term
capital gains ₹ 2,60,000
Contribution to approved charitable trust ₹ 1,00,000.
Provision for income tax ₹ 4,80,000 and surcharges ₹ 1,20,000 Net Profit for the FY 2022-
23 ₹ 32,00,000
Aggregate amount of accumulated losses of previous years ₹ 2,50,000
The board of directors consisted of a managing director, a whole time director and three
other non- executive directors. You are required to calculate the net profit for computing
managerial remuneration and the maximum managerial remuneration payable to the
above said five directors. State your assumptions.
Answer
The adjusted net profit as per Section 198 read with Schedule V of the Companies Act, 2013 read
with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is
computed as givenbelow:
Unit in Rupees
Profit as per P&L A/c: 32, 00,000
Add items not deductible:
(i)Managerial remuneration to MD 1,50,000
(ii)Managerial remuneration to WTD 1,20,000
(iii)Provision for bonus to directors 10,000
(iv)Provision for gratuity to directors 12,000
(v)Provision for doubtful debts: 60,000
(vi)Provision for income tax: 4,80,000
Sub Total: 8,32,000
Less items deductible
(a) Profit on sale of forfeited shares (-10,000)
(b) Short term capital gains (-2,60,000)
(c) Past accumulated losses (-2,50,000)
Subtotal: (-5, 20,000)
Therefore, adjusted net profit for managerial remuneration: Rs. 35, 12,000 Since the company
has two whole time directors and three non-executives part time directors, the managerial
remuneration payable to-
(i) MD & WTD: @10% of Adjusted Net Profit : Rs. 3,51,200
(ii) Three non-executive directors@1% of Adjusted Net profit: Rs. 35,120
Assumptions:
In accordance with Section 198 of the Act read with companies (Appointment and
Remuneration ofManagerial Personnel) Rules, 2014-
(a) It is assumed that the accumulated past losses have not been deducted yet in
computation ofadjusted net profit for the purpose of managerial remuneration
(b) It is assumed that the surcharge of Rs. 1,20,000 on income tax is a tax in the nature of tax on
excess on abnormal profit under section 198(4)(d)
(c) Contribution to charitable trust is bonafide and within approved limits under section 181 of
the Act.

(iii) Jyoti Prasad obtained two (2) Director Identification Number (DINs) by mistake in 2016
and 2019. He used his second DIN to become director in two private limited and three
public limited companies. Later, on realisation, he applied to Registrar of Companies
for deactivation of his first DIN. The Registrar rejected the application. Examining
relevant legal provisions, discuss.
Answer
As per section 155 of the Companies Act, 2013, no individual who has already been allotted a DIN
undersection 154 shall apply for, obtain or possess another DIN.
As per Rule 11 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 the
Central Government or Regional Director (Northern Region), Noida or any officer authorised by
the Regional Director may, upon being satisfied on verification of particulars or documentary
proof attached with the application received alongwith fee as specified in the Companies
(Registration Offices and Fees) Rules, 2014 from any person, cancel or deactivate the DIN in case
the DIN is found to be duplicated in respect of the same person provided the data related to both
the DIN shall be merged with the validly retained number.
On an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with
declaration that he has never been appointed as director in any company and the said DIN has
never been used for filing of any document with any authority, the Central Government may
deactivate such DIN: Provided that before deactivation of any DIN in such case, the Central
Government shall verify e- records with the validly retained number.
In this case, Jyoti may make an application in form DIR-5 to surrender his first DIN with
declaration as stated in above provisions.
(iv) Lazybones, director of Global Travels Limited, an unlisted public company was removed
from the Office of Director u/s 169 of Companies Act, 2013 after following due process of
Notice and the principles of Natural Justice. The board of directors sought your opinion on
filling up the vacancy caused by removalof director. Advise.
Answer
(i) The vacancy resulting from removal of director under section 169 of the Act may be filled up
by appointing another director at the same general meeting where Lazybones was removed
from directorship by appointing any other person as a director. However, a special Notice for
the proposed appointment of another person in the vacancy caused by removal of Lazybones
needs to be given undersection 169(2) of the Act.
(ii) As per Section 169(5) of the Act, the vacancy caused by removal of Lazybones may be filled as a
casual vacancy in accordance with provisions of Section 161(4) of the Act. As per Section
161(4) of the Act, in case of public company if the office of director appointed by the
company is vacated before the expiry of his term of office in normal course, the resulting
casual vacancy may be filled up by the Board of Directors at a meeting of the Board, which
shall subsequently be approved by the members in the immediate nextgeneral meeting.
(iii) In the given case, another person can be appointed in the place of the director removed from
office by the Board. However, subject to the provisions of the Articles of Association of the
company, the director appointed in the casual vacancy will hold office only up to the date
which the director in whose place he was appointed would have held office if it had not been
vacated.
(iv) The company is required to file Form DIR-12 within 30 days of appointment of another
person in the casual vacancy along with the fees provided under Companies (Registration
Offices and Fees) Rules, 2014.

(v) The following information is given
(Rupees in Crores)
Name Status Paid-up Annual Borrowings

Share Turnover
Capital
Sky Limited Earth Listed Unlisted 9 96 48
Limited Water (Private) Subsidiary of Earth 19 420 45
Ltd. Limited 4 112 27
(i) Which companies are required to constitute Nomination and Remuneration

Committee (NRC)?
(ii) Can the Chariman of the company also chair the NRC?
(iii) What is the minimum number of executive directors and independent directors on
NRC?
(iv) What is the quorum and number of meetings of NRC in a financial year?
Answer
(i) As per Regulation 19 of SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 (LODR), a listed company shall constitute the Nomination and Remuneration
Committee (NRC) with at least three directors all of whom shall be non-executive directors
with at least fifty percent of the directorsof NRC being independent directors.
According to Section 178 of Companies Act, 2013 (Act), read with Rule 6 of the Companies
(Meetings of Board and its Power) Rules, 2014 and Rule 4 of Companies (Appointment and
Qualification of Directors)Rules, 2014,-
(i) Every listed Public Company;
(ii) All Public companies with a paid up capital of 10 crore rupees or more; or
(iii) All Public companies having turnover of 100 crore rupees or more; or
(iv) All Public companies, having in aggregate, outstanding loans, debentures and deposits
exceeding 50 crore rupees are required to constitute NRC consisting of three or more
non-executive directors out of which not less than one half shall be independent
directors.
According to proviso to Section 2(71) of the Companies Act, 2013) a company which is a
subsidiary of a public company, not being a private company, shall be deemed to be a public
company as per this Act even when it continues to be a private company in its Articles.
Hence all the three companies viz., Sky Ltd, Earth Ltd and Water (Private) limited are
required to constitute NRC of their Board as they are either listed or their paid-up share
capital or turnover or borrowings exceed the prescribed limits.
(ii) Proviso to Section 178 states that the Chairman of the company may be appointed as a
member of the committee but shall not chair the NRC. Hence the chairman of the company
cannot be appointed as chairman of NRC. The Chairman of the NRC shall be an Independent
Director.
(iii) Since NRC is constituted with non-executive directors and independent directors in majority,
the minimum number of executive directors on NRC is NIL and the minimum number of
independent directors of NRC is half i.e two (rounded off to the nearest number) where the
total strength of NRC is three directors.
(iv) The quorum for NRC is as specified by the Board. Where no quorum is specified in the
Articles, all the members of NRC shall be quorum as per para 3.5 of SS-1. According to SEBI
LODR Regulations, quorum for NRC meeting shall be either two members or one third of the
members of the Committee, whichever is greater, including at least one Independent
Director in attendance.
SEBI LODR Regulations stipulates at least 1 NRC meeting in a year.

PART - III
(a) (i) Write a note on UDIN and eCSin.

(ii) Highlight the risk involved in the functioning of a mega professional firm.
Answer
(i) UDIN: The Unique Document Identification Number as governed by the UDIN Guidelines shall
verify the authenticity of various documents signed or certified by Company secretaries in
Practice. As per the UDIN Guidelines, a unique number for the identification of documents
attested by Company Secretaries in Practice shall be generated at the time of signing the
Certificate/ Report which shall mandatorily be mentioned in the Certificate/Report along with
the CoP number.
eCSin: The Employee Company Secretary Identification Number as governed by the eCSin
Guidelines shall enable the Institute to identify the appointments and cessations of Company
Secretaries. eCSin is a system generated unique number for identification of the Company
Secretaries employed in a particular company which shall be generated by the Company
Secretary at the time of employment as a Company Secretary (KMP or otherwise), as well as at
the time of demitting office in any manner.
Both the Guidelines have been made mandatory by the Council of ICSI w.e.f 1St October, 2019.
(ii) Risks involved in the functioning of a Mega Professional Firm are as follows:
 Lack of understanding and multiplicity of directions to the staff could be disastrous;
 More cost on infrastructure and technology;
 Dominance of senior partners over the younger partners;
 Defining exit route is difficult;
 Lack of transparency may lead to disputes;
 If crack develops in mutual faith and trust, difficult to cure;
 Communication gap between partners.
(b) CS Manish, a Company Secretary in practice is an expert in Goods and Service Tax. On
being approached by a reputed University at Mumbai, Manish took up teaching
assignment of indirect tax laws at University from 11 A.M. to 3 P.M. on every Tuesday and
2 P.M. to 5 P.M. on every Friday. Remuneration was contracted to be fixed for the
assignment. The University was recognised by the Council of ICSI for imparting teaching.
Has Manish committed professional misconduct in terms of provisions of the Company
Secretaries Act, 1980?
Answer
Clause (10) of Part I of the First Schedule to Company Secretaries Act, 1980 stipulates that a
Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if “he
engages in any business or occupation other than the profession of Company Secretary unless
permitted by the Councilso to engage.”
Regulation 168(1) of the Company Secretaries Regulations, 1982 provides that the prior
permission of the Council by a resolution is required for a Company Secretary to engage in any
business or occupation other than the profession of Company Secretary. The Council has
expressly permitted a PCS to take upfollowing vocations:
 Authoring Books and Articles;

 Holding of Life Insurance Agency License for the limited purpose of getting renewal
commission;
 Holding of public elective offices such as M.P., M.L.A., M.L.C. and others;
 Honorary office-bearership of charitable, educational or other non-commercial
organisations.
 Acting as Justice of Peace, Special Executive Magistrate and the like;

 Teaching assignment under the Coaching section/department of the Institute and other
Institutes such as the Institute of Cost & Works Accountants of India, the Institute of
Chartered Accountants of India, Management Institutes, Universities and any college
affiliated to a University and such other organization as may be recognised by the Council of
the Institute from time to time, so long as the hours during which a member in practice is so
engaged in teaching do not exceed average three hours in a day irrespective of the manner in
which such assignment is described or the remuneration receivable (whether by way of fixed
amount or on the basis of any time scale or in any other manner) by the member in practice
for such assignment.
Here CS Manish, a Company Secretary in Practice, an expert in Goods & Service Tax on being
approached by a reputed university at Mumbai, took up teaching assignment of indirect tax laws
at the university from 11 A.M. to 3 P.M. on every Tuesday and 2 P.M. to 5 P.M. on every Friday
which comes to seven hours for two days. The average hours per day exceed three hours. The
fact that remuneration was contracted to be fixed for the assignment and that the university was
recognised by the Council of ICSI for imparting teaching will not help CS Manish. In view of the
above Manish has committed professional misconduct in terms of provisions of Company
Secretaries Act, 1980.

Company Law
December – 2023
Exam Paper
PART - I
(a) Explain the exceptions, if any to the principle of ‘‘Limited Liability’’ under the Companies Act,
2013.
Answer
Exceptions to the principle of “Limited Liability” are as under-
 If at any time the number of member of a company is reduced, in the case of a public company,
below seven ,in the case of private company, below two and company carries on business for
more than six months while the number of member is also reduced, every member of the
company during the time that it so carries on business after the those six months and is
cognizant of the fact that it is carrying on business with less than seven or two members, as the case
may be, shall be severally liable for the payment of the whole debts of the company contracted
during that time, and may be severally sued therefore. [Section 3A of the Companies Act, 2013]
 When the company is incorporated as an Unlimited Company under section 3(2)(c) of the Act.
 Where a company has been got incorporated by furnishing any false or incorrect information or
representation or by suppressing any material fact or information in any of the documents or
declaration filed or made for incorporating such company or by any fraudulent action, the
Tribunal may, on an application made to it, on being satisfied that the situation so warrants,
direct that liability of the members of such company shall be unlimited. [Section 7(7)(b)]
 Where in the course of winding up it appears that any business of the company has been carried
on with an intent to defraud creditors of the company or any other persons or for any fraudulent
purpose, the Tribunal may declare the persons who were knowingly parties to the carrying on of
the business in the manner aforesaid as personally liable, without limitation of liability, for all or
any of the debts/liabilities of the company. [Section 339]
 Where it is proved that a prospectus has been issued with intent to defraud the applicants for
the securities of a company or any other person or for any fraudulent purpose, every person
who was director at the time of issue of prospectus or has been named as a director in the
prospectus or every person who has authorized the issue of prospectus or every promoter or a
person referred to as an expert in the prospectus shall be personally liable, without any
limitation of liability, for all or any of the losses or damaged that may have been incurred by any
person who subscribed to the securities on the basis of such prospectus. [Section 35(3)]
 Where a company fails to repay deposit or part thereof or any interest thereon referred in
section 74 within the time specified or further time as may be allowed by the Tribunal and it is
proved that deposits had been accepted with intent to defraud the depositors or for any
fraudulent purpose, every officer of the company who was responsible, without any limitation of
liability, for all or any of the losses or damaged that may have been incurred by the depositors.
[(Section 75(1)]
 Where the report made by an inspector states that fraud has taken place in a company and due
to such fraud any director, key managerial personnel, other officer of the company or any other
person or entity, has taken undue advantage or benefit, whether in form of any asset, property
or cash or in any other manner, the Central Government may file an application before Tribunal
for appropriate orders with regard to disgorgement of such asset, property or cash and also for
holding such director, key managerial personnel, officer or other person liable personally
without any limitation of liability. [Section 224(5)]

(b) ABC Limited is a subsidiary company of XYZ Limited. Deepak is working as an executive director
in ABC Limited. XYZ Limited passed an ordinary resolution in its general meeting to issue Sweat
equity Shares to Deepak for providing his professional services. Pankaj who is Company
Secretary in XYZ Ltd., objected the following :
(i) Sweat equity shares cannot be issued to Deepak, who is an executive director in
Subsidiary company i.e., ABC Limited.
(ii) Special resolution is required to be passed in the general meeting, of XYZ Ltd. Examine the
validity of objection of Company Secretary of XYZ Limited under the provisions of
Answer
According to section 2(88) of the Companies Act, 2013, sweat equity shares means such equity shares
issued by company to its directors or employees at a discount or for consideration, other than cash for
providing their know how of available rights in the nature of intellectual property rights or value
additions, by whatever name called.
According to explanation to Rule 8(l) of the Companies (Shares Capital and Debentures) Rules, 2014:
For the purpose of this rule the expression “Employee” means-
 A permanent employee of the company who has been working in India or outside India;
 A director of the company, whether a whole-time director or not; or
 An employee or a director as defined in sub clause (a) or (b) above of a subsidiary, in India or outside
India, or of a holding company of the company.
Further, section 54(1) provides that notwithstanding anything contained in Section 53, a company can
issue sweat equity shares of a class of shares already issued, if the issue has been authorised by a
special resolution by the company in the general meeting.
As per the above provisions of the Companies Act, 2013, the analysis of the objections of Company
Secretary of XYZ Limited is as below-
(i) Sweat equity shares can be issued to the executive director of ABC Limited which a subsidiary
company of XYZ Limited. Hence, the objection of Pankaj is not correct.
(ii) Special resolution is required to be passed to issue of sweat equity shares. Ordinary resolution is
not sufficient. Hence, the objection of Pankaj is correct.
(c) Venus Hospitality Limited is an unlisted public company. The following information is given as per
the financial statements of the company as on 31st March, 2023:
Paid-up capital : 5 crore
Security premium : 2 crore
Revaluation reserve : 10 crore
Reserves and surplus : 1 crore
Long-term loans : 8 crore
The Board of Directors of the company have resolved by a board resolution to borrow a further
long-term loan of 5 crore.
The Articles provide that the company cannot borrow beyond its net worth. Referring to the
provisions of Companies Act, 2013, examine the validity of the Board Resolution.
Will your answer differ, if it is a private company ?
Answer
Section 180(1)(c) of the Companies Act, 2013 restricts the borrowing powers of the Board of Directors.
The powers to borrow has to be exercised by the Board in a duly convened Board Meeting. The Board
cannot borrow beyond its authority as stipulated by the Articles of Association of the company and by
the Act. Section 180(1) prescribes that the Board shall, inter alia, borrow money, where the money to be
borrowed, together with the money already borrowed by the company will exceed the aggregate of the
paid- up capital, free reserves and security premium only with the consent of members in a general
meeting by passing a special resolution.
In the instant case, the aggregate of paid-up capital and free reserves and security premium of the
company is 5+2+1 = Rs. 8 crore. As the company already has an outstanding long-term loan of Rs. 8
crore, no further loan can be borrowed just by passing a Board Resolution. To borrow any further sum,

the approval of members by a special resolution is necessary. Thus, as Venus Hospitality Limited is a
public company, the Board Resolution is not valid as per the above mentioned provisions.
If the company is a private limited company, as per exemption given vide Notification dated 05/06/2015
the private companies are exempted from complying with the requirements of Section 180 of the Act.
Even then the company cannot borrow a further sum of Rs. 5 crore as in this case as, the Articles
provide that the company cannot borrow beyond its net worth.
The net worth of the company is 5+2+1=Rs. 8 crore. Revaluation reserve is not taken into account for
ascertaining the net worth of a company as per Section 2(57). The long- term loan outstanding is Rs. 8
crore. Hence, the company cannot borrow the additional loan of Rs. 5 crore as the stricter provisions of
Articles will prevail even if it is a private company.
(d) Peacock Home Appliances Limited, an unlisted public company was incorporated in the year 2015
to manufacture domestic pressure cookers. In the year 2017, the company issued six-years, 7%,
non-convertible, cumulative preference shares for 15 crore to another company called Classic
Appliances Limited. Due to intense competition in the home appliances market, the company was
just able to break even. The company did not declare any dividend (both on equity shares and
preference shares) since incorporation and unable to redeem preference shares during the year
2023 on maturity. Referring to the provisions of the Companies Act, 2013 explain the way for
redemption of unredeemed preference shares and how the outstanding preference dividend can
be discharged, as the profit is not available for the redemption of preference shares and payment
of outstanding dividend.
Answer
According to second proviso to Section 55(2) of the Companies Act, 2013 (the Act), no preference shares
shall be redeemed except out of the profits of the company which would otherwise be available for the
purpose of payment of dividend or out of fresh issue of preference shares made specifically for the
purpose of redemption of existing preference shares.
According to Section 55(3) of the Act, where a company which has issued preference shares is not in a
position to redeem any of its preference shares or pay dividend on the preference shares, it may, with
the consent of 3/4th of in value of such preference shares and with the approval of Tribunal, issue
further redeemable preference shares equal to the amount of outstanding preference shares including
outstanding dividend.
Where the profit is not available for payment of dividend and redemption of unredeemed preference shares
on maturity, the only way available to the company is to opt for rollover of the existing preference shares
along with accumulated preference dividend when it becomes due for redemption in the year 2023.
(a) ABC Limited has created floating charge against debentures issued for Rs. 100 crore. The
Board of Directors (BOD) is willing to know the circumstances under which floating charge
crystallizes and the security becomes fixed. As a Company Secretary advise the BOD in light of
the provisions of Companies Act, 2013.
Answer
Floating charge crystallizes and the security becomes fixed in the following cases:
(a) When the company goes into liquidation;
(b) When the company ceases to carry on its business;
(c) When the creditors or the debenture holders take steps to enforce their security i.e., by
appointing receiver to take possession of the property charged;
(d) On the happening of the event specified in the deed.
In the aforesaid circumstances, the floating charge is said to become fixed or to have crystallised. BOD
may be advised, accordingly.

(b) The Chairman of a listed company wants to know from you the details required to be entered in
the register of contracts in which a director is interested and the requirement of the period of
maintaining the said register. Explain with reference to the provisions of the Companies Act,
2013.
Answer
(i) Section 189(1) of the Companies Act, 2013 read with Rule 16 of the Companies (Meeting of Board
and its Powers) Rules, 2014, requires that every company shall keep a register giving separate
details of contracts or arrangements referred to in Section 184(2) and under section 188 in Form
MBP-4.
(ii) The register should contain details of:
(a) company or companies or bodies corporate, firms or other association of individuals, in which
any director has any concern or interest, as mentioned under sub-section (1) of section 184:
However, the particulars of the company or companies or bodies corporate in which a director
himself together with any other director holds two percent. or less of the paid-up share
capital would not be required to be entered in the register;
(b) contracts or arrangements with a body corporate or firm or other entity as mentioned under
sub-section (2) of section 184, in which any director is, directly or indirectly, concerned or
interested; and
(c) contracts or arrangements with a related party with respect to transactions to which section
188 applies.
Such register or registers shall be placed before the next meeting of the Board and signed by all the
Directors present at the meeting.
(iii) The register shall be kept at the registered office of the company and the register shall be preserved
permanently and shall be kept in the custody of the company secretary of the company or any other
person authorised by the Board for the purpose.
(c) ‘‘The provisions of appointment of Company Secretary in United Kingdom are same as in India
under the Companies Act, 2013’’. Comment.
Answer
According to Section 203 of Companies Act, 2013 read with rule 8 and 8A of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014, every company with a paid- up
capital of at least Rs. Ten Crore shall have, inter alia, a whole time company secretary who is a member
of ICSI as per Sec 2(1) (c) of Company Secretaries Act, 1980.
Thus, only a qualified company secretary can be appointed as the company secretary of a company in
India. On the other hand Section 270, 271 and 273 of UK Companies Act, 2006, govern the provisions
pertaining to appointment and qualifications of company secretary as below:
A Private Company is not required to have a Secretary. However, a public company must have a
Secretary. It is the duty of the Directors of a public company to take all reasonable steps to secure that
the Secretary (or each Joint Secretary) of the company–
(a) is a person who appears to them to have the requisite knowledge and experience to discharge the
functions of Secretary of the company, and
(b) has one or more of the following qualifications.
The qualifications are–

(a) that he has held the office of Secretary of a public company for at least three of the five years
immediately preceding his appointment as Secretary;
(b) that he is a member of any of the bodies specified as below–
(a) the Institute of Chartered Accountants in England and Wales;
(b) the Institute of Chartered Accountants of Scotland;
(c) the Association of Chartered Certified Accountants;
(d) the Institute of Chartered Accountants in Ireland;
(e) the Institute of Chartered Secretaries and Administrators;
(f) the Chartered Institute of Management Accountants;
(g) the Chartered Institute of Public Finance and Accountancy.

(c) that he is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom;
(d) that he is a person who, by virtue of his holding or having held any other position or his being a
member of any other body, appears to the Directors to be capable of discharging the functions of
Secretary of the company.
Thus, the provisions of appointment of Company Secretary in United Kingdom are not exactly same as
in India under the Companies Act, 2013.
(d) Can the following persons or institutions become member of a company under the provisions of
Companies Act, 2013:
(i) MK Associates, which is a Partnership Firm.
(ii) Devid, who is a Foreigner and resident of Japan.
(iii) HUF.
Answer
Answer of the given question is as below-
(a) A partnership firm is not a legal person and as such it cannot, in its own, become a member of a
company. MK Associates, which is a partnership firm, cannot be a member of Company.
(b) A foreigner may take the shares in an Indian Company and become a member subject to the
provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country,
he become an alien enemy and his power of voting and his rights to receive notices are suspended.
Thus, Devid can be a member of Company.
(c) HUF is not a juristic person, although it is a person for purpose of the Income Tax Act, 1961. HUF is
represented by its Karta. There is no legal bar on HUF to invest its money in shares and securities
and the Companies Act does not prohibit membership of HUF. In case of an HUF, the shares can be
registered in the name of Karta of HUF.
(e) Can the Investor Education and Protection Fund be utilized for the activities related to ‘‘Har
Ghar Tiranga’’ a campaign under the aegis of Azadi Ka Amrit Mahotsav, under the provisions
of Companies Act, 2013 ?
Answer
Section 125(3) of the Companies Act, 2013, provides the Investor Education and Protection
Fund shall be utilised for-
(a) The refund in respect of unclaimed dividends, matured deposits, matured debentures, the
application money due for refund and interest thereon;
(b) Promotion of investor’s education, awareness and protection;
(c) Distribution of any disgorged amount among eligible and identifiable applicants for shares or
debentures, shareholders, debenture holders or depositors who have suffered losses due to
wrong actions by any person, in accordance with the order made by the Court which had ordered
disgorgement;
(d) Reimbursement of legal expenses incurred in pursuing class action suits under section 37 and
245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and
(e) Any other purpose incidental thereto, in accordance with Rule of IEPF authority (Accounting,
Audit, Transfer and Refund) Rules, 2016.
Thus, as per above provisions, Investor Education and Protection Fund cannot be utilised for the
activities related to “Har Ghar Tiranga” a campaign under the aegis of Azadi Ka Amrit Mahotsav,
under the provisions of Companies Act, 2013.

(i) Authorised, issued and paid-up share capital of XYZ Ltd., is 499 crore divided into 49.90 crore
shares of Rs. 10 each. 74% of shares of XYZ Ltd. is held by Central Government, and the
balance shares are held by the retail investors. The date of incorporation of XYZ Ltd. is 1st
April, 2023. First Auditor of XYZ Ltd. is appointed on 16th May, 2023. As a Company Secretary,
examine the validity of appointment of first auditor in XYZ Ltd. in light of the provisions of the
Answer
The appointment of auditor of Government Company or Government controlled (directly or indirectly)
company shall be held in accordance with the provision of section 139(5) and (7) of the Companies Act,
2013.The First auditor shall be appointed by the Comptroller and Auditor General of India within 60 days
from the date of incorporation and in case of failure to do so, the Board shall appoint within next 30 days
and on failure to do so by the Board of Directors, it shall inform the members, who shall appoint the
auditor within 60 days at an extra ordinary general meeting (EGM), who shall hold office till the
conclusion of the first annual general meeting.
74% of shares of XYZ Ltd, is held by Central Government, thus XYZ Ltd., will be a Government
Company. First auditor of XYZ Ltd is appointed on 16th May 2023, i.e., within 60 days from the date of
incorporation i.e., 1st April 2023.
The appointment of first auditor of XYZ Ltd., is valid and within the time specified under the
(ii) The Board of Directors (BOD) of ABC Ltd., is planning to invite deposits from public for the
purpose of meeting its short-term requirements of 20 crore in its scheduled meeting to be held
on 1st October, 2023. Deposits will be repayable within 4 months from the date of such deposit.
The paid-up share capital and free reserves of ABC Ltd., is 225 crore and 375 crore
respectively as per audited accounts as on 31st March, 2023. The Company Secretary of ABC Ltd.
opposed the above proposal of BOD with the contention that the Company cannot accept deposits,
which is repayable earlier than 6 (six) months from the date of such deposits. Advise BOD of ABC
Ltd. as per the provisions of the Companies Act, 2023.
Answer
As per section 73 of the Companies Act, 2013 read with proviso to rule 3 of the Companies
(Acceptances of Deposits) Rules, 2014, a company may, for the purpose of meeting any of its short-term
requirements of funds, accept or renew such deposits for the repayment earlier than six months from
the date of deposit or renewal, as the case may be, subject to the condition that-
(a) Such deposits shall not exceed ten percent of aggregate of the paid-up share capital, free reserves
and securities premium account of the company, and
(b) Such deposits are repayable not earlier than three months from date of such deposit or renewal
thereof.
BOD of ABC Ltd., is planning to invite deposits of Rs. 20 crore which is not more than Rs. 60 crore
(10% of i.e., Rs. 600 crore) and repayment period is not earlier than three months from the date of
such deposits. Proposal of BOD of ABC Ltd., does not contravene any provision of the Companies Act,
2023. BOD of ABC Ltd., may accept the deposits of Rs. 20 crore. The contentions of Company Secretary
of ABC Ltd., is not correct. Accordingly, BOD of ABC Ltd. may be advised.

(iii) The Board of Directors of Glass Making Ltd. have decided to declare interim dividend @ 18%
for the current financial year of 2023-24. The company has incurred a loss of 107 crore
during the current financial year up-to quarter ended on 30th September, 2023. The company
has declared dividend in the last four financial years, as below :
Financial Year Rate of Dividend
2019-20 15%
2020-21 12%
2021-22 15%
2022-23 24%
Examine the decision of the Board of Directors of Glass Making Ltd. as per the provisions of the
Answer
Section 123(3) of the Companies Act, 2023 provides that the Board of Directors of a company may
declare interim dividend during any financial year or at any time during the period from the closure
financial year till holding of the annual general meeting out of the surplus profit and loss account or out
of the profits of the financial year for which such interim dividend is sought to be declared or out of
profits generated in the financial year till the quarter preceding the date of declaration of the interim
dividend.
In case the company has incurred loss during the current financial year upto the end of the quarter
immediately preceding the date of declaration of interim dividend, such interim dividend shall not be
declared at a rate higher than the average dividends declared by the company during immediately
preceding three financial years.
In the given question, Glass Making Ltd. has incurred loss of Rs. 107 crore during the current financial
year till the end of quarter ended on 30th September, 2023, thus company cannot declare interim
dividend at a rate higher than the average dividends declared by the company during immediately
preceding three financial years of 2020-21, 2021-22 and 2022-23. Dividend rate of financial year of
2019-20 is not relevant for the declaration of interim dividend. Average rate of dividends during
immediately preceding three financial years is 17%, while company has decided to declare interim
dividend @18%, which is higher than the average rate of dividend during the immediately preceding three
financial years.
Thus, the decision of Board of directors is not as per the provisions of Companies Act, 2023.
(iv) Fine Industry Ltd. is registered under the Companies Act, 2013 having registered office at New
Delhi. Company is engaged in manufacturing of various household products. Main manufacturing
unit of the company is located in Singrauli District of Madhya Pradesh. The Board of Directors
(BOD) has decided to keep books of account of the company at its Singrauli manufacturing unit.
The Company Secretary of the company objected and states that the books of account of the
company can be kept at its registered office only. Referring to the provisions of the Companies
Act, 2023, examine, whether the objection of the Company Secretary is valid ?
Answer
Section 128(1) of the Companies Act, 2013 read with rule 2A of the Companies (Accounts) Rules,
2014, requires every company to prepare and keep the books of accounts and other relevant books
and papers and financial statements at its registered office. However, all or any of the books of accounts
may be kept at such other place in India as the Board of Directors may decide. When the Board so
decides, the company is required within seven days of such decision to file with the Registrar of
Companies (RoC) a notice in writing giving full address of that other place. Such intimation is to be made
in form AOC-5 to the Registrar of Companies.
Thus, in the given case the objection of the Company Secretary is not in accordance with the above
provisions of the Companies Act, 2013 and hence not valid. Fine Industry Ltd., can keep its books of
accounts at its Singrauli manufacturing unit by following the mentioned process.

(v) Agro Food Ltd. is a listed company under Companies Act, 2013. Sumit is a shareholder of the
company who holds 101 shares of 100 each. The email id of Sumit is not registered with the
company but registered with the depository of the company. Company held its annual general
meeting on 15th September, 2023 as per the provisions of the Companies Act, 2013. The
company sent a soft copy of annual report on 20th September, 2023, through email to all its
shareholders whose email id are registered with the company excluding Sumit on the
contention that email id of Sumit is not registered with the company. Examine the contention
of the company with respect to the manner of sending annual report to the shareholders
referring to the provisions of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.
Answer
According the Regulation 36 of SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 [SEBI (LODR) Regulations], the listed company shall send the annual report in the following
manner to the shareholders:
(a) Soft copies of full annual report to all those shareholders(s) who have registered their registered
their email address(es) either with the listed company or with any depository;
(b) Hard copy of the statement containing the silent features of all the documents, as prescribed in the
Section 136 of Companies Act, 2013 or rules made thereunder to those shareholders(s) who have not
so registered;
(c) Hard copies of full annual reports to those shareholders, who request for the same.
The listed entity shall send annual report to the holders of securities, not less than twenty- one days
before the annual general meeting.
Agro Food Ltd., sent annual report after annual general meeting concluded while it is required to be sent
not less than 21 days before the annual general meeting i.e., on or before 24th August, 2023. Further,
company did not send annual report to Sumit, while it is required to be sent to all shareholders whose
email id is registered with the company or its depository.
Thus, in the given case, the contention of Agro Food Ltd., is not correct and it has not complied with
the above Regulation 36 of SEBI (LODR) Regulations.
(a) PQR Ltd. has convened a Board Meeting on 25th September, 2023 with one of the items of the
agenda is to approve grant of loan of 125 crore to XYZ Ltd. for making new plant of Mug
manufacturing with annual capacity of 5 lakh mugs. At the Board Meeting of PQR Ltd., out of total
seven directors, five directors were present and all present directors, except one present
director who recorded his dissent, approved grant of loan of 125 crore to XYZ Ltd. XYZ Ltd.
has also taken loans from a public financial institution and deposits from public which is still
outstanding. Examine the validity of loan proposal of PQR Ltd. with reference to the provisions of
the Companies Act, 2013.
Answer
As per section 186 of the Companies Act, 2013 there are some conditions on the Company to grant
loan to any other body corporate or person. These conditions are as under-
1. A resolution is to be passed in the Board Meeting with the consent of all the directors present in
the board meeting and the prior approval of the public financial institution (PFI) concerned where
any term loan is subsisting, is obtained. However, prior approval of PFIs is not required in case
aggregate of loans and guarantees so made along with the amount of loan or guarantees proposed to
be made does not exceed the limit prescribed under section 186(2) and there is no default in
repayment of loan instalments or payment of interest thereon as per the terms and conditions of
such loan to the public financial institution. [Section 186(5)]
2. Approval of the members by special resolution required, if the limit specified under section
186(2) is exceeded. [Section 186(3)]
3. No company which is in default in the repayment of any deposits accepted before or after the
commencement of this Act or in payment of interest thereon, shall give any loan or give any
guarantee or provide any security or make an acquisition till such default is subsisting. [Section
186(8)]

4. The lending company shall make the required disclosure in its financial statements. [Section
186(4)]
5. The company shall, within 7 days, enter the prescribed particulars in the register maintained as per
section 186(9)
In the given case, PQR Ltd. is the lending company which intends to grant a loan of Rs. 125 crore to XYZ
Ltd. (borrowing company), the fact that XYZ Ltd. has taken loan from public financial institution or has
accepted deposits from public are not relevant for the purpose of section 186.
In the Board meeting of PQR Ltd. the approval to grant a loan of Rs 125 crore was passed with consent
of 4 directors out of 5 directors present in the Board meeting. However, section 186 provides that
unanimous approval is required to make a loan to body corporate or person, thus the approval of 4
directors does not comply the requirement of section 186.
Hence, PQR Ltd. cannot make a loan of Rs. 125 crore to XYZ Ltd.
(b) A company incorporated in 2010, furnished the following information in respect of the financial
years (FY) as detailed below :
( in crore)
Item FY 2019-20 FY 2020-21 Fy 2021-22

Equity share capital 100 120 120
Preference share capital 140 140 140
General reserve 120 130 150
Revaluation reserves 240 240 240
Profit & Loss Account 14 24 34
Securities premium account 200 240 240
Annual turnover 920 1040 400
Net profit 14 24 4
From the above information answer the following referring to the provisions of the Companies
Act, 2013 :
(i) Is the company required to constitute CSR Committee? Show the relevant
computation/working in support of your answer.
(ii) What must be the minimum spending on CSR in FY 2022-23 ?
Answer
(i) According to Section 135(1) of the Companies Act, 2013, the CSR provision is applicable to
companies which fulfill any of the following criteria during the immediately preceding financial
year:
(a) Companies having a net worth of rupees 500 crore or more; or
(b) Companies havening turnover of rupees 1000 crore or more; or
(c) Companies having a net profit of rupees 5 crore or more.
According to Section 2(57), net worth means the aggregate value of the paid-up share capital and all
reserves created out of profits and securities premium account after deducting the aggregate value of
accumulated losses, deferred revenue expenditure and miscellaneous expenditure not written off (but
does not include reserves created out of revaluation of assets, write back of depreciation and
amalgamation).

Computation of net worth and information of turnover and net profit is tabulated as below:
(Rupees in crore)
Item FY 2019-20 FY 2020-21 FY 2021-22
Equity share capital 100 120 120
Preference sharecapital 140 140 140
General reserve 120 130 150
Revaluation reserves - - -
Profit and loss account 14 24 34
Securities premium account 200 240 240
Net worth 574 654 684
Annual turnover 920 1040 400
Net profits 14 24 4
Eligibility u/s135 Yes Yes Yes
As more than one condition viz., net worth or turnover or net profit is getting satisfied from FY 2019-20
onwards, the Board is required to constitute the CSR Committee from FY 2020-21 and onwards to
formulate CSR Policy for approval by the Board and for recommending CSR projects.
(ii) The minimum CSR spend for FY 2022-23 is two percent of average adjusted net profit for the last
three financial years = (2 % of (14+24+4)/3) = Rupees 28 lakhs in FY 2022-2023.
(c) ABC Ltd. and PQR Ltd. both are registered under the Companies Act, 2013. ABC Ltd. is a wholly
owned subsidiary of PQR Ltd. ABC Ltd. and PQR Ltd. both are engaged in the business of
manufacturing of steel. The Board of Directors of both the companies unanimously decided to
merge ABC Ltd., into PQR Ltd. to get the benefit of market synergy as both are engaged in the
same business area and will increase its market size. BOD of PQR Ltd., dispensed with the
meeting of equity shareholders, secured and unsecured creditors as the rights of the equity
shareholders of the company are not being affected. The Company Secretary of the company
objected that in the case of corporate reorganisation meeting of the equity shareholders, and
the secured and unsecured creditors cannot be dispensed with. Examine the validity of
objection of the Company Secretary with reference to the provisions of the Companies Act,
2013.
Answer
In the matter of Mohit Agro Commodities & Ors, the NCLAT has observed that section 232(1) of the
Companies Act, 2013 uses the word ‘may’ which introduces an element of discretion to the Tribunal to be
exercised in the interest of justice in appropriate situations. Section 232 is a specific provision carved out
by the Legislature when both conditions maintained in clauses (a) and (b) of the sub section (l) of
section 232 are met.
In the given case the merger sought for is between a wholly owned subsidiary and the holding
company. The points which need to be noted is:
 Whether such amalgamation/merger alters the rights of the stakeholders of the company?
 Whether such an amalgamation/merger has any bearing internally on Creditors/ Members of
both the companies?
 Whether not holding the subject meeting would amount to violation of any of the provisions of
the Companies Act, 2013
 Whether the Tribunal can exercise their discretion when the “Transferor Company” is wholly
owned subsidiary of the “Transferee Company” and financial position of the Transferee
Company is positive and the merger is not affecting the rights of the Shareholders or Creditors?
Therefore, it is held that the rights and liabilities of Secured and Unsecured Creditors were not getting
affected in any manner by way of the proposed scheme as no new shares are being issued by the
‘Transferor Company’ and no compromise is offered to any Secured and Unsecured Creditors of the

‘Transferee Company’. Hence, when the ‘Transferor and Transferee Company’ involve a Parent
Company and a Wholly Owned Subsidiary the meeting of Equity Shareholders, Secured Creditors and
Unsecured Creditors can be dispensed with as the rights of the Equity Shareholders of the ‘Transferee
Company’ are not being affected.
With reference to above case law and provisions, the Tribunal may in the interest of justice direct
dispensing with the meeting of Equity shareholders, Secured and Unsecured Creditors as the rights of the
Equity Shareholders of the company are not being affected, Hence, it is clear that the objection of the
Company Secretary is not correct.
BOD of PQR Ltd., may dispense with the meeting of Equity shareholders, Secured and Unsecured
Creditors as the rights of the Equity Shareholders of the “Transferee Company” are not being affected.
PART - II
(a) (i) What do you mean by proxy ? Explain the circumstances where a proxy or representative is
counted for quorum.
(ii) Can a director appoint a person as proxy to attend a Board Meeting on his behalf ?
Answer
(i) Meaning of proxy : Under Section 105(1) of the Companies Act, 2013, any member of a company
entitled to attend and vote at a meeting of the company shall be entitled to appoint another person
as a proxy to attend and vote at the meeting on his behalf. However, a proxy shall not have the right to
speak at such meeting and shall not be entitled to vote except on a poll.
As per rule 19 of the Companies (Management and Administration) Rules, 2014, a person can act as
proxy on behalf of members not exceeding fifty and holding in the aggregate not more than ten
percent of the total share capital of the company carrying voting rights:
A member holding more than ten percent, of the total share capital of the Company carrying voting
rights may appoint a single person as proxy and such person shall not act as proxy for any other
person or shareholder.
Circumstances where a proxy / representative is counted for quorum:

1. Para 3.2 of SS-2 stipulates that a duly authorized representative of President of India or the
Governor of the State shall be deemed to be a member personally present and enjoys all the
rights of a member present and enjoys all the rights of a Member present in person. Such a
representative is counted for quorum in a General Meeting.
2. According to proviso to Section 97(1) of the Act, where default is made in holding the Annual
General Meeting of a company as per Section 96 of the Act, the National Company Law Tribunal
(NCLT) may order that one member present in person or by proxy will constitute quorum.
3. Again, according to proviso to Section 98(1) of the Act, where it is impracticable to call a
General Meeting as per the Act or the Articles, NCLT may order that one member present in
person or by proxy will constitute quorum.
(ii) The concept of proxy is alien to meetings of the Board. A director has only two options —
1. to attend the meeting of the Board of Directors either in person or by video conference; or
2. to absent himself from the Board Meeting with or without the permission of the Chairman.
A director cannot appoint a proxy to attend the meeting of the Board on his behalf.

(b) Mamta is a women director in ABC Ltd. a listed company. On 15th July, 2023 she resigned from
the post of women director. The Board of Directors of ABC Ltd., appointed Sanchi as a women
director in the board meeting held on 16th September, 2023 to fill the vacancy of women
director, which had occurred as a result of resignation of Mamta. Examine the validity of
appointment of Sanchi as a women director with reference to the provisions of Companies Act,
2013. What would be your answer, if Sanchi is appointed as a women director in the board
meeting held on 1st October, 2023 ?
Answer
As per second proviso to section 149(1) read with Rule 3 of the Companies (Appointment and
Qualification of Directors) Rules, 2014, any vacancy in the office of women director shall be filled by
the board at the earliest but not later than-
1. Immediately in the next board meeting; or
2. 3 months from the date of such vacancy Whichever is later.
In the given case, vacancy in the office of women director arose on 15th July, 2023 and vacancy was
filled by the Board in the board meeting held on l6th September, 2023. The period of three months
will expire on 15th October, 2023. The Board has filled the vacancy well before the expiry of three
months i.e., l5th October, 2023. Thus, appointment of Sanchi as a women director is as per the
provision of the Companies Act, 2013.
If, Sanchi is appointed as a women director in the board meeting held on 1st October, 2023, then also
her appointment is within the provisions of the Companies Act, 2023, as her appointment is before
the expiry of 3 months i.e., 15th October, 2023.
(c) Amit, who has vast experience in the area of managing a steel manufacturing company for
more than 20 years and he has a qualification of MBA from the Indian Institute of
Management, Ahmedabad. He is also a qualified Chartered Accountant. PQR Private Limited,
engaged in the business of steel manufacturing, appointed Amit as Managing Director for life
time, The Articles of Association of the Company provides for appointment of managing
director for life time. Examine, in the light of the provisions of the Companies Act, 20l3, whether
such appointment is valid ? What would be your answer, if the company is a Government
company in which he is appointed for the period till he retires from the Government service
pursuant to such provision in the Articles of Association of the company ?
Answer
Section 196 of the Companies Act, 2013 provides that no company shall appoint or employ at the
same time a Managing Director and a Manager. Further, a company shall not appoint or reappoint any
person as its Managing Director, Whole Time Director or Manager for a term exceeding five years at a
time and no reappointment shall be made earlier than one year before the expiry of his term. Section
196(2) relates to term of managing director not to exceed five years. Section 196(2) applicable to all
companies whether public or private, but is not applicable to Government Company.
With reference to above provisions, in the given case, if Amit is appointed as Managing Director for
life time in PQR Private Limited then such appointment is in contravention of section 196(2). PQR
Pvt. Ltd. cannot appoint Amit as Managing director for a period exceeding five years at a time.
If the Company is a Government Company, then section 196(2) is not applicable vide Notification No.
GSR 463(E) dated 05-06-2015. In such a case, his appointment can be made for a period till he retires
from Government service.
Section 6(2) of the Companies Act, 2013 states that any provision contained in the memorandum,
articles, agreement or resolution shall, to the extent to which it is repugnant to the provisions of this
Act, become or be void, as the case may be. Hence, even though articles provide the provision for
appointment of Managing Director for longtime, it is contrary to the provisions of the Act and hence
invalid. Therefore, in case of PQR Pvt. Ltd., MD can’t be appointed for life time.

(d) Diamond Ltd. issued a notice for holding its annual general meeting on 5th September, 2023.
The notice was sent to all members on 14th August, 2023 through e-mail which was received by
them on the same day. Suneeta, who is a member of the company, holding 10% of share capital,
alleged that the company has defaulted the provisions of the Companies Act, 2013 with regard
to the length of notice and such meeting was not validly called. Referring to the provisions of
the Companies Act, 2013, examine, whether the length of notice convening the annual general
meeting is valid ? What will be your answer, if Diamond Ltd. is a section 8 company (i. e., a
company not for profit) ?
Answer
As per section 101 of the Company Act, 2013 read with para 1.2.6 of the Secretarial Standard-2 a general
meeting of a company may be called by giving not less than 21 clear days’ notice either in writing or
through electronic mode. Notice through electronic mode shall be given in such manner as may be
prescribed. Where notice of meeting is sent by post, it shall be deemed to be served at the expiration of
48 hours after, the letter containing the same is posted. Each of 21 days must be a full and complete
days.
The expression “21 clear days” means that the day of service of notice and date of the meeting are to be
excluded while calculating the period of 21 days. [N.V.R. Naggappa Chettair Vs. Madras Race Club (1949)
19 Comp cas. 175 (Mad)]
With reference to above provisions the conclusion of the given case is as under-
1. Date of holding the AGM is 05th September, 2023 and date of dispatch of notice through email is 14th
August, 2023. So, 05th September 2023 and 14th August 2023 are to be excluded while calculating
period of notice. Since, the notice has not been sent by post there is no need to add further 2 days as
a transit period. The length of notice is, therefore, of 21 days which meet the requirement of law
and hence, valid.
2. If Company is section 8 company, in such case number of days’ notice required as per section 101 of
the Companies Act, 2013 is 14 days. Thus, in this case also the length of notice is valid.
(a) Bhupesh is a director of ABC Ltd. which is a Government Company. The company has accepted
deposits from public in the financial year 2020-21. As on 31st March 2022, deposits of 51 crore
were outstanding and due date of repayment of deposit was 1 st September, 2022. The financial
position of ABC Ltd., turned bad and the company failed to repay the deposits which was due for
repayment on 1st September, 2022 and such repayment was not made till date. Another
company TNC Ltd. wants to appoint Bhupesh as a director in TNC Ltd. in its Annual General
Meeting (AGM) to be held on 15th October, 2023. As a Company Secretary, advise to TNC Ltd., with
reference to the provisions of the Companies Act, 2013, whether Bhupesh can be appointed as a
director of TNC Ltd. ?
Answer
Section 164(2) of the Companies Act, 2013 provides that no person who is or has been a director of a
company which-
(a) Has not filed financial statements or annual returns for any continuous period of 3 financial years;
or
(b) Has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such
failure to pay or redeem continuous for one year or more,
shall be eligible to be re-appointed as a director of that company or appointed in other company for a
period of five years from the date on which the said company fails to do so.
Further, in case of Government Companies, section 164(2) shall not apply vide Notification No. GSR
463(E) dated 05-06-2015.

In the given case ABC Ltd., is a Government Company, so the above said section 164(2) is not
applicable to ABC Ltd. In such company, directors are not disqualified for the appointment or
reappointment as a director in the same company or any other company. So, Bhupesh who is a director in the
Government Company is eligible to be appointed as a director in TNC Ltd.
(b) The Board Meeting of Western India Fertilizers & Chemicals Ltd., an unlisted public company,
with Registered Office at Mumbai, was called at 6.00 p.m. on Sunday, the 2nd April, 2023 at
Shimla after issuing due notice. The total strength of the Board was 12. Position of two directors
was vacant. Five directors attended the Board meeting–two directors including the chairman in
person and three other directors through video conferencing from Los Angeles, USA. Having taken
the first roll call and, after the chairman confirmed the presence of quorum, the internet
connection of the three directors attending through video conferencing got disrupted and they
did not attend the rest of the Board meeting. The chairman proceeded with the business of
themeeting and declared that all the resolutions listed for the meeting were duly passed as the
agenda papers and draft resolutions were already circulated to the directors along with the
notice. Referring to the provisions of the Companies Act, 20l3, decide the validity of the place
of the board meeting and resolutions passed.
Answer
According to Para 1.2.2 of SS-1, the board meeting could be held at any place, on any day and at any
time. Hence, conducting the meeting away from Registered Office at Shimla on a Sunday at 6.00 pm is in
order. As per Para 3.3 of SS-1, directors participating through electronic mode are also counted for quorum.
However, Para 3.1 of SS-l stipulates that Quorum shall be present not only at the time of commencement
of the Meeting but also while transacting business.
In this case, the quorum is 1/3rd of current strength of the board (rounded off to the next higher
number) or 2 directors whichever is higher. Hence, the quorum of 4 was present at 6.00 pm when the
board meeting started. However, as the quorum for voting on resolutions was not present due to
communication problems, the chairman cannot proceed with the Board Meeting and the resolutions
thereat can’t be passed at the meeting. According to Section 174 of the Companies Act, 2013 read with
Para 1.1.2 of SS-1, the chairman is required to adjourn the board meeting with the concurrence of the
other director present in person at the meeting, to the next week, same place, same day. Hence, all the
board resolutions passed without valid quorum are void.
(c) ‘‘The role of audit committee on oversight of internal audit functions of a listed company is
wider than the requirements of Companies Act, 2013’’. Explaining which companies are
required to constitute an audit committee and appoint an internal auditor, comment on the
statement, referring to the relevant provisions of the Companies Act, 2013 and SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.
Answer
Every listed company and every public company with a paid-up capital of Rs. 10 crore or more or
turnover of Rs. 100 crore or more or outstanding loans of Rs. 50 crore or more is required to constitute
an Audit Committee under section 177 of the Companies Act, 2013.
Every listed company and every unlisted public company having a paid-up capital of Rs.50 crore or
more or turnover of Rs. 200 crore or more or outstanding loans of Rs. 100 crore or more or
outstanding deposit of Rs. 25 crore or more is required to appoint an internal auditor under section
138 of the Act read with Rule 13 of Companies (Accounts) Rules, 2014. Private companies with a
turnover of Rs.200 crore or more or outstanding loans of Rs. 100 crore or more are also required to
appoint an internal auditor.
The role of audit committee of a listed company is prescribed under Part C of Schedule II of SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015.
The audit committee of a listed company shall evaluate the internal financial controls and risk
management systems as per section 177 of the Companies Act, 2013 and the SEBI (Listing Obligation
and Disclosure Requirements) Regulations, 2015 [SEBI (LODR) Regulations]. In addition, the SEBI
(LODR) Regulations, 2015 requires that the audit committee shall review the structure of the internal
audit department, staffing, scrutiny of officials handling the internal audit department, reporting
structure and frequency of conducting internal audits.

Thus, the role and scope of internal audit function in a listed company is much wider than the
requirements of the Companies Act, 2013.
(d) The meeting of Board of Directors (BOD) of Amarchand Lalchand Exports limited, a listed company
was called on Sunday, the 9th July, 2023 for consideration of quarterly financial results. One of
the directors has recently shifted his residence and his present contact details have not been
provided to the company. Referring to the provisions of the Companies Act, 2013 and the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015 explain the period of
notice, mode of service of notice to all directors including the director whose changed contact
details are not available with the company and compliance requirement of intimating the stock
exchange/s.
Answer
Period of Notice : According to Section 173(3) of the Companies Act, 2013, read with Para 1.3.6 of SS-
1, not less than 7 days of Notice in writing shall be given to every director at their address registered
with the company and such Notice shall be sent by hand delivery or by registered post or by electronic
means. Provided that a meeting of the Board may be called at shorter Notice to transact urgent
business provided at least one independent director, if any, shall be present at the meeting.
Mode of Notice : As the meeting of Board of Director (BOD) is scheduled on 9th July, 2023, Sunday,
the last date for giving Notice is 02nd of July 2023 if the Notice is sent by electronic means like email
or fax.
If a director does not have an email id or the current email id of the director has not been furnished to
the company, the Notice is to be sent two more days earlier by Registered Post or Speed Post by 30th
June 2023.
In the absence of details of the postal or email address or any change thereto of a director, the notice of
BOD meeting shall be sent by Registered Post or Speed Post by 30th June 2023 to the address
appearing in the DIN registration of the director.
Compliance Requirement of Stock Exchange:

As the company is a listed company, as per Regulation 29 of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015, the company shall give prior intimation to the stock exchange at least 5
working days in advance excluding the date of intimation and the date of meeting of BOD. And such
intimation shall include the date of such board meeting.
(e) Gem Quartzite Ltd., a top 100 listed company, is having 1,20,000 equity shares of face value Rs.
100, fully paid-up. The Annual General Meeting of the company was convened on 31st August,
2023 after due notice. Fifty members holding 1,00,000 equity shares attended the meeting. The
resolution to appoint Shubudhi as an independent director was put to vote. 70,000 votes
(including 60,000 votes by the promoter group) were cast in favour of the resolution and
30,000 votes were cast against the resolution. The chairman declared the resolution to appoint
Shubudhi as Independent Director as passed. Referring to the provisions of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, state, whether the decision of the
chairman that resolution is passed is correct? State your assumptions, if any.
Answer
Appointment of Independent Director on the Board of a listed company requires a special resolution
to be passed under Regulation 25(2A) of the SEBI (Listing Obligation and Disclosure Requirements)
Regulations, 2015. In this case, the votes cast in favour of the resolution is only 60,000 votes as against the
requirement of at least 75,000 votes to pass a special resolution. Hence, the special resolution is not
passed. However, with effect from 14th November, 2022, proviso to Regulation 25(2A) of the SEBI
(Listing Obligation and Disclosure Requirements) Regulations, 2015 states that where the special
resolution to appoint an independent director fails to get 3/4th majority of members present and
voting, if-
(a) The votes cast in favour of the resolution exceed the votes cast against the resolution and
(b) The votes cast by the public shareholders in favour of the resolution is more than the votes cast
against the resolution the independent director is deemed to be appointed.

In this case, the votes cast in favour of the resolution by public shareholders is only 10,000 votes
whereas the votes cast against the appointment by public shareholders is 30,000 votes. Hence, the
requisite condition fails.
Hence, the decision of the Chairman to declare that Shubudhi is appointed as Independent Director is
not correct. The independent director has not been appointed as per the provisions of the aforesaid
regulations.
OR
(i) The Annual General Meeting (AGM) of Trimetal Bearings Limited, a listed company, was called
on 31st August, 2023 after issuing due notice. 120 members were personally present at the AGM.
After the chairman declared the presence of quorum, a section of the members disrupted the
proceedings demanding bonus shares and higher dividend. After waiting the half an hour, as the
members continued to disrupt the proceedings, the chairman adjourned the AGM to 15th
September, 2023. Referring to the provisions of the Companies Act, 2013, state, whether the
chairman of Annual General Meeting can adjourn the meeting suo motu ?
Answer
Para 15.1 of SS-2 provides that a duly convened general meeting shall not be adjourned unless the
circumstances so warrant. The chairman may, at his discretion, adjourn the general meeting in the
event of disorder or other like causes when it becomes impossible to conduct the general meeting and
complete its business.
Demand for more dividend and issue of frequent bonus shares is a common occurrence in the AGMs of many
companies. However, the members hardly ever disrupt the proceedings of the General Meeting. In
this case, even after half an hour, order is not restored, the chairman can adjourn the AGM. Thus, the
action of chairman to adjourn the AGM suo motu is well within his powers and is in order.
(ii) The COVID-19 pandemic has shifted India towards the digital businesses and the MCA and SEBI
has allowed the companies to conduct their Board meetings as well as general meetings to hold
virtually. As a Company Secretary answer the following questions of Board of Directors of
Digital Ltd. (Listed Company) which is planning to conduct their Board meeting and General
meeting through Video-Conferencing.
(a) How to accommodate the shareholders who wants to ask questions in view of the large
attendance of shareholders throughout the length and breadth of the country.
(b) Why the proxy provisions are dispensed with in case of General meetings held through video-
conferencing ?
(c) Is it required to mention venue of the meeting in the notice ? If so, what would be the venue of
the meeting, for meeting held through video conferencing?
Answer
The Ministry of Corporate Affairs (MCA) and Securities and Exchange Board of India (SEBI) has allowed
the companies to conduct their Board meetings as well as hold general meetings virtually. As a
Company secretary the following are the answers of the questions asked by the Board of the Digital
Ltd., which are planning to conduct their Board meeting and General meeting through video
conferencing -
(a) In the notice of the AGM, it may be mentioned that if any member wants to speak, they may get
their names registered with the company and it will be at the discretion of the chairman to allow
the speakers to speak depending upon the availability of time.
(As per Para 5.2 of SS-2, the Chairman shall provide a fair opportunity to Members who are entitled
to vote to seek clarifications and/or offer comments related to any item of business and address
the same, as warranted.)
(b) As per Annexure XX of SS-2 Procedure to conduct General Meetings through VC or OAVM, it is
stipulated that in case of Video Conferencing meeting there is no question of proxy attendance. A

shareholder can himself attend the general meeting from wherever he is located. Same applies to
the case with e-voting. In case of e-voting also there is no proxy to vote on behalf of the
shareholder.
(c) Yes, place of meeting shall be provided in the Notice. In case of virtual meetings deemed venue is to
be given.
(iii) The Board of Directors of Omega Computer Systems Limited, a listed company, consisted of
twelve directors out of which the position of two directors were vacant, The Company
Secretary, under the authority of the Chairman, sent a circular resolution on 1st July, 2023 to
all directors both by registered post and email. By 7th July, 2023, out of ten directors, six
directors assented to the proposal while four directors (including two interested directors)
requested convening a proper Board meeting to decide the issue. Referring to the provisions
of Companies Act, 2013, decide, whether the resolution by circulation is passed?
Answer
According to Section 175 of the Companies Act, 2013, a company may pass resolutions by circulation.
However, no resolution by circulation shall be deemed to have been passed unless the resolutions
have been circulated in draft form together with necessary papers to all directors at their registered
address in India by hand delivery or by speed post or by courier or through email. The resolution by
circulation must be passed by majority of directors entitled to vote. In this case, two interested
directors are not entitled to participate or vote on the resolution. As six out of eight eligible directors,
have approved the resolution, in an ordinary course, the resolution by circulation is deemed to be
passed.
According to Para 6.5 of SS-1, passing of Resolution by circulation shall be considered as if it had been
passed at a duly convened Meeting of the Board.
However, as per Para 6.3.2 of SS-1, if not less than one third of the total number of directors of the
company require that a resolution must be decided only at a duly convened Board meeting, the
Chairman should convene a Board Meeting to decide on the issue.
Interested directors are also entitled to demand that a circular resolution be decided in a regular
Board Meeting.
As four directors including two interested directors have requested convening a proper Board
Meeting to consider the issue which is more than 1/3th of the current strength of the Board, the
chairman has no option other than calling a Board Meeting to decide the issue.
(iv) The following information is given as per audited accounts as on 31st March, 2023 :
(Rupees in crore)
Name Status Paid-up Capital No. of Debenture- No. of
holders Shareholders
Sun Ltd. Unlisted 125 Nil 1001
Moon Ltd. Listed 575 1001 11000
Neptune Ltd. Unlisted 9 1250 999
With respect to above answer the following :

(i) Which companies are required to constitute Stakeholders Relationship Committee (SRC)
?
(ii) What is the minimum number of meetings to be held by SRC in a financial year.
(iii) What is the minimum number of members in the constitution of SRC ?
(iv) Who can be the Chairperson of the SRC ?
Answer
Answer of the given question is as below under the provisions of the Companies Act, 2013-
(i) Section 178(5) of the Companies Act, 2013 provides the constitution of the Stakeholders
relationship committee. The Board of directors of company which consist of more than 1000
shareholders, debenture holders, deposit holders and any other security holders at any time during
a financial year shall constitute a Stakeholders relationship Committee. All Company i.e., Sun

Ltd., Moon Ltd. and Neptune Ltd. meets the above criteria. Hence, all are required to constitute
SRC.
(ii) As per SS-1, Stakeholders Relationship Committee shall meet as often as necessary subject to the
minimum number and frequency prescribed any law or any authority or as stipulated by the Board.
Under the regulation 20(3A) of SEBI (Listing Obligation and Disclosure Requirements) Regulations,
2015 [SEBI (LODR) Regulations], the Stakeholders Relationship Committee shall meet at least once
in a year.
(iii) As per Section 178(5) of the Companies Act, 2013, Stakeholders Relationship Committee shall
consist of chairperson who shall be a non-executive director and such other members as may be
decided by the Board. Under Regulation 20 of SEBI (LODR) Regulations, 2015 the listed
company shall constitute a Stakeholders Relationship Committee to specifically look into various
aspects of interest of shareholders, debenture holders, and other security holders. It shall
consist of at least 3 directors, with at least 1 being an independent director.
(iv) As per Section 178(5) of the Companies Act, 2013, the chairperson of this committee shall be a
non-executive director.
(v) Answer the following :

(a) Sudipto was appointed as Director of Pragati CNC Machines Limited. He already holds
directorship in nine public companies and one private company which is a subsidiary of a
public company. Decide the validity of his appointment.
(b) Debanand did not attend any Board Meeting of Albatross Refrigeration Limited for 16 months
due to a severe medical condition with the permission of the Board. Can Debanand continue
to be a director in the company ?
(c) Ratan, a director of Amaranth Seeds Limited did not pay the last call amount of 5 lakhs for the
past seven months. The Call Notice never reached him due to loss in postal transit and hence
it is his contention that he is not disqualified to be a director of the company. Decide the
validity of his contention.
Answer
(a) According to Section 2(71) of the Companies Act, 2013, a subsidiary of a public company is deemed to
be a public company even when it continues as a private company in its Articles. A director can hold
a maximum of 10 directorships in public companies as per Section 165(1) of the Act and as per its
Explanation For reckoning the limit of public companies in which a person can be appointed as director,
Directorship in private companies that are either holding or subsidiary company of a public company
shall be included. Sudipto is already holding directorship in 10 public companies including one
private company which is deemed to be a public company. Hence, Sudipto cannot be appointed as
director in Pragati CNC Machines Limited. His appointment is invalid.
(b) According to Section 167(1)(b) of the Act, the office of director is vacated when he absents himself
from all the meetings of the Board of Directors (BOD) held during the period of 12 months with or
without seeking leave of absence from the company. Hence, despite his medical condition, the
position of directorship of Debanand in Albatross Refrigeration Limited has become vacant and he
cannot continue to be a director of the company.
(c) Ratan cannot take refuge in the fact that he has not received the final call Notice from the company
due to loss in postal transit. A director of a company has collective responsibility for all the
decisions of the Board of Directors. Call Notice is sent with the approval of the Board. All the decisions
of BOD are circulated to all the Directors whether they attended the meeting of BOD or not. Hence,
Ratan cannot take refuge under the non-receipt of call Notice. He stands disqualified from holding
directorship in Amaranth Seeds Limited under section 164(1)(f) of the Act ,as he has not paid any
calls in respect of any shares of the company held by him, whether alone or jointly with others, and
six months have elapsed from the last day fixed for the payment of the call.

PART - III
(a) A newly qualified Company Secretary has just started practice. The first assignment he
received was certification of Annual Return of an existing listed company. He wants to know
from you whether communicating with the earlier company secretary of the listed company
about this assignment is mandatory and also the permitted mode of communication viz.,
telephone, certificate of posting, SMS, WhatsApp message and registered post
acknowledgment due (RPAD). Referring to the provisions of the Companies Act, 2013 :
(i) Advise, a newly qualified Company Secretary.
(ii) Will your answer differ, if the assignment is in respect of a certification of Change of
Directors or filing of Annual Financial Statements ?
Answer
(i) According to Clause 8 of Part I of Schedule I of the Company Secretaries Act, 1980, a company
secretary in practice shall be deemed to be guilty of professional misconduct if he accepts the position
of company secretary in practice (PCS) which was previously held by another PCS without first
communicating with the previous practicing company secretary in writing.
Communication with the previous PCS to be effective shall be in writing and shall fulfill the
requirements of Section 114 of Indian Evidence Act, 1872. This is to ensure the proof of delivery to
the previous PCS. Oral communication is no communication. Hence, informing the previous PCS over
telephone is not permitted under Clause 8 of Part I of First Schedule of CS Act and the current PCS shall
be guilty of professional misconduct under Clause 8 of Part I of First Schedule of CS Act, 1980.
However, use of tools of modern technology like WhatsApp is permitted subject to the condition that
the current PCS taking up the assignment is able to establish that the message was delivered to the
previous PCS indicating the details of assignment being taken over by him.
In a decided case I.S.Bhatti v. Council of ICAI, the Rajasthan High Court ruled that sending a letter to
the previous incumbent by certificate of posting does not fulfill the requirements of Clause 8 of Part I
of Schedule I as the positive proof of delivery of the letter to the addressee as required u/s 114 of
Indian Evidence Act, 1872 are not fulfilled.
The communication was by SMS or by certificate of posting. However, sending a letter to the
previous PCS by registered post acknowledgement due (RPAD) is permitted.
(ii) Accepting the position of PCS and sending a communication to the earlier incumbent PCS arises
only in case of exclusive areas of practice of a PCS. For example, attestation of certificate in Form MGT-
8 or Annual Return of a company in Form MGT-7 u/s 92 of the Companies Act, 2013 is the exclusive
domain of PCS. Hence, sending a prior communication to the earlier PCS is not mandatory under
Clause 8 of Part I of First Schedule of CS Act for certifying routine forms like DIR-12, AOC-4, AOC-4-
XBRL which are permitted to be certified by any practicing professionals including PCA, PCA
(Cost).
(b) State those circumstances, under which a ‘‘postal ballot form’’ can be considered invalid according
to the provisions of Secretarial Standard-II.
Answer
As per para of 16.5.3 of Secretarial Standard-II, a postal ballot form shall be considered invalid if:
(a) A form other than one issued by the company has been used;
(b) It has not been signed by or on behalf of the member;
(c) Signature on the postal ballot form doesn’t match the specimen signature with the company;
(d) It is not possible to determine without any doubt the assent or dissent of the member;
(e) Neither assent nor dissent is mentioned;
(f) Any competent authority has given directions in writing to the company to freeze the voting rights
of the member;
(g) The envelope containing the postal ballot form is received after the last date prescribed;

(h) The postal ballot form, signed in a representative capacity, is not accompanied by a certified copy
of the relevant specified authority;
(i) It is received from a member who is in arrears of payment of calls;
(j) It is defaced or mutilated in such a way that its identity as genuine form cannot be established;
(k) Member has made any amendment to the Resolution or imposed any condition while exercising
his vote.

Company Law
June – 2024
Exam Paper
PART - I
(a) Board of directors of Mega Ltd. an unlisted company has decided to move ahead
for preferential offer of equity shares. In this connection the Managing Director wants
to know :
(i) What is the time limit for completion of allotment of shares on preferential basis ?
(ii) What will happen if the allotment is not completed within the time limit above ?
(iii) In a situation where convertible securities are offered on a preferential basis with an
option to apply for and get equity shares allotted how will the price for resultant shares
pursuant to conversion be determined ?
Answer
Rule 13 of Companies (Share Capital and Debenture) Rules, 2014 deals with provisions on
preferential offer by unlisted companies. Accordingly,
(i) Allotment of shares on a preferential basis shall be completed within a period of twelve
months of the date of passing of the special resolution.
(ii) If the allotment of shares is not completed within twelve months from the date of passing
of the special resolution, another special resolution shall be passed for the company to
complete such allotment thereafter.
(iii) Where convertible securities are offered on a preferential basis with an option to apply
for and get equity shares allotted, the price of the resultant shares pursuant to
conversion shall be determined-
(a) either upfront at the time when the offer of convertible securities is made, on the basis
of the valuation report of the registered valuer given at the stage of such offer; or
(b) at the time, which shall not be earlier than thirty days to the date when the holder of
convertible security becomes entitled to apply for shares, on the basis of the valuation
report of the registered valuer given not earlier than sixty days of the date when the
holder of convertible security becomes entitled to apply for shares.
The company should take a decision on basis of above (a) or (b) at the time of the offer of
convertible securities itself and make such disclosure in an explanatory statement.
(b) Strong Ltd. was incorporated on l0th March, 20l5 as an Indian company having
registered office at Indore with six directors. It deals in manufacture of fertilizers. It
has a foreign subsidiary incorporated in Korea since 1st April, 2023. A, accountant of
the foreign subsidiary has informed Sumana, Manager (Accounts) of Strong Ltd. that
audit is not necessary as per their local laws in Korea. Strong Ltd. decides to get the
accounts of the subsidiary company audited by its own auditor, Star & Co., Chartered
Accountants and then file the consolidated accounts with the Registrar of Companies
for year ended 31st March. 2024. Discuss the validity of action of Strong Ltd with
reference to the provisions of Companies Act, 2013.
Answer
Fourth proviso to section 137(1) of the Companies Act, 2013 requires that a company shall
attach along with its financial statements to be filed with the Registrar, the accounts of its
subsidiary(ies) which have been incorporated outside India and which have not established
their place of business in India.

Ministry of Corporate Affairs vide its General circular 11/2015 dated 21 July, 2015 has
clarified the issue raised in question.
Clarification has been sought on: Whether a company covered under above provisions can
place/file unaudited accounts of a foreign subsidiary if the audit of such foreign subsidiary is
not a mandatory legal requirement in the country where such foreign subsidiary has been
incorporated and such audit has not been conducted. and:
The matter has been examined in the Ministry and it is clarified that in case of a foreign
subsidiary, which is not required to get its accounts audited as per legal requirements
prevalent in the country of its incorporation and which does not get such accounts audited,
the holding / parent Indian company may place / file such unaudited accounts to comply
with requirements of Section 136(1) and 137(1) as applicable. These, however, would need
to be translated in English if the original accounts are not in English Further, the format of
accounts of foreign subsidiaries should be, as far as possible, in accordance with
requirements under Companies Act, 2013. In case this is not possible, a statement indicating
the reasons for deviation may be placed / filed along with such accounts.
In view of the above, if Strong Ltd. decides to get the accounts of the subsidiary company
incorporated in Korea audited by its own auditor, it can do so provided:
(a) The accounts of the subsidiary company abroad are translated in English, if the original
accounts are not in English; and
(b) The format of accounts of foreign subsidiary should be, as far as possible, in accordance
with requirements under Companies Act, 2013. In case this is not possible, a statement
indicating the reasons for deviation may be placed / filed along with such accounts of
Strong Ltd.
(c) Comment on the following :

‘‘Every company is mandated to obtain annual secretarial audit report and annual
secretarial compliance report from its statutory auditor.’’
Answer
According to Section 204(1) of Companies Act, 2013 (the Act), read with Rule 9 of
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the
following companies are required to annex with its Board’s Report under section 134 of the
Act, a Secretarial Audit Report given by a company secretary in practice in Form MR-3:
(a) Every listed company; or
(b) Every public company with a paid-up equity share capital of Rs. 50 crore or more
(c) Every public company with a turnover of Rs. 250 crore or more or
(d) Every company having outstanding loan from banks or public financial institutions of
Rs.100 crore or more.
According to Regulation 24A of SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2015 (LODR), every listed entity and its material unlisted subsidiary(ies)
incorporated in India shall undertake secretarial audit and shall annex a secretarial audit
report given by a company secretary in practice in Form MR-3 along with the annual report
of the listed entity as per Schedule V of LODR.
According to Regulation 24A of LODR, every listed company shall also submit secretarial
compliance
report to the stock exchanges within 60 days from end of financial year.
The annual secretarial compliance report, apart from the coverage on compliance of laws
applicable to the listed company, also requires the practicing company secretary to report

on compliance of all applicable SEBI regulations, circulars and guidelines to the stock
exchanges.
Thus, the given statement that every Company is mandated to obtain annual secretarial
audit report and annual secretarial compliance report is not correct.
The statutory auditor of the company is a practicing-chartered accountant. Under Section

143 of the Companies Act, 2013, the statutory auditor is required to audit the financial
accounts of the company and give his opinion whether the financial statements give a true
and fair view of the state of affairs of the company.
The statutory auditor has no role in certifying the annual secretarial audit report or annual
secretarial compliance report. Thus, the second part of the statement is also incorrect.
Annual secretarial audit report is different from annual secretarial compliance report. Both
Annual secretarial audit report and Annual secretarial compliance reports are given by a
practicing company secretary and not by the statutory auditor.
Thus, the second part of the statement is also incorrect.
(d) Referring to the provisions of Companies Act, 20l3 (ACT), comment on the following :
(i) Any public company can accept deposit from the public by passing a Board Resolution.
(ii) Just like the provisions of the Act on debentures, appointment of Deposit Trustee is not
mandatory for all companies when the number of depositors does not exceed five
hundred.
(iii) The amount lying in Deposit Repayment Reserve can be used to issue bonus share.
Answer
(i) The statement given is not true. Only eligible public companies as referred in sub section
(1) of Section 76 of the Companies Act, 2013 read with The Companies (Acceptance of
Deposits) Rules, 2014 having net worth of Rs. 100 crore or more or having an annual turnover
of Rs. 500 crore or more and which has obtained prior consent of its members by a special
resolution and filed the special resolution with the Registrar of Companies (ROC) at least 30
days before issue of circular to the depositor in Form DPT-1 can accept deposits from the
public.
Thus, only passing a Board resolution for accepting deposits is not sufficient. Approval of
members in general meeting by special resolution is mandatory for accepting deposits by
the company.
(ii) The statement is not true. Appointment of independent deposit trustees is to safeguard the
interests of the depositors. Appointment of deposit trustee is mandatory for companies
accepting deposits from its members under section 73(2) of the Companies Act, 2013 (the
Act) and also for eligible companies accepting deposits from the public under section 76(1)
of the Act.
According to Rule 7(1) of Companies (Acceptance of Deposit) Rules, 2014, no company

referred to in sub-section (2) of section 73 or any eligible company shall issue a circular or
advertisement inviting secured deposits unless the company has appointed one or more
trustees for depositors for creating security for the deposits.
Whereas According to Section 71(5) of the Act read with Rule 18(2) of Companies (Share
Capital and debentures) Rules, 2014, appointment of debenture trustee for a company is
mandatory for a company issuing debentures when the number of debenture holders
exceeds five hundred.

Hence, the appointment of deposit trustee is mandatory for companies accepting deposits
irrespective of the number of deposit holders.
(iii) As per Section 73 (5), the amount deposited in the deposit repayment reserve account shall
not be utilized for any purpose other than for the purpose of repayment of deposits. Thus,
the amount lying in Deposit Repayment Reserve cannot be used to issue bonus share.
(a) With reference to the provisions of Companies Act, 20l3 and the applicable Rules,
explain the procedure for transfer and refund of dividend remaining unpaid/unclaimed
for less than seven years.
Answer
According to Section 124 of Companies Act, 2013 (the Act), when dividend, has been
declared by company but has not been paid by the company or not claimed by the
shareholder within 30 days of the date of declaration of dividend, the company shall, within
7 days from the expiry of the said period of 30 days, transfer the total amount of dividend
which remains unpaid or unclaimed to a special account to be opened in a scheduled bank
called unpaid dividend account.
Any member entitled to any money transferred u/s 124(1) of the Act as unpaid dividend
may apply to the company u/s 124(4) for the payment of unpaid dividend up to a period of
7 years from the date of transfer to the unpaid dividend account.
Effects of non-transfer of the dividend:

As per section 124(3) of the Companies Act, 2013 if any default is made in transferring the
total amount referred in section 124(1) of the Act or any part thereof to the unpaid Dividend
Account of the company, it shall pay, from the date of such default, interest on so much
amount as has not been transferred to the said account, at the rate of 12% per annum and
interest accruing on such amount shall ensure to the benefit of the members of the company
in proportion to the amount remaining unpaid to them.
Section 124(5) of the Companies Act 2013 states that any money transferred to the unpaid
dividend account of a company which remains unpaid or unclaimed for a period of seven
years from the date of such transfer shall be transferred by the company along with interest
accrued if any thereon to the Investor Education and Protection fund.
(b) Jubilant Technologies Private Ltd. has commenced maintaining its books of account in
electronic mode as per its Board’s resolution dated 1st October, 2023. There is a query from
the Accounts department to you, Company Secretary in employment regarding
requirement of intimation of any specific information to the Registrar annually at the time
of filing of financial statements on this aspect. Advise with reference to the provisions of
Companies Act, 20l3.
Answer
Pursuant to Rule 3(6) of the Companies (Accounts) Rules, 2014 the company shall, where
books of account are maintained in electronic mode, intimate to the Registrar on an annual
basis at the time of filing of financial statement —
(a) the name of the service provider;
(b) the internet protocol address of service provider;
(c) the location of the service provider (wherever applicable);

(d) where the books of account and other books and papers are maintained on cloud, such
address as provided by the service provider.
(e) where the service provider is located outside India, the name and address of the person
in control of the books of account and other books and papers in India.
(c) After a lot of discussion, negotiation, submission of information and explanations.

Enkebee Ltd was sanctioned term loan of ` 200 lakh by the corporate office of Unity
Bank on 10th March, 2023. Charge was created on 12th March. 2023. Sayani, Senior
Manager (Accounts) of the company, made entry in the register of charges on 19th
March, 2023. Sayani believes that the register above shall have to be maintained for at
least five years and the instrument creating the charge preserved for twelve years.
Offer your comments referring to the provisions of the Companies Act, 2013.
Answer
In accordance with Section 85(1) of the Companies Act, 2013 read with Rule 10(2) of
Companies (Registration of Charges) Rules, 2014 the entries in the register of charges
maintained by the company shall be made forthwith after the creation, modification or
satisfaction of charge, as the case maybe.
Therefore, Sayani — Senior Manager (Accounts) ought to make entry in the Register of
Charges maintained by the company in Form No CHG - 7 forthwith after creation of the same
on 12th March, 2023.
In accordance with Section 85(1) read with Rule 10(2) of Companies (Registration of
Charges) Rules, 2014, the register of charges shall be preserved permanently and the
instrument creating a charge or modification thereon shall be preserved for a period of eight
years from the date of satisfaction of charge by the company.
Thus, views of Sayani Senior Manager (Accounts) are not in order.
(d) Vibgyor Ltd. had closed its register of members in May 2023 and July 2023 for fourteen
days and sixteen days respectively. Prakash, HOD (Finance) of the company has informed
Pritam, Company Secretary to consider closing the register in November for another
twenty days for some corporate restructuring events. You are informed that Vibgyor Ltd. is
a listed company. Decide the validity of such a proposition under Companies Act, 2013.
Answer
According to section 91(1) of Companies Act, 2013 a company may close the register of
members or register of debenture holders or register of other security holders for any
period or periods not exceeding in the aggregate forty-five days in each year, but not
exceeding thirty days at any one time. A previous notice of at least seven days or such lesser
period as may be specified by SEBI is to be given by a listed company.
In the case given in question Vibgyor Ltd. has closed its register of members for 14 and 16
days in May and July 2023 respectively. Therefore, the closure is within the time limits
prescribed in section 91(1) as each closure has not exceeded 30 days.
If the company closes the register again in November 2023 for another 20 days, the
aggregate closure during the year would be 50 (14+16+20) days which will exceed the
prescribed time limit of 45 days.
Hence, the proposal of Prakash, HOD (Finance) of the company, is not valid under the

(e) Six hundred equity shares of Aastha Ltd. are presently held jointly by Aman, Raman
and Shraman–their names appearing in the share certificates in this order. The joint
shareholders want a transposition of the names in the order Raman, Shraman and Aman
only in respect of two hundred shares. State the procedure under Companies Act, 2013.
Answer
In the case of joint-shareholders, one or more of them may require the company to alter or
rearrange order of their names in the register of members of the company. In this process,
there will be need for effecting consequential changes in the share certificates issued to
them. If the company provides in its articles that the senior-most among the joint- holders
will be recognised for all purposes like service of notice, a copy of balance sheet, profit and
loss account, voting at a meeting etc., the request of transposition may be duly considered
and approved by the Board or other authorised officer of the company. Since no transfer of
any interest in the shares take place on such transposition, the question of insisting on
filling transfer deed with the company, may not arise. Transposition also does not require
stamp duty.
Transposition of names of shareholders in the register of members do not require the

execution through instrument of transfer in Form SH-4.
The Stock Exchange Division of the Department of Economic Affairs has clarified that there
is no need of execution of transfer deed for transposition of names if the request for change
in the order of names was made in writing, by all the joint-holders. If transposition is
required in respect of a part of the holding, execution of transfer deed will be required.
(i) Gracious Housing Finance Company Ltd. is a subsidiary of listed company in India.
The following information is extracted from the audited accounts of the company as on
31st March, 2024 :
(` in crore)
Particulars Amount
Paid up capital 10
Reserves and surplus 1
Secured loan 0.20
Turnover 200
You have recently joined the company as General Manager (Secretarial) and Subir,
Junior Officer (Accounts) has approached you if accounts are to be submitted under
XBRL mode. Advise Subir.
Answer
In terms of Rule 3 of Companies (Filing of Documents & Forms in XBRL) Rules, 2015 the
Government has mandated certain classes of companies to file financial statements in XBRL
mode using XBRL taxonomies. The following classes of companies have to file financial
statements in XBRL form:
1. all companies listed with any Stock exchange(s) in India and their Indian subsidiaries;
or
2. all companies having a paid-up capital of `5 crore and above; or
3. all companies having a turnover more than `100 crores and above; or

4. all companies which are required to prepare their financial statements in accordance
with Companies (Indian Accounting Standards) Rules, 2015
However, banking companies, insurance companies, housing finance and non-banking

financial companies have been exempted from XBRL filing.
The company is not required to file its financial statements for the year ended 31st March,
2024 through XBRL mode as it is a housing finance company and is exempted from
application of the provisions. The Junior Officer (Accounts) has to be advised accordingly.
(ii) Examine whether Joy will fall under the purview of Significant Beneficial Owner with
respect to Zed Ltd. in the following circumstances :
(a) Joy holds 7% of equity in Zed Ltd. directly. He is also the trustee of a discretionary trust
that holds 4% equity in Zed Ltd.
(b) Joy holds 6% of equity while Mahek holds 7% of equity in Zed Ltd. and they are
deemed to act together.
(c) Joy holds 9% of equity in Zed Ltd. directly. He is also the Karta of a HUF that holds
7% equity in Zed Ltd.
Answer
As per Rule 2(h) of the Companies (Significant Beneficial Owners) Rules 2018, Significant
Beneficial Owner in relation to a reporting company means an individual referred to in sub-
section (1) of section 90, who acting alone or together, or through one or more persons or
trust, possesses one or more of the following rights or entitlements in such reporting
company, namely:
(i) holds indirectly, or together with any direct holdings, not less than 10% of the shares;
(ii) holds indirectly, or together with any direct holdings, not less than 10% of the voting
rights in the shares;
(iii) has right to receive or participate in not less than 10% of the total distributable
dividend, or any other distribution, in a financial year through indirect holding alone, or
together with any direct holdings
(iv) has right to exercise, or actually exercises, significant influence or control, in any
manner other than through direct holdings alone.
(a) Joy holds 7% of equity in Zed Ltd. directly. He is also the trustee of a discretionary
trust that holds 4% equity in Zed Ltd. He is a Significant Beneficial Owner since he
holds total 11% equity in Zed Ltd. through indirect and direct holdings. Holding by
way of being a trustee of a discretionary trust is considered to be indirect holding.
(b) Joy holds 6% of equity while Mahek holds 7% of equity in Zed Ltd. and they are
deemed to act together — Joy and Mahek are not Significant Beneficial Owner as
there is no indirect holding and their acting together is irrelevant.
(c) Joy holds 9% of equity in Zed Ltd. directly. He is also the Karta of a HUF that holds
7% of equity in Zed Ltd. - He is a Significant Beneficial Owner since he holds total
16% equity through indirect and direct holdings.
(iii) Chirag Ltd. has achieved a turnover ` 30 crore for the year ended 31st March, 2024. The Chief
Operating Officer (COO) of the company is in a dilemma of cost audit would be
applicable on the basis of turnover. You are a corporate consultant. Please advise the
company about applicability of Cost Audit with reference to provisions of Companies
Act, 2013.
Answer
Rule 4 of Companies (Cost Records and Audit) Rules, 2014 provides for applicability of cost
audit. Accordingly,
1. Every company specified in item (A) of rule 3 of Companies (Cost Records and Audit)
Rules, 2014 i.e. regulated sectors shall get its cost records audited in accordance with

these rules if the overall annual turnover of the company from all its products and
services during the immediately preceding financial year is rupees fifty crore or more
and the aggregate turnover of the individual product or products or services for which
cost records are required to be made under rule 3 is rupees twenty five crore or more.
2. Every company specified in item (B) of rule 3 of Companies (Cost Records and Audit)
Rules, 2014 i.e. non-regulated sectors shall get its cost records audited in accordance
with these rules if the overall annual turnover of the company from all its products and
services during the immediately preceding financial year is rupees one hundred crore
or more and the aggregate turnover of the individual product or products or service or
services for which cost records are required to be made under rule 3 is rupees thirty
five crore or more.
3. The requirement of cost audit under these rules shall not apply to a company which is
covered in rule 3, and
(i) whose revenue from exports in foreign exchange exceeds seventy five percent of its
total revenue; or
(ii) which is operating from a SEZ.
(iii) which is engaged in generation of electricity for captive consumption through
captive generating plant.
In the given case, the turnover of Chirag Ltd. is Rs. 30 Crore. The company is advised that if
the company operates in regulated sector, and the aggregate turnover of the individual
product(s) / service(s) is Rs. 25 crores or more, then, cost audit will be applicable.
If it operates in non-regulated sector, cost audit is not applicable, as the turnover of the
company does not meet the criteria prescribed in the Rules.
(iv) The Assistant Registrar of Companies examined e-form AOC-4 filed by Northern Private
Ltd. and found it to be incomplete, defective. Therefore, he intimated the company to
furnish further information/rectification of defects by allowing fourteen days’ time. Is
the action of Assistant Registrar acceptable ? Specify the e-form in which the additional
information will be furnished by the company. What will happen, if even after
furnishing the required information, the Registrar rejects the e-form or treats the
same as invalid ?
Answer
As per Rule 10 (3) of Companies (Registration Offices and Fees) Rules, 2014 Except as
otherwise provided in the Act the Registrar shall allow fifteen days’ time to the person or
company which has filed the application or e-form or document for furnishing further
information or for rectification of the defects or incompleteness or for re-submission of such
application or e-form or document.
In line with the above, the action of Assistant Registrar of Companies by giving fourteen
days’ time
for furnishing further information or rectification of defects is not acceptable.
The e-form in which additional information is to be furnished by the company is GNL- 4.
In the case, where further information called for has not been provided or has been
furnished partially or defects or incompleteness is not rectified or rectified partially within
the period allowed, the Registrar shall either reject or treat the application or e-form or
document as invalid. Consequently, the document may be rectified by the person or

company only by fresh filing along with payment of fee and additional fee as applicable at
the time of fresh filing without prejudice to any other liability under the Act.
(v) Madhuri, famous singer, was a rich woman in her late twenties. She enjoyed huge
dividend and interest income from various sources. She formed three private
companies and agreed with each to hold a block of investment as an agent for it.
Income received was credited in the accounts of the company. The company handed
back the amount to her as a loan in disguise. Consequently, she divided her income in
three parts and discharged tax liability accordingly. Comment if there is any illegality
in the above in reference to fundamental concepts of company formation.
Answer
The issue in question relates to the lifting of the corporate veil under judicial
interpretations. Normally Courts are reluctant or very cautious about the lifting of the veil of
corporate personality to see the real persons behind it.
The facts of the case are that Madhuri, a famous singer, was a rich woman enjoying large
dividends and interest income. She formed three private companies and agreed with each to
hold a block of investment as an agent for it. The Income received was credited in the
accounts of the company but the company handed back the amount to her as a loan in
disguise. This way she divided her income in three parts in a bid to reduce her tax liability.
It was held the company was formed by the person purely and simply as a means of
avoiding tax and the company was nothing more than the person/assessee herself. It did no
business, but was created simply as a legal entity to ostensibly receive the dividends and
interests and to hand them over to the assessee as pretended loans. The Court decided to
disregard the corporate entity and ascertain the real persons behind as it was being used for
tax evasion (Re. Sir Dinshaw Maneckjee Petit, A.I.R. 1927 Bombay 371).
Thus, on the basis of the above, it can be concluded that formation of Company to reduce tax
liability is illegal in reference to fundamental concepts of company formation.
(a) Modest Ltd. has fallen within the purview of Corporate Social Responsibility norms
recently. The Chief Executive Officer of the company wants to know from you, practising
Company Secretary, how the following be dealt with in respect thereof :
(i) Surplus arising out of the CSR activities :
(ii) Set off of excess CSR spends
(iii) Can CSR be made not applicable to any company ? Discuss with reference to
the provisions of Companies Act, 2013.
Answer
(i) Surplus arising out of the CSR activities
Any surplus arising out of the CSR activities shall not form part of the business profit of
a company and shall be ploughed back into the same project or shall be transferred to
the unspent CSR account and spent in pursuance of CSR policy and annual action plan of
the company or transfer such surplus amount to a Fund specified in Schedule VII of the
Companies Act, 2013 (the Act) within a period of six months of the expiry of the
financial year.
(ii) Excess CSR spends may be set off

Where a company spends an amount in excess of requirement provided under sub-
section of section 135 of the Companies Act, 2013 read with rule 7 of Companies
(Corporate Social Responsibility Policy) Rules, 2014, such excess amount may be set off

against the requirement to spend under sub-section (5) of section 135 up to immediate
succeeding three financial years subject to the conditions that:
 the excess amount available for set off shall not include the surplus arising out of the
CSR activities, if any, in pursuance of sub-rule (2) of this rule.
 the Board of the company shall pass a resolution to that effect.
(iii) In case of specified IFSC public / private company — section 135 shall not apply for a
period of five years from the commencement of business as per notification dated 4th
January, 2017. Thus, CSR can be made not applicable to these Companies.
(b) (i) Prashant has joined the Board of Pragati Manufacturers Ltd. as a Nominee director on
15th March, 2024. You are the Secretary of the company and Prashant has connected
with you to advise him the disclosures pertaining to credit rating of securities in Board’s
Report for year ended 31st March, 2024 as a good governance practice. Prepare a
note to the Nominee director on the disclosures.
(ii) Comment who will certify the annual return of Bright Ltd., an unlisted company having
a turnover of ` 60 crore with four directors, Chief Executive Officer, President (Finance)
and Company Secretary.
Answer
1. Secretarial Standard 4 (SS-4) pertaining to Report of the board of directors indicates
that as a good governance practice the disclosure on credit rating should also be
included in the Board’s Report. The disclosure shall include the following:
(a) credit rating obtained in respect of various securities;
(b) name of the credit rating agency;
(c) date on which the credit rating was obtained;
(d) revision in the credit rating;
(e) reason provided by the rating agency for a downward revision, if any.
2. Under section 92(2) of the Companies Act, 2013 read with Rule 11(2) of the Companies
(Management and Administration) Rules, 2014 the annual return of a listed company or
of a company having a paid- up share capital of `10 crore or more or turnover of `50
crore or more shall be certified by a Company Secretary in practice in Form MGT-8.
Accordingly, annual return of Bright Ltd., an unlisted company having a turnover of `60
crore shall be certified by none of the persons given in question but by a practicing
Company Secretary.
(c) Prepare a checklist to be submitted to your Executive Director containing disclosure(s) to stock
exchange after conclusion of board meeting and notice of book closure as a
procedural step for declaration and payment of final dividend of Silence Ltd., a quoted
company.
Answer
Disclosure(s) to stock exchange after the conclusion of a board meeting by Silence
Ltd. a listed company –
In the case of a listed company, not later than 30 minutes of the closure of the Board
meeting, intimate the stock exchanges with regard to the Board’s decision about the
declaration and payment of dividends [Regulations 30 of SEBI (Listing Obligation and
Disclosure Requirements) Regulations, 2015 read with Schedule III].
Notice of book closure:

Rule 10 of Companies (Management and Administration) Rules, 2014 mentions to publish
notice of book closure in a newspaper circulating in the district in which the registered
office of the company is situated and at least once in English language in an English
newspaper circulating in that district and having wide circulation in the place where the

registered office of the company is situated and publish the notice on the website as may be
notified by the Central Government and on the website, if any, of the Company at least seven
days before the date of commencement of book closure and in such manner as may be
specified by Securities and Exchange Board of India
In case of listed companies:

(i) To give notice in advance of at least 7 working days (excluding the date of intimation
and the record date) or as many days as the stock exchange may prescribe, before the
closure of transfer books or record date, specifying the purpose of Record Date
[Regulation 42 of the SEBI (Listing Obligation and Disclosure Requirements)
Regulations, 2015].
The company shall recommend or declare all dividend at least five working days
(excluding the date of intimation and the record date) before the record date fixed for
the purpose.
(ii) Time gap between two book closures would be at least 30 days [Regulation 42(4) of
SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015].
PART - II
(a) (i) Meeting of Board of directors of Kasturi Hospitality Private Ltd. was adjourned. D could not
attend the original meeting due to preoccupation. He had sought leave of absence on this
ground which was granted. There was no extraordinary item of business to be discussed in the
original meeting. Notice of adjourned meeting was not sent to D. Comment.
(ii) Saptarshi, a small shareholder director, has specified to the Company Secretary that
agenda and notes on agenda for forthcoming board meeting on approval of accounts be
sent to him by e-mail. Due to urgency the company had to convene the board meeting
at a shorter notice suddenly. The secretary arranged to deliver the agenda and notes
thereon by hand at his residence. Saptarshi opposed to this mode of delivery and
threatened to resign from the office. Discuss if the objection is tenable in the light of
secretarial standards.
Answer
(i) In line with para 1.3.6 of Secretarial Standard 1(SS-1) notice of an adjourned board
meeting shall be given to all directors including those who did not attend the meeting on
the originally convened date. Therefore, though D could not attend the original meeting
due to preoccupation by seeking leave of absence which was granted, notice of adjourned
board meeting should be sent to him whether or not there is any extraordinary business
to be transacted in the adjourned meeting.
(ii) Para 1.3.7 of SS-1 provides that where a director specifies a particular means or delivery
of agenda and notes thereon these papers shall be sent to him by such means. But in case
of a meeting conducted at a shorter notice the company may choose an expedient mode
of sending agenda and notes on agenda.
Applying the provisions in the given situation, delivery of agenda and notes thereon by hand
at residence of small shareholder director Saptarshi when board meeting is convened at a
shorter notice suddenly is valid though he had specified the delivery of same to him by
email earlier. The objection raised by Saptarshi is not tenable.

(b) Happy Travels Private Limited received a letter of resignation by post on 01-April-
2023 purportedly signed by Shyamal Das, Director of the company. The Company
Secretary of the company Rohit Biswas, on the directions of the Managing Director,
promptly intimated the ROC by filing Form DIR-12 and also placed the information of the
resignation of Das on its website. Few days later, the Police came knocking on the
doors of the Company Secretary on a complaint given by Das u/s 468 of IPC, 1860 that
he never signed such resignation letter and that the letter of resignation purportedly
signed by him was a forgery. Referring to the provisions of Companies Act, 2013, decide
on the further course of action.
Answer
1. A director of a company may resign from office under section 168 of Companies Act,
2013 (Act) read with Rule (15) of Companies (Appointment and Qualifications of
Directors) Rules, 2014 (Rules), by giving a Notice along with reasons for resignation to
the company.
The Board of Directors (BOD) shall, on receipt of such Notice of resignation from a
director, shall take note of the same.
2. The company shall, within 30 days from the date of receipt of notice of resignation from
a director, intimate the Registrar of Companies (ROC) in Form DIR-12 and may also post
the information on its website as per Rule (15).
The BOD shall also mention the fact of such resignation of director in the Report of the
Board of Directors under section 134 of the Act laid in the immediately following Annual
General Meeting of the company.
3. The director may, within 30 days from the date of resignation, forward to the ROC a
copy of his letter of resignation along with reasons for resignation in Form DIR-11 along
with the requisite registration fees as provided under Companies (Registration Offices
and fees) Rules, 2014.
4. The resignation shall be effective from the date on which the notice of resignation was
received by the company or the date specified by the director in the Notice of
resignation, whichever is later.
In this case, the director has filed a criminal complaint stating that the resignation letter
was not signed by him, not genuine and also that his signature was forged.
5. However, as decided by NCLAT in a case Harish Jain v Haveli Restaurant and Resorts
Limited dated 26/02/2020, (Company Appeal (AT) No. 390 of 2018) when a director
alleges that his signature on the resignation letter was forged, it is for the director to
prove that the resignation letter was a forged document. In other words, onus of proof
falls on the complainant.
Thus, besides initiating measures to obtain anticipatory bail for all the KMPs of the
company, the company secretary Rohit Biswas and the company can also contest the case on
merits in the appropriate legal forum.

(c) You are the General Manager (Secretarial) of Susrut Industries Ltd. With rcspect to
ensuing annual general meeting to be held by video conferencing. The Executive
Director wants to know from you the following :
1. Can the company mention in the notice that it holds the right to restrict the number of
speaker shareholders depending on time availability ?
2. As the company has neither maintained registers in electronic form nor has scanned
the same, how can it keep registers open for inspection at the meeting held by video
conferencing ? Advise.
Answer
1. Yes, Companies can restrict the speakers depending on the availability of time. The
notice calling for meeting should require the speaker shareholders to register
themselves in advance and depending on the time availability, it shall be at the
discretion of the Chairman to allow the speakers. In addition, the companies may allow
recordings to be sent in advance with the permission of the Chairman and shareholders
in order to avoid scenarios where a speaker shareholder may get disconnected or have
an audio/visual connection issue thus saving time and effectively maintaining the
decorum of the meeting.
2. In case the registers are not maintained in an electronic form, the physical registers/
documents should be scanned for uploading in a virtual data room established for the
purpose. Login ID and password can be provided for inspection and it is to be ensured
that only view rights are given for inspection and the registers/documents cannot be
deleted, copied or downloaded or the register/documents may be made available for
inspection on a virtual platform (e.g., Zoom, Microsoft teams, etc.), and displayed in a
presentation form. The registers/documents which shall be made available for
inspection in connection with the AGM, shall be made available from the time notice is
given till the conclusion of the meeting.
Therefore, the physical registers should be scanned to keep them open for inspection at the
meeting to be held by video conferencing.
(d) Manoj is the youngest member of CSR committee of Puzzle Garments Ltd. He understands
that the CSR Committee shall formulate and recommend to the Board an annual action
plan pursuant to its CSR policy and the policy shall include certain matters. Manoj
discussed the issue with the chairman of the CSR committee and they have approached
you, practising Company Secretary for your advice. Draft a suitable note for them.
Answer
As per Rule 5(2) of the Corporate Social Responsibility Policy Rules, 2014 the CSR
Committee shall formulate and recommend to the Board, an annual action plan in pursuance
of its CSR policy, which shall include the following, namely: -
(a) the list of CSR projects or programmes that are approved to be undertaken in areas or
subjects specified in Schedule VII of the Act;
(b) the manner of execution of such projects or programmes as specified in sub-rule (1) of
rule 4;
(c) the modalities of utilisation of funds and implementation schedules for the projects or
programmes;
(d) monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the
company.
However, the Board may alter such plan at any time during the financial year, as per the
recommendation of its CSR Committee, based on the reasonable justification to that effect.

(a) On receipt of the notice and agenda notes from MNO Ltd., Kamal, Director has
requested for participation through video conferencing on the scheduled date of the
meeting. As a Company Secretary, what should be your advice to the Chairperson of the
Board ? Also, can the Chairperson attend the Board meeting through video
conferencing ? Advise the Company in the matter.
Answer
Yes. It is mandatory under section 173(2) of the Companies Act, 2013 for the company to
allow the participation of directors in a meeting through video conferencing, unless the
Companies Act, 2013 or any other law specifically prohibits such participation through
electronic mode in respect of any item of business.
Accordingly, subject to the prior intimation to that effect received from the director
sufficiently in advance so that the company is able to make suitable arrangements on this
behalf, the Chairman shall make arrangements to allow the participation of the said Director
in the meeting through video conferencing in accordance with the said Rule 3 of the
Companies (Meetings of Board and its Powers) Rules, 2014. However, if the request is
received too late so as not to allow reasonable time to make the necessary arrangements,
then the Chairman is not bound to provide the video conferencing facility to the Director.
Yes. It is permitted under Section 173(2) of the Companies Act, 2013 read with Rules made
thereunder, for even the Chairman of the meeting to join the meeting through video
conferencing. Guidance Note on Secretarial Standards – 1 issued by the ICSI mentions that,
in case the Chairman of the Board Meeting is participating through electronic mode, he
should, while transacting any interested items of business in which he is interested, vacate
the Chair and entrust the conduct of the proceedings in respect of such items to any other
non-interested director attending the meeting and should not participate in the meeting in
respect of such items.
(b) Four Board Meetings were held during July to December in calendar year 2023.
Thunder, a director, attended none of them. For first three meetings he sought leave
of absence from the Board but did not inform the Board regarding last meeting as he
was hospitalised. In the light of provisions of Companies Act, 2013 examine if he is
disqualified to act as a director or otherwise.
Answer
Section 167(1) of the Companies Act, 2013 provides for the cases where the office of a
director shall become vacant. Section 167(1)(b) states that the office of a director shall be
vacated if he absents himself from all the meetings of the Board of directors held during a
period of twelve months with or without seeking leave of absence of the Board.
Examining the given case, Thunder, the director absented from all the four meetings of the
board held from July to December 2023 by seeking leave of absence in first three and not
seeking leave of absence in the last one. It is not that he did not attend all the meetings for a
period of twelve months. Thus, his office does not become vacant and he can continue to be
a director in the Board.
Disqualification of directors is dealt with under section 164 of the Companies Act, 2013 and
is different from vacation of office of directors under section 167. Section 167(1)(a)
provides that the office of a director shall become vacant in case he incurs any of the

disqualifications specified in section 164, which does not include non-attendance of board
meetings as a reason for disqualification.
(c) Out of nine directors in Moon Ltd. five are Indians and four are foreign nationals
based in Indonesia. The Articles of the Company prescribe that quorum for a Board
meeting will be at least 5 directors of which at two be foreign nationals. Comment if
such a clause in articles is valid under provisions of Companies Act, 2013 ?
Answer
Section 174 of the Companies Act, 2013 deals with quorum for a Board meeting.
The section states that quorum for a meeting of Board of directors of a company shall be one
third of its total strength or two directors, whichever is higher. Any fraction of a number
shall be rounded off as one. Thus, where a company has nine directors quorum for Board
meeting shall be higher of three (1/3 of 9) or two, i.e., three directors. Accordingly, three
directors shall be quorum in case of Moon Ltd.
However, articles of a company can provide for a higher quorum. The quorum provided
under section 174 is the minimum quorum. It is open to the company, by its articles, to
indicate a higher, but not a lower number or proportion as constituting a valid quorum.
Amrit Kaur Puri vs Kapurthala Flour Oil & General Mills Co. Pvt Ltd (1984) 56 Com. Cases
194 (P&H).
Hence, the clause in Articles of Moon Ltd. stipulating that quorum for a Board meeting will
be at least 5 directors of which two are foreign nationals is valid.
(d) Sukanya is director in nine public limited companies, one dormant public limited company
and ten private limited companies. She has vast experience in business management
and is invited by Green Ltd. to join as director. Discuss the relevant provisions of the
Companies Act, 2013 and advise Sukanya.
Answer
The following provisions are contained in Section 165 of the Companies Act, 2013 (the Act)
for number of directorships a person can hold in companies.
1. As per Section 165 (1) of the Companies Act, 2013, after commencement of the Act, no
person shall hold office of a director, including any alternate directorship in more than
twenty companies at the same time, provided that maximum number of public
companies in which a person can be appointed shall not exceed ten.
2. As per the explanations provided in Section 165(1) of the Companies Act, 2013:
 for reckoning the limit of public limited companies in which a person can be
appointed as director, the directorship in private companies that are either holding
or subsidiary company of a public company shall be included.
 for reckoning the limit of directorships in twenty companies, the directorship in a
dormant company shall not be included.
In view of the above provisions for calculating the directorships held by Sukanya, the
directorship held in 1 dormant public limited company shall be excluded.
Therefore, she can accept the invitation of Green Ltd. for directorship and after appointment
in Green Ltd., the directorships held by her will be within the overall prescribed limit of 20
companies (including not more than 10 Public companies) as indicated under:
1. 10 public limited companies
2. 1 dormant public limited company (excluded from the limit as above)
3. 10 private companies

(e) You are a freshly qualified Company Secretary. During an interview for the position
of Company Secretary in a listed company the Managing Director has asked you :
(i) Functions of a Secretary in a listed company as compliance officer;
(ii) Can a secretary be punished in respect of offences under Companies Act, 2013 ?
Answer to the Managing Director.
Answer
1. As per clause (1) of Regulation 6 of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015, a listed company is required to appoint the company
secretary to act as ‘Compliance Officer’, who will be responsible for the following –
(a) ensuring conformity with the regulatory provisions applicable to the listed entity in
letter and spirit.
(b) co-ordination with and reporting to the Board, recognised stock exchange(s) and
depositories with respect to compliance with rules, regulations and other directives of
these authorities.
(c) ensuring that the correct procedures have been followed that would result in the
correctness, authenticity and comprehensiveness of the information, statements and
reports filed by the listed entity.
(d) monitoring email address of grievance redressal division as designated by the listed
entity for the purpose of registering complaints by investors.
2. Company Secretary has been defined as ‘Officer who is in default’ under Section 2(60) of
the Companies Act, 2013 along with Managing Director, Manager and Whole time
Director etc. Thus, he can be punished in respect of offences under Companies Act, 2013.
He may be held liable as Key Managerial Personnel also under various provisions of the
Act.
OR
(i) Examine the validity of the following :

(a) Sudarshan Chakraborty, aged 20, is appointed as independent director on the Board
of BVS Scooters Limited, a listed company, by passing an ordinary resolution in thc
annual general meeting.
(b) Karna Kumar Baag, nominee director appointed by BICCI Bank Ltd. is removed from
directorship at the annual general meeting of Reliable Capacitors Limited, a listed
company, by passing an ordinary resolution.
Answer
(a) According to Sec 149(6) of Companies Act, 2013 read with Regulation 25(2A) of SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), an
independent director of a listed company shall be appointed by passing a special
resolution in the general meeting.
According to Regulation 16(1)(b) of LODR the independent director shall not be less
than 21 years of age.
Hence, the appointment of Sudarshan Chakraborty, aged 20 is invalid on both counts.
(b) Section 161(3) of the Companies Act, 2013, provides that subject to the articles of a
company, the Board may appoint any person as a director nominated by any institution
in pursuance of the provisions of any law for the time being in force or of any agreement

or by the Central Government or the State Government by virtue of its shareholding in a
Government company.
However, there is an exception to this sub section in case of specified IFSC public company
and specified IFSC private company. Companies, which secure financial assistance from
financial institutions, banks, major shareholders, debenture holders, etc. usually confer on
their lenders, power to appoint and terminate the appointments of their nominees on their
Boards. Such power is conferred by incorporating appropriate provisions in the financial
assistance agreements.
These institutions/banks etc. also insist on borrowing companies to alter their articles of
association so as to empower them to appoint and terminate the services of their nominee
directors on the Board of the company as and when they like. These directors are known as
nominee directors. They are not liable to retire by rotation and hold office at the pleasure of
their nominating agencies. They cannot be removed by the company.
Procedure to appoint a nominee director is same as appointment as additional director by

the Board or appointment of director other than retiring director by the company in general
meeting. Depending upon the term and condition of agreement with the appointing
bank/institution/ Government, the company may choose any of these two methods.
Thus, in view of above, Karna Kumar Baag, a nominee director appointed by BICCI Bank Ltd.
Cannot be removed by Reliable Capacitors limited, a listed Company, by passing an ordinary
resolution.
(ii) Alpha Numeric Control Systems is a listed public company with Registered Office at
Mumbai. The company has 5500 shareholders, examine the validity in the following :
(a) To conduct the next Annual General Meeting (AGM) of the company at Kolkata where
the majority of directors reside.
The Board of Directors (BOD) have already passed a resolution to conduct the AGM at
Kolkata.
(b) Due to non-finalization of annual accounts, the AGM was adjourned for two months.
The Company Secretary wants to post the Notice calling for the adjourned AGM 3
days before the adjourned AGM on the company website.
Answer
(a) According to Section 96 read with Secretarial Standard-2(SS-2), the Annual General
Meeting (AGM) of the listed company needs to be conducted at the village/town/city
where the Registered Office of the company is located.
However, the Central Government may exempt any company from the provisions of
section 96(2) subject to such conditions as it may impose.
Unless the company has obtained exemption from the Central Government, the action of
the company of holding the AGM in Kolkata is not valid.
(b) As per Para 15.2 of SS-2, if a general meeting is adjourned sine-die or for a period of
thirty days or more, a Notice of the adjourned meeting shall be given at least 21 clear
days before the adjourned meeting to comply with provisions of Section 101 of the
Companies Act, 2013 relating to Notice.
Since, the AGM has been adjourned for more than 2 months, three days’ Notice and
posting of Notice on the website of the company is not valid. The company needs to send
Notice of the adjourned meeting at least 21 clear days before the meeting by permitted
mode of communication like, electronic means.

(iii) The paid-up capital of Srishti Ltd is rupees ten crore. The Board consists of twelve
directors. Out of twelve, three positions are vacant. A resolution for calling a general
meeting urgently was sent by circulation for approval. There are three interested
directors in the resolution. Two directors out of these three interested directors and
one other director require the resolution under circulation to be decided at a meeting
and have communicated this to the company. Discuss and advise the Board if the
resolution can be passed by circulation.
Answer
As per para 6.1.2 of Secretarial Standard on Board Meeting (SS-1), where not less than one-
third of the total number of Directors for the time being require the Resolution under
circulation to be decided at a Meeting, the Chairman shall put the resolution for
consideration at a Meeting of the Board.
“Total number of Directors” above means the “total strength of the Board” which does not
include Directors whose places are vacant. Interested Directors shall not be excluded for the
purpose of determining the above one-third of the total number of Directors.
In the case under consideration, total number of directors is nine i.e., twelve less three. For
the purpose of reckoning l/3rd stipulation as above, total number of directors be taken as 9
and not six (nine less three interested directors).
Thus, if three directors (1/3rd of 9 which may include interested directors) require
resolution under circulation to be decided at a Meeting, the resolution by circulation should
not be proceeded with.
(iv) Metal Ltd. created a mortgage over its heavy machineries in respect of a loan given by
the sister of Krish, a director of the company. This fact was known to all the directors
but the interested director neither disclosed his interest nor abstained from voting
when the loan transaction was approved at the Board meeting. Decide the validity of
the said transaction under provisions of’ Companies Act, 2013.
Answer
Section 184 of the Companies Act, 2013 requires the disclosure of interest by a director and
prohibits an interested director to participate or vote in respect of that particular
transaction at the Board meeting subject to certain exceptions for private limited
companies. Further, his presence will not be counted for quorum too. But where the whole
body of directors is aware of the fact relating to interest of a director, formal disclosure is
not necessary. (Ramakrishna Rao vs Bangalore Race Club).
The mere voting by an interested director will not render the contract void or voidable
unless in the absence of that vote, there would have been no quorum. The mere fact that
voting in such situation the director shall be liable to a penalty of one lakh rupees under
section 184 (4) of the Act does not ipso facto render the contract void or voidable. In this
case, there is no allegation of earning secret profits.
Under section 184 of the Act, there does not exist any ban on contract in which directors are
interested. The only requirement is that interest should be disclosed. Even where the
interest is not disclosed, the transaction is only voidable against the interested director and
not void as decided in Narayan Das Shreeram Somani vs Sangli Bank.
Under section 184(3) of the Act, a contract or arrangement entered into by the company
without disclosure under sub-section (2) or with participation by a director who is
concerned or interested in any way, directly or indirectly, in the contract or arrangement,
shall be voidable at the option of the company.

(v) Jupiter Ltd. appointed Ashok as an Independent director for a term of three years.
Upon completion of his first term, he was re-appointed for another term for the same
period. Now upon completion of the second term, company again wants to re-appoint
him as the independent director of the company considering the fact that he has not
completed the consecutive term of ten years. Advise the Company on the feasibility of
his re-appointment.
Answer
Section 149(10) of the Companies Act, 2013 prescribes that subject to the provisions of
section 152, an independent director shall hold office for a term up to five consecutive years
on the Board of a company, but shall be eligible for reappointment on passing of a special
resolution by the company and disclosure of such appointment in the Board’s report.
Section 149(11) states that no independent director shall hold office for more than two
consecutive terms, but such independent director shall be eligible for appointment after the
expiration of three years of ceasing to become an independent director provided that an
independent director shall not, during the said period of three years, be appointed in or be
associated with the company in any other capacity, either directly or indirectly.
General Circular No. 14/2014 issued by MCA dated 9th June, 2014 clarifies that though an
independent director is to be appointed for a term up to 5 years, there is no bar on
appointment for a term of less than 5 years. However, such appointment for less than 5
years is to be counted as one term and at the end of two such consecutive terms, the director
should demit his office, even if the total number of years of his appointment in such two
consecutive terms is less than 10 years. In such a case, at the end of the 2 consecutive terms,
he cannot be reappointed again as independent director and the cooling period of 3 years
shall start.
In view of the above, Jupiter Ltd. cannot reappoint Ashok as independent director of the
company at the end of second consecutive term.
PART - III
(a) CS Nitesh, a Company Secretary in practice gave an advertisement for staff for his office in
newspaper as follows – ‘‘A reputed firm of Company Secretaries at West Mumbai
requires Executive passed candidates on an urgent basis…… … . . remuneration
commensurate with the best in the industry ....... only local candidates are preferred ’’.
He also outlined the number of trainees who have completed training from his office and
number of appearances made before NCLT in the advertisement. With reference to the
provisions of Company Secretaries Act, 1980 read with Schedules thereto comment if there
is any professional misconduct in the following circumstances.
Answer
Clause 7 of Part I of the First Schedule to the Company Secretaries Act, 1980 provides that a
Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—
“Advertises his professional attainments or services, or uses any designation or expressions
other than Company Secretary on professional documents, visiting cards, letterheads or
signboards, unless it be a degree of a university established by law in India or recognised by the
Central Government or a title indicating membership of the Institute of Company Secretaries of
India or of any other institution that has been recognised by the Central Government or may be
recognised by the Council.

In line with the above, advertisement by a Practicing member for staff for his office in the press
should in no way savour of any advertisement of professional attainments or services. The use
of certain adjectives like “a reputed firm”, “a well-known firm”, etc. may be treated as
inconsistent with the spirit of this clause. A practicing Company Secretary cannot include in his
advertisement following particulars like the infrastructure available in his own office, details of
Associate practicing Company Secretaries, details of his networking in other places within &
outside India, infrastructure at such networked offices, number of trainees who have completed
training from his office, certain landmark achievements like number of companies incorporated
since he started his practice, number of appearances made before NCLT, CBDT, Tribunals,
Regulatory Authorities, Commissions, number of Foreign Collaborations handled, number of
Merger & Acquisitions handled, number of due diligence carried out etc.
Thus, in the given case CS Nitesh can be held guilty of professional misconduct under clause 7 of
Part I of First Schedule to Company Secretaries Act, 1980.
(b) (i) Write a brief note on revenue sharing models for a Mega Firm.
(ii) In the light of provisions of relevant Secretarial Standard state if the minute book can be
in the custody of a senior officer of the company where there is no Company Secretary in
the company.
Answer
(i) The revenue sharing model of a Mega Firm could be the following:
1. Partner bringing new client shall be given referral or induction share, say, @ 15% of the
fees settled and received; it can be for the first year or for given number of years;
2. Certain percentage of fees, say 15% shall be retained in business in common pool for
meeting expenses;
3. 70% of the fees shall be given to the partner or partners who actually work on the
assignment (assignment share). When more than one partners are involved in an
assignment their share can be determined based on respective role;
4. At the year-end after meeting expenses resultant profit shall be shared in proportion of
contribution of individual in the gross earnings/ net profit of the firm;
5. Internally, different verticals can be created and surplus generated by each one can be
assessed as an independent cost centre.
(ii) As per para 8.3 of Secretarial Standard – 2 on General Meetings minutes book shall be kept in
the custody of any director duly authorised for the purpose by Board where there is no
Company Secretary in the company.
Therefore, the minute book can be kept in the custody of any authorized director and not in
the custody of the senior officer.

Company Law
December – 2023
Exam Paper
PART - I
Case Study
Anil, Sunil and Vaishali are close friends from a renowned business family. After doing
their masters from IIM, Ahmadabad they decided to start e-commerce in commodities.
However, they were not sure about the legal format in which they should start the
business. On request, M/s AB & Associates, a firm of practicing Company Secretaries
advised them to form a company limited by shares being the best suitable device for running
the business. After complying with the legal formalities, the company in the name and
style of ‘‘Dynamic E-Commerce Ltd.’’ (hereinafter referred to as ‘‘the Company’’) was
incorporated on 1st April, 2020 by seven subscribers (including Anil, Sunil and Vaishali) to
the Memorandum and Articles of Association of the Company with the main object of
carrying e-commerce in grains, grocery, and medicines throughout India.
The registered office of the company is situated in Pune, the State of Maharashtra(India).
The capital clause of the Memorandum of Association (MOA) provides as under :
‘‘The authorised share capital of the company shall be 1,00,00,000’’
The Articles of Association (AOA) contain the capital clause as below :

‘‘The authorised share capital of the company shall be 1,00,00,000 divided into 8,00,000
equity shares, carrying voting rights pari-passu of 10 each and 20,000 preference shares
of 10 each."
The company offered preference shares to the financial institution, its promoters, and a
group of individuals on which rate of dividend shall be 10% as per the term of issue. The
financial institution refused to subscribe to the issue of preference shares on the contention
that MOA is ambiguous as it does not authorise the company to issue class of preference
share and hence the act of offering preference shares isultra vires the company.
Considering the growing business, the company wants to shift its registered office from
Pune to Mumbai in the State of Maharashtra (India). The Managing Director of the company
has been apprised by the Legal Officer that the company may shift its registered office, as
proposed, by passing a unanimous board resolution and filing necessary forms with the
Encouraged with the financial results of last three years the Board of directors of the company
intends to declare interim dividend for the first time in its next board meeting to be held on
31st May, 2023 out of the profit earned for the year 2022-23.
The balances extracted from the financial statement for the preceding year are asbelow :

Particulars Financial Results for the year ending31st
March, 2023 ( in lakh)
Net Profit for the year after depreciation but
before interest and tax (NPBIT) 80.00
Charge of Interest on the profit onterm loan 5.00
Fully Paid-up equity share capital 60.00
Fully Paid-up Preference share capital 16.00
Free Reserves 10.00
Term Loan 50.00
Contingent Liabilities for which profit is to be set
aside 24.65
Assume Income-tax provision @ 25%
Based on the above facts answer the following :
(a) Whether the contention of the financial institution in refusing to subscribe to the issue of
preference shares of the company is valid ?
Answer
Doctrine of Ultra vires:
Any activity done contrary to or in excess of the scope of activity of the Companies Act,
Memorandum of Association or Articles of Association will be ultra vires. Ultra vires
activities can be divided into the following three divisions:
Ultra Vires the Companies Act:

Any act done contrary to or in excess of the scope of activity of the Companies Act will be
ultra vires the Companies Act. Such an act is void and cannot be ratified even by unanimous
resolution of all the shareholders. Further, a provision contained in the memorandum,
articles, agreement, or resolution shall be void if it’s repugnant to any of the provisions in
the Act.
Ultra Vires the Memorandum of Association:

In the case of a company whatever is not stated in the memorandum as the objects or
powers is prohibited by the doctrine of ultra vires. As a result, an act which is ultra vires is
void, and does not bind the company. Neither the company nor the contracting party can sue
on it. Such an act is void and cannot be ratified even by unanimous resolution of all the
shareholders.
Ultra Vires the Articles of Association:

If the acts of a company are ultra vires the Articles of Association but intra vires the
memorandum of association (i.e., outside the scope of articles but within the powers
conferred by the memorandum), it will be ultra vires the Articles of Association. These acts
are also void, but the company in general meeting may alter the Articles by a special
resolution and ratify the unauthorized acts.

Validity of contention of the bank:
In Re. South Durham Brewery Company [(1875) LR 7 HL 65c], the MOA of the company was
unclear as to the classes of shares to be issued by it, but the AOA of the company gave power
to issue shares of different classes as described therein. The Hon’ble Court held that Articles
can be used to explain the ambiguity contained in the memorandum. “ their Lordships agree
that in such cases the two documents must be read together at all events so far as may be
necessary to explain any ambiguity appearing in the terms of the memorandum, or to
supplement it upon any matter as to which it is silent.”
Hence, the act of offering the preference shares is not ultra vires the Companies Act, the
MOA or AOA of the company and the contention of the bank to refuse it is not valid in light of
the explanation and case law cited above.
(b) Referring to the provisions of the Companies Act, 2013 advise the company of the
compliance requirement for shifting of its registered office from Pune to Mumbai.
Answer
In the instant case the change in registered office of the company shall be within the same
state but from the jurisdiction of ROC, Pune to the jurisdiction of ROC, Mumbai.
As per section 12(5) of the Companies Act, 2013 read with rule 28 of the Companies
(Incorporation) Rules, 2014, no company shall change the place of its registered office from
the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same
State unless such change is confirmed by the Regional Director on an application made in
this behalf by the company. [Proviso to Section 12(5)]
Thereafter, the Regional Director shall examine the application and the application may be
put up for orders without hearing and the order either approving or rejecting the
application shall be passed within fifteen days of the receipt of application complete in all
respects. The certified copy of order of the Regional Director, approving the alternation of
memorandum for transfer of registered office company within the same State, shall be filed
in Form No.INC-28 along with fee with the Registrar of State within thirty days from the
date of receipt of certified copy of the order.
Under rule 28 of the Companies (Incorporation) Rules 2014, application shall be made to
the Regional Director in Form No.INC.23 along with the fee and following documents shall
be furnished:
(a) Board Resolution for shifting of registered office;
(b) Special Resolution of the members of the company approving the shifting of registered
office;
(c) a declaration given by the Key Managerial Personnel or any two directors authorized by
the Board, that the company has not defaulted in payment of dues to its workmen and
has either the consent of its creditors for the proposed shifting or has made necessary
provision for the payment thereof;
(d) a declaration not to seek change in the jurisdiction of the Court where cases for
prosecution are pending;
(e) acknowledged copy of intimation to the Chief Secretary of the state as to the proposed
shifting and that the employees’ interest is not adversely affected consequent to
proposed shifting.

Accordingly, the company may shift its registered office from Pune to Mumbai only after
passing Board resolution and a special resolution in the general meeting, obtaining
confirmation order of the Regional Director and complying with the other procedural
requirements. Hence, the advice of the legal officer is not correct.
As per rule 12(6) the confirmation referred to in sub-section (5) shall be communicated
within a period of thirty days from the date of receipt of application by the Regional Director
to the company and the company shall file the confirmation with the Registrar within a
period of sixty days of the date of confirmation who shall register the same and certify the
registration within a period of thirty days from the date of filing of such confirmation.
(c) Referring to the provisions of the Companies Act, 2013 read with Secretarial
Standard-3 (SS-3) and requirement of the Board. Explain the meaning of ‘‘Divisible Profit’’
and can interim dividend be paid by the company out of free reserves, in the event of loss
or inadequacy of profit during a financial year ?
Answer
‘Divisible profits’ means the profits which the law allows the company to distribute to the
shareholders by way of dividend. According to Palmer’s Company Law, the terms ‘divisible
profits’ and ‘profits in the legal sense’ are synonymous. Thus, the profits of a business mean
the net proceeds of the concern after deducting the necessary outgoings without which
those proceeds could not be earned. [Bharat Insurance Co. Ltd. v. CIT (1931) 1 Com
Cases 192, 196 (Lah)].
Divisible profits are that portion of the profit which can be distributed legally among the
shareholders of the company. These profits are distributed by way of dividends, but only
after provisions for past losses and reserves have been made.
Interim Dividend
As per Section 123(3) of the Companies Act, 2013, the Board of Directors of a company may
declare interim dividend during any financial year or at any time during the period from
closure of financial year till holding of the annual general meeting out of the surplus in the
profit and loss account or out of profits of the financial year for which such interim dividend
is sought to be declared or out of profits generated in the financial year till the quarter
preceding the date of declaration of the interim dividend.
In case the company has incurred loss during the current financial year up to the end of the
quarter immediately preceding the date of declaration of interim dividend, such interim
dividend shall not be declared at a rate higher than the average dividends declared by the
company during the immediately preceding three financial years.
It is also provided in Article 81 of table F that Subject to the provisions of section 123, the
Board may from time to time pay to the members such interim dividends as appear to it to
be justified by the profits of the company.
Therefore, before approving payment of interim dividend, the directors should satisfy
themselves that the profit is available for distribution by way of dividend.
SS-3 provides that in the event of a loss or inadequacy of profits during a financial year, no
Interim Dividend shall be declared/ paid out of Free Reserves. Hence, in this case interim
dividend cannot be declared by the Board of directors.

(a) The recognised trade union of Water Purifier Ltd. made an application before the
Tribunal seeking order for investigation of the company on the ground that the
company has defaulted the payment of dues of the workmen since long and the business
of the company is being conducted otherwise for a fraudulent or unlawful purpose. In
response, the company objected to the application and claimed that the recognised
trade union not being the members or creditors of the company has no locus standi to
make such application and is liable for dismissal. Examine the admissibility of the
application of recognised trade union submitted before the Tribunal seeking
investigation of the company.
Answer
As per section 213 of the Companies Act, 2013, the Tribunal may order after giving a
reasonable opportunity of being heard to the parties concerned that affairs of a company
ought to be investigated. The Tribunal may also make such order on an application made to
it by any other person or otherwise, if it is satisfied that the circumstances suggest that the
business of the company is being conducted with intent to defraud its creditors, members,
or any other person or otherwise for a fraudulent or unlawful purpose or in a manner
oppressive to any of its members or that the company was formed for any fraudulent or
unlawful purpose.
Hence, the Companies Act allows any other person to make an application before the
Tribunal if the circumstances so suggest. The objection of the company shall not be tenable
and the application of the recognized trade union shall be admissible for appropriate order
of the Tribunal.
(b) AB Pvt. Ltd. is unlisted material subsidiary of HD Ltd. which is a listed entity. It is the
strong conviction of the Company Secretary of HD Ltd. that secretarial audit for AB
Pvt. Ltd. is not required for two reasons such that it is a private company and secondly
an unlisted company. Based on the information and in- put data provided above,
referring to the provisions of the Companies Act, 2013 you are requested to
examine/analyse and answer the following : Explaining the requirement and timeline
for submission of secretarial compliance report by a listed entity, state whether the
Secretarial Audit of AB Pvt. Ltd. is voluntary in light of the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ?
Also, explain the meaning of material subsidiary.
Answer
As per section 204(1) of the Companies Act, 2013, every listed company and a company
belonging to other class of companies as may be prescribed shall annex with its Board’s
report, a secretarial audit report, given by a company secretary in practice, in such form as
may be prescribed. As per rule 9 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014, for the purposes of section 204(1), the other class of
companies shall be as under-
(a) Every public company having a paid-up share capital of fifty crore rupees or more; or
(b) Every public company having a turnover of two hundred fifty crore rupees or more; or
(c) Every company having outstanding loans or borrowings from banks or public
financial institutions of one hundred crore rupees or more.
Further, as per Regulation 24A of the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 [SEBI (LODR) Regulations], every listed entity and its
material unlisted subsidiaries incorporated in India shall undertake secretarial audit and

shall annex a Secretarial Audit Report given by a Company Secretary in Practice, in such
form as specified, with the annual report of the listed entity. Hence, secretarial audit for AB
Pvt. Ltd, is compulsory and not voluntary.
Every listed entity shall submit a Secretarial Compliance Report in such form as specified, to
stock exchanges, within sixty days from end of each financial year.
As per explanation to Regulation 24(1) of the SEBI (LODR) Regulation, 2015 “Material
Subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty percent of
the consolidated income or net worth respectively, of the listed company and its
subsidiaries in the immediately preceding accounting year.
(c) Edge Ltd. had borrowed 50 crore from a scheduled bank and repaid entire loan amount
along with interest thereon. The company wants to file satisfaction of charge with the
Registrar only after receiving no due certificate and a release letter from the bank. If
company delays the filing of satisfaction of charge for the default of bank in not
issuing these documents, whether the company will be liable for late filing of
satisfaction of charge under the Companies Act, 2013?
Answer
Section 82 of the Companies Act, 2013 read with rule 8 of the Companies
(Registration of charges) Rules, 2014:
Satisfaction of Charge is another important aspect relating to debts secured by a charge. In

case of a full and complete payment of the secured charge registered with the Registrar, the
company or charge-holder shall within a period of 30 days from the date of payment or
satisfaction in full of any charge registered under Chapter VI of the Companies Act, 2013,
give intimation of the same to the Registrar in Form No. CHG-4 along with the prescribed
fees. The Registrar may, on an application by the company or the charge holder, allow such
intimation of payment or satisfaction to be made within a period of 300 days of such
payment or satisfaction on payment of such additional fees as may be prescribed.
On receipt of such intimation, the Registrar shall issue a notice to the holder of the charge
calling upon him to show cause within such time not exceeding 14 days, as may be specified
in such notice, as to why payment or satisfaction in full should not be recorded as intimated
to the Registrar. If no cause is shown, by such holder of the charge, the Registrar shall order
that a memorandum of satisfaction shall be entered in the register of charges maintained by
the registrar under section 81 and shall inform the company, that he has done so. If the
cause is shown to the Registrar, he shall record a note to that effect in the register of charges
and shall inform the company accordingly.
However, the aforesaid notice shall not be sent, in case intimation to the Registrar is in
specified form along with the Letter of the charge holder stating that the amount has been
satisfied, which is a mandatory attachment in all cases of Form CHG -4 and is signed by the
holder of charge [Proviso to Section 82(2)]
Hence, filing of satisfaction of charge after clearance of entire dues of the bank does not
depend on obtaining no due certificate from the bank and in absence of which the Registrar
will get it confirmed from the lending bank. Hence, Edge Ltd. should have filed the same
within the time limit and the ROC would have obtained the confirmation thereto from the
bank. The company may therefore file it with payment of additional fees for delayed filing of
satisfaction of charge.

(d) Mithi Sugar Limited has on its Board, four directors viz A, B, C and D. In addition, the
company has Mr. R as the Managing Director. The company also has a full time Company
Secretary, Mr. Anupam, on its rolls. The financial statements of the company for the year
ended 31st March, 2023 were authenticated by two of the directors, Mr. A and Mr. B under
their signatures. Referring to the provisions of the Companies Act, 2023 :
(i) Examine the validity of the authentication of the Financial Statement including Balance
Sheet and Statement of Profit & Loss etc. and the Boards Report.
(ii) What would be your answer in case the company is a One Person Company (OPC) and
has only one Director, who has authenticated the Financial Statement including
Balance Sheet and Statement of Profit & Loss and the Board’s Report ?
[3 Marks Each]
Answer
(i) According to section 134(1) of the Companies Act, 2013 the financial statement,
including Consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board by:
(a) The chairperson of the company where he is authorized by the Board; or
(b) Two directors out of which one shall be managing director, if any; and
(c) The Chief Executive Officer, the Chief Financial Officer and the Company Secretary of
the company, wherever they are appointed.
Further, section 134(6) of the Companies Act, 2013 provides that the Board’s report and
any annexures thereto shall be signed by its chairperson of the company if he is
authorised by the Board and where he is not so authorised, shall be signed by at least
two directors, one of whom shall be a managing director, or by the director where there
is one director.
In given case, the Balance Sheet and Profit & Loss Account have been signed by Mr. A
and Mr. B, the directors. In view of the provisions of Section 134(1) of the Act, the
Managing Director Mr. R should be one of the two signatories. Since, the company has
also employed a full time Secretary, he should also sign the Balance Sheet and Profit &
Loss Account. Boards Report is required to be signed by the chairperson of the company
or by the two directors, one of whom shall be the managing director, in this case Mr. R
being the managing director and any of other director (A or B or C or D) can sign the
Board Report. Therefore, authentication done by two directors (i.e. Mr. A and Mr. B) is
not valid.
(ii) As per section 134(1) of the Companies Act, 2013, in case of a One Person Company, the
financial statements shall be signed by only one director, for submission to the auditor
for his report thereon.
In the given case, the financial statements including Balance Sheet and Statement of
Profit & Loss and Board’s Report should be signed by one director and hence, the
authentication is in order.

(a) The period of 10 years is over from taking over X Ltd. (the transferor company) by Y
Ltd. (the transferee company) by acquiring its shares and hence, a Board resolution has
been passed by the transferee company in the meeting held in June, 2023 to destroy the
books and papers (the record) of the transferor company considering the provisions
relating to preservation of books of account of the company for 8 years. Referring to
the provisions of the Companies Act, 2013, Decide the validity of the decision of the
Board of the transferee company.
Answer
As per Section 239 of the Companies Act, 2013, the books and papers of a company which
has been amalgamated with, or whose shares have been acquired by, another company
under this Chapter (Chapter XV Compromises, Arrangements and Amalgamations) shall not
be disposed of without the prior permission of the Central Government and before granting
such permission, that Government may appoint a person to examine the books and papers
or any of them for the purpose of ascertaining whether they contain any evidence of the
commission of an offence in connection with the promotion or formation, or’ the
management of the affairs, of the transferor company or its amalgamation or the acquisition
of its shares.
Hence, the decision of the Board of directors of Y Ltd. is not valid. For disposal of record of
the transferor company the transferee company should obtain the prior permission of the
Central Government to be granted after following the procedure laid down under section
239 explained above.
(b) Sanjay Diagnostic Limited (the Company) was registered in Bihar under the
provisions of the Companies Act, 2013. Its future project is to diversify into other
profitable business, which is unique and provide sustainable business growth. Due to
the recession in the industry and excessive competition from the seasoned player, the
Company has no significant accounting transaction and business activities during the
last two financial years. However, the Company has been regular in filing its financial
statements and annual returns with the Registrar of Companies, Patna by making
payment of applicable filing fees. The Company decided to file the application for
obtaining the status of dormant company in line with the relevant provision of the
Companies Act, 2013. The Company instead of passing a special resolution to this
effect in the general meeting of the Company issued notice to all the shareholders of the
Company for this purpose and obtained consent of 82% of shareholders in value. Referring
the provisions of the Companies Act, 2013 and Rules made there under answer the
following :
(i) Explain the term ‘‘Dormant Company’’.
(ii) Whether the payment of applicable filing fees to the Registrar of Companies (ROC)
could be considered as significant accounting transaction under the Companies Act,
2013.
(iii) Whether the application made by Sanjay Diagnostic Limited is in order, in
the absence of passing a special resolution ?
Answer
(i) As per Section 455 (1) of the Companies Act, 2013, where a company formed and
registered under the Companies Act for a future project or to hold an asset or
intellectual property and has no significant accounting transaction, such a company
or an inactive company may make an application to the Registrar in such manner as
may be prescribed for obtaining the status of a dormant company.

According to Explanation (i) to Section 455 of the Companies Act, 2013, “inactive
company” means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during the last
two financial years, or has not filed financial statements and annual returns during
the last two financial years.
(ii) Explanation (ii) to Section 455 of the Companies Act, 2013 states, “significant
accounting transaction” means any transaction other than:
 payment of fees by a Company to the Registrar;
 payments made by it to fulfil the requirements of this Act or any other law;
 allotment of shares to fulfil the requirements of this Act; and
 payments for maintenance of its office and records.
Therefore, according to the Explanation (ii) to Section 455 of the Companies Act,
2013, payment of applicable filing fees by a Company to the Registrar of Companies
cannot be considered as significant accounting transaction.
(iii) According to Rule 3 of the Companies (Miscellaneous) Rules, 2014, a Company may
make an application in prescribed form MSC-1 to the Registrar for obtaining the
status of a Dormant Company in accordance with the provisions of section 455 of the
Companies Act, 2013 after passing a special resolution to this effect in the general
meeting of the company or after issuing a notice to all the shareholders of the
company for this purpose and obtaining consent of at least 3/4th shareholders (in
value).
Thus, application made by Sanjay Diagnostic Limited is in order, as a notice is issued
to all the shareholders of the Company for this purpose and it has obtained consent
of 82% of shareholders in value which fulfills the requirement of at least 3/4th
shareholders (in value).
(c) XYZ Ltd. is an eligible company and has accepted during the financial year ended
31st March, 2023 the following receipts :
S. No. Receipts
1. Amount received against issue of commercial paper
2. Amount received from a person who, at the time of the receipt of the amount,
was a director of the company and has furnished a written declaration that the
amount is not being given out of funds acquired by him by borrowing or
accepting loans or deposits from others.
3. Amount received from an employee of the company not exceeding his annual salary
under a contract of employment with the company in the nature of non-interest-
bearing security deposit.
4. Term deposits received from members for 2 years
5. Deposits from public for 36 months.
Referring to the provisions of the Companies Act, 2013 you are requested to state, which
of the above receipts will be considered as deposits and which of them will be reported in
return DPT-3 by the company ?
Answer
Section 2(31) of the Companies Act, 2013 read with Rule 2(1)(c) of Companies (Acceptance
of Deposits) Rules, 2014, ‘deposit’ includes any receipt of money by way of deposit or loan

or in any other form by a company, but does not include the receipts specified under the
Rules.
The receipts under Serial No. 1, 2 and 3 will fall in the exempted category and shall not be
considered as deposits.
The other 2 receipts at Serial No. 4 and 5 will constitute the deposits.
Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014, states that every company
to which these rules apply, shall on or before the 30th day of June, of every year, file with the
Registrar, a return in Form DPT-3 along with the fee as provided in the Companies
(Registration Offices and Fees).
Explanation - It is hereby clarified that Form DPT-3 shall be used for filing return of deposit
or particulars of transaction not considered as deposit or both by every company other than
Government company.
Considering the explanation read with Form DPT-3, XYZ Ltd. is required to report all
transactions at Serial No. 1 to 5 in Form DPT-3 whether considered as deposit or not.
(a) Mr. Ranjan is an employee of the company Moon Limited and investigation is going on him
under the provisions of the Companies Act, 2013. The company wants to terminate the
employee on the ground of the investigation going against him. They have filed the
application to tribunal for approval of termination. The Company has not received any
reply from the tribunal within 30 days of filing an application. The Company consider it as a
deemed approval and terminated Mr. Ranjan.
(i) Is the contention of company being valid in law ?
(ii) What is remedy available to Mr. Ranjan ?
(iii) What is remedy available to Mr. Ranjan, if reply of Tribunal has been received
within 30 days of application ?
Answer
Section 218 of the Companies Act, 2013 states that the company shall require to take
approval of the Tribunal before taking action against the employee, if there is any pendency
of any proceedings against any person concerned in the conduct and management of the
affairs of the company.
The company shall require approval in the following circumstances:

 discharge or suspension of an employee; or
 punishment to an employee by dismissal, removal, reduction in rank or otherwise;
or
 change in the terms of employment to the disadvantage of employee;
The Tribunal shall notify its objection to the action proposed in writing.
In case, the company, other body corporate or person concerned does not receive the
approval of the Tribunal within 30 days of making the application, it may proceed to take
the action proposed against the employee.

In case the company, other body corporate or person concerned is dissatisfied with the
objection raised by the Tribunal, it may, within a period of 30 days of the receipt of the
notice of the objection, prefer an appeal to the Appellate Tribunal in such manner and on
payment of prescribed fees.
The decision of the Appellate Tribunal on such appeal shall be final and binding on the
Tribunal and on the company, other body corporate or person concerned.
In view of the above provision of the Companies Act, 2013:

1. Yes, the termination of Mr. Ranjan made by Moon Limited (the company) is valid in law
and the company can do so as no approval from the Tribunal has been received within
30 days of making the application.
2. In this scenario, Mr. Ranjan has no remedy available. As per the provision of the law
appeal to the Appellate Tribunal can be made only if the person is dissatisfied with the
objection raised by the Tribunal. In this case the Tribunal has not replied, hence Mr.
Ranjan cannot prefer an appeal to the Appellate Tribunal.
3. In this case, Mr. Ranjan can prefer an appeal to the Appellate Tribunal within 30 days of
receiving letter of objection raised by the Tribunal and with payment of prescribed fee.
(b) Ankur Steel Limited is a manufacturer of stainless steel. It had raised 400 crores
through public issue of its equity shares for starting one more unit of steel
manufacturing in Odisha. It has utilized 100 crores. Due to reduction in customs duty
on import of steel, imported steel from China are cheaper than its own manufacturing.
Since there is no scope for growth and expansion in the existing business,
management of the Company thought of utilizing remaining amount in software
development business (including Artificial Intelligence) by adding a new object in the
Company’s its memorandum of association.
As per the provisions of the Companies Act, 2013 can it do so ? If no, what advise will
you give to the company ? If yes, then explain the various steps to be followed by the
company.
Answer
According to Section 13(8) of the Companies Act, 2013 a company, which has raised money
from public through prospectus and still has any unutilized amount out of the money so
raised, shall not change its objects for which it raised the money through prospectus unless
a special resolution is passed by the company and —
1. The details in respect of such resolution shall also be published in the newspapers (one
in English and one in vernacular language) which is in circulation at the place where the
registered office of the company is situated and shall also be placed on the website of the
company, if any, indicating there in the justification for such change.
2. The dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with SEBI regulations.
As per section 13(9), the Registrar shall register any alteration of the memorandum with
respect to the objects of the company and certify the registration within a period of thirty
days from the date of filing of the special resolution in accordance with section 13(6)(a).
Therefore, the company will have to file copy of special resolution with ROC and ROC will
certify the registration within a period of thirty days. As per section 13(10) No alteration
made under this section shall have any effect until it has been registered in accordance with
the provisions of this section.

Thus, keeping in view the above provisions, yes, the company can add the object of software
development business in its memorandum and utilize the available funds for the new
business. However, it will have to comply with above requirements.
(c) Analyse the eligibility of a minor to become member of the company and other issues
incidental thereto in the following scenarios :
(i) Minor becoming member by agreement signed by him
(ii) Minor becoming member by allotment or transfer of fully paid-up shares through
guardian
(iii) Minor becoming member by transfer of partly paid-up shares and liability of
future calls thereon
(iv)Restoration of dividend to the company, if he repudiates the agreement of
membership on attaining majority.
Answer
(i) A member who is a minor is wholly incompetent to enter into a contract/agreement
and as such cannot become a member of a company. Consequently, an agreement by
a minor to take shares is void ab-initio.
(ii) An agreement in writing for a minor to become a member may be signed on behalf
of the minor by his lawful guardian and the registration of transfer of shares in the
name of the minor, acting through his or her guardian, especially where the shares
are fully paid cannot be refused on the ground of the transferee being a minor [Miss
Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated
17.2.78].
(iii) If shares are transferred to a minor, the transferor will remain liable for all future
calls on such shares so long as they are held by the minor even if the transferor was
ignorant of his minority.
(iv) In this case, a minor is not required to restore the dividend received by him during
his minority and the company cannot invoke the doctrine of estoppel against him.
[Sadiq Ali v. Jai Kishori, (1928) 30 Bom. L.R. 1346].
OR
(Alternate question to Q. No. 4A)
4A. Explain the following [5 Marks Each]
(a) ‘‘In a company limited by shares all members will ordinarily be the shareholders but all
shareholders need not be the members, ipso facto.’’ Differentiate between ‘members’ and
‘shareholders’ considering the provisions of the Companies Act, 2013
Answer
Difference between the Member and the Shareholder
S. No Member Shareholder
1 Section 2(55) of the Companies Act, 2013 On the other hand, the meaning of
specifies the meaning of ‘member’. ‘shareholder’ is not defined under the
Companies Act, 2013
2 A shareholder becomes a member of a The person who has ownership of
company, once his name is entered into the shares of a company is known as
company’s register of members or if he is a shareholder.

subscriber to the incorporation of the Further, companies limited by
company. Every other person who agrees in guarantee do not have a share
writing to become a member of the capital, and consequently, their
company and whose name is entered in its members are not shareholders.
register of members shall, be a member of
the company.
3 The subscribers to the Memorandum of a After signing the memorandum, a
company who shall be deemed to have person may become shareholder only
agreed to become members of the company, when the shares are allotted to him.
and on its registration, shall be entered as
members in its register of members.
The person who signs the memorandum of

association with the company becomes a
member.
4 The bearer of a share warrant is not a Whereas, the holder of a share
Member. warrant is a Shareholder.
5 A member who has transferred his shares, Similarly, A person may be a holder
though he does not hold any shares yet he of share by transfer but will not
continues to be member of the company become its member until the transfer
until the transfer is registered and his name is registered in the books of the
is removed from the register of members company in his favour and his name
maintained by the company. is entered in the register of members.
(b) Provide various grounds on which the investigation is assigned to Serious Fraud
Investigation Office (SFIO) ?
Answer
As per section 212 of the Companies Act, 2013, the Central Government may assign the
investigation into affairs of a company to the Serious Frauds Investigation Office (SFIO) on
the basis of an opinion formed from the following:
 The Registrar or inspector shall, after the inspection of the books of account or an
inquiry under section 206 and other books and papers of the company under section
207, submit a report in writing to the Central Government along with such documents,
if any, and such report may, if necessary, include a recommendation that further
investigation into the affairs of the company is necessary giving his reasons in support.
The Central Government on receipt of such report can order an investigation under
Serious Frauds Investigation Office;
 On intimation of a special resolution passed by a company that its affairs ought to be
investigated;
 In the public interest;
 On request from any Department of the Central Government or a State Government, the
Central Government may, by order, assign the investigation into the affairs of the said
company to the Serious Fraud Investigation Office and its Director, may designate such
number of inspectors, as he may consider necessary for the purpose of such
investigation.

(c) Anil, Sunil and Sunita are proposed to be first directors in the Articles of Association of
the proposed company. However, as they do not have DIN would not be able to assume
office of director immediately on incorporation of the company. Is there any way out
available to obtain DIN simultaneously with incorporation of the company so that the
company, on incorporation, will meet the requirement of having minimum number of
directors ? Advice, referring tothe provisions of the Companies Act, 2013.
Answer
As per rule 38 of the Companies (Incorporation Rules), 2014, the application for allotment
of Director Identification Number upto three Directors, reservation of a name, incorporation
of company and appointment of Directors of the proposed for One Person Company, private
company, public company and a company falling under section 8 of the Act. Shall be filed in
SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus:INC-32) with
the Registrar, within whose jurisdiction the registered office of the company is proposed to
be situated. Any person (not having approved DIN) proposed to become a first director in a
new company shall have to make an application through web form SPICe+ (Simplified
Proforma for Incorporating Company Electronically Plus: INC-32) for allotment of DIN.
For the purposes of filing SPICe Form, the particulars of maximum of three directors shall be
allowed to be filled in SPICe+ (Simplified Proforma for Incorporating company
Electronically Plus: INC-32), and allotment of Director Identification Number of maximum of
three proposed directors shall be permitted in SPICe+ (Simplified Proforma for
Incorporating company Electronically Plus: INC-32) in case of proposed directors not having
approved Director Identification Number.
The applicant is required to attach the proof of Identity, address, specimen signature duly
verified. etc. along with the application. DIN would be allocated to User only after approval
of the form. [Section 153 read with rule 9 of the Companies (Appointment and Qualification
of Directors) Rules, 2014].
Once the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-
32) is processed and found complete, company would be registered and CIN would be
allocated. Also DINs gets issued to the proposed Directors who do not have a valid DIN.
Thus, with this facility Anil, Sunil and Sunita may obtain DIN simultaneously with the
process of incorporation of the company and can assume the office of directorship
immediately on incorporation of the company and meet the requirement of having
minimum number of directors.

PART - II
Facts of the Case :

ABC Limited was incorporated on 14th October 2020 with the objective of manufacturing
of Cement. The plant was commissioned in April 2021, at a cost of ‘ 580 Crores at Somnath,
Gujarat. The Company was promoted by Chahal group. It is important to note that at present,
ABC Limited is not a listed Company.
Over a period of time, ABC Limited has grown to become one of India’s largest
manufacturers and exporters of cement and having 800 members. The Quorum fixed by
the Articles of ABC Limited was 7 members present.
In line with its long-term vision, the company has diversified into Home Textiles, Cotton
Yarn, Industrial/Edible Salt and Lignite Mining.
The current composition of the Board of Directors of ABC Limited is as follows :

 Total number of directors : 10
 Independent Directors : 5 (including one woman director)
 Whole-Time Directors : 3 (including Managing Director, Executive Director - Finance,
and Executive Director - Operations)
 Non-Executive Promoter Directors : 2 (1 Chairman and 1 Vice Chairman).
The Board approved Notice to call lst Annual General Meeting on 24th December 2021 at
2.30 P.M. (IST) to approve several resolutions including adoption of audited financial
statements of the Company for the financial year ended March 31, 2021; approval
regarding appointment of directors etc. Record Date/Cut-off date for said AGM was fixed on
17th December 2021.
Notice of the AGM contains Notes related to Proxy, which is reproduced as under :
A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend
and vote instead of himself. A proxy need not be a member. Proxies in order to be effective
must be deposited at the registered office of the company not less than forty eight hours before
the commencement of the meeting. A proxy form is enclosed with this notice.
Based on the above facts of the case study answer the following questions :
(a) ABC Limited issued a notice on 1st December, 2021 to hold its 1st Annual General
Meeting (AGM) on 24th December, 2021. Check the validity of the notice referring to
the provisions of the relevant act and secretarial standards in case it is sent by post.
Answer
As per section 101(1) of the Companies Act, 2013, a general meeting may be called by giving not
less than 21 clear days’ notice in writing or through electronic mode in such manner as may be
prescribed. As provided in para 1.2.6 of secretarial standard-2 (SS-2), for the purpose of
reckoning 21 days clear notice, the day of sending the notice and the day of Meeting shall not
be counted. Further, in case the company sends the notice by post or courier, additional two
days shall be provided for the service of notice.
Date of holding AGM: 24th December 2021; Date of dispatch of notice: 1st December 2021;
Days to be excluded:

(a) Day of holding AGM i.e., 24th December 2021.
(b) Day of dispatch of notice i.e., 1st December 2021.
(c) 2 additional days for service of notice i.e., 2nd & 3rd December 2021 (SS-2 Para1.2.6)
Number of days’ notice given: 20 days (i.e., from 4th December 2021 to 23rd December
2021), which is short by 1 day.
Number of days’ notice required under section 101 of the Act is 21 clear days.
Therefore, it is not a case of valid notice.
(b) Based on the above integrated case and after considering following details of the
persons present in the general meeting of ABC Limited, check whether the quorum of
the Annual General Meeting is validly constituted or not.
(i) Mr. A, the representative of Governor of Gujarat.
(ii) Mr. B & Mr. C are preference shareholders.
(iii) Mr. D representing PQR Ltd. And XYZ Ltd.
(iv)Mr. E, Mr. F, Mr. G and Mr. H are proxies of shareholders
Answer
(i) Since Mr. A is the representative of the Governor of Maharashtra, shall be treated as a
member personally presents (Section 112).
(ii) Preference shareholders can vote only in relation to such matters which directly affect
their rights. (Section 47)
In this case, meeting was called to take decision on approval of financial statements and
appointment of Directors, which does not affect their rights. Therefore, Mr. B & Mr. C
cannot be counted for the purposes of quorum, though they may be personally present.
Since Mr. D represents two body corporates, he would be treated as two members
personally present. (Section 113)
(iii) Since Mr. E, Mr. F, Mr. G and Mr. H are proxies of shareholders and members are not
personally present. They are not considered while counting quorum. (Section 105)
As per the section 103 (1) of the Companies Act, 2013, unless the articles of the
company provide for a larger number,—
(a) in case of a public company,—
(i) five members personally present if the number of members as on the date of
meeting is not more than one thousand;
(ii) fifteen members personally present if the number of members as on the date of
meeting is more than one thousand but up to five thousand;
(iii) thirty members personally present if the number of members as on the date of the
meeting exceeds five thousand.
From the above analysis, it can be concluded that only 3 members are personally present
and the Quorum fixed by the Articles of ABC Ltd was 7 members present, so they do not
constitute proper quorum.

(c) Mr. S, a shareholder of ABC Limited, issued two Proxies in respect of the shares held by
him in favour of Mr. ‘X’ and Mr. ‘Y’. The proxy in favour of ‘X’ was lodged on 22nd
December 2021 at 10.00 A.M. and the one in favour of Mr. Y was lodged on 23rd December
2021 at 3.30 P.M. The company rejected both the proxies in favour of Mr. X as well as Mr. Y.
Based on the integrated case and after considering above mentioned details regarding
proxies, is the rejection by the company in order ? Your answer should be based on
the applicable provisions of the Companies Act, 2013 and Secretarial Standards. You
are also requested to write the provisions related to inspection of proxies.
Answer
Section 105 of the Companies Act, 2013 provides that a member, who is entitled to attend
and to vote, can appoint another person as a proxy to attend and vote at the meeting on his
behalf. As per Section 105 of the Companies Act, 2013 and Para 6.6.1 of SS-2, a proxy should
be deposited 48 hours before the time of the meeting.
The SS-2 (Secretarial standard-2) also states that where allowed, a member can appoint one
or more proxies, to attend and vote instead of himself and a proxy need not be a member. If
a Company receives multiple Proxies for the same holdings of a Member, the Proxy which is
dated last shall be considered valid.
In the given case, the proxies should have, therefore, been deposited on or before 22nd
December 2021 latest by 2.30 P.M. (the date of the meeting being 24th December 2021, at
2.30 P.M.). Proxy in favour of Mr. Y was deposited on 23rd December 2021 at 3.30 P.M.
Therefore, proxy in favour of Mr. Y has become invalid, being less than 48 hours before the
time of the meeting.
Thus, rejecting the proxy in favour of Mr. X is unsustainable; because proxy in favour of Mr.
X is valid since it was deposited in time (i.e. on 22nd December 2021 at 10.00 A.M.).
Inspection of proxy:
As per section 105(8) of the Companies Act, 2013, every member entitled to vote at a
meeting of the company, or on any resolution to be moved thereat, is entitled to inspect the
proxies lodged with the company, if at least 3 days’ notice in writing is given to the
company. Such notice shall be received at least three days before the commencement of the
Meeting.
As per para 6.8.2 of the SS-2, proxies shall be made available for inspection during the
period beginning twenty-four hours before the time fixed for the commencement of the
Meeting and ending with the conclusion of the Meeting. Every Member entitled to vote on
any Resolution at a General Meeting is entitled to inspect the proxies lodged with the
company. The inspection should be allowed during the period starting twenty- four hours
before the time fixed for the commencement of the Meeting and ending with the conclusion
of the Meeting. Inspection shall be allowed between 9 a.m. and 6 p.m. during such period.
(d) At a General meeting of the company, a matter was to be passed by a special resolution.
Out of 400 members present, 200 members voted in favour of the resolution, 50
members voted against it and 50 members’ votes were found invalid. The remaining
100 members abstained from voting. The Chairman of the meeting declared the
resolution as passed. With reference to the provisions of the Companies Act. 2013,
examine the validity of the Chairman’s declaration?
Answer
Section 114 of the Companies Act, 2013 deals with Ordinary and Special Resolution.

As per Section 114(2) of the Companies Act, 2013, a resolution shall be a special resolution
when:
(a) the intention to propose the resolution as a special resolution has been duly specified in
the notice calling the general meeting or other intimation given to the members of the
resolution;
(b) the notice required under this Act has been duly given; and
(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically
or on a poll, as the case may be, by members who, being entitled so to do, vote in person
or by proxy or by postal ballot, are required to be not less than three times the number
of the votes, if any, cast against the resolution by members so entitled and voting.
The method of voting might be through show of hands, electronic voting, poll or any other
permitted method or postal ballot. The number of votes of only the members who are
entitled and voting are to be counted. Hence, the persons who abstain from voting or are not
allowed to vote (whether under the provisions of this Act or otherwise) are not to be
counted. Further, the notice required to be given may be given either by the company or the
member proposing the resolution.
In the given case, 200 members voted in favour of the resolution, and 50 members voted
against it. Invalid votes and person abstained from voting shall not be counted.
So, total valid votes : 250
Votes in favour : 200
Votes against : 50
Voting percentage in favour = 80% (i.e. 200/250*100), which is more than 75% and validly
passed.
Hence, declaration by the Chairman of the meeting is valid.
(a) PQR Limited wants to constitute an Audit Committee in the ensuing Board meeting of
the Company. Pursuant to the applicable provisions of the Companies Act. 2013, draft a
board resolution covering the following matters :
(i) Member of the Audit Committee
(ii) Chairman of the Audit Committee
(iii) Quorum for a meeting of the Audit Committee
(iv)Any 2 functions of the said Committee.
Answer
“RESOLVED THAT pursuant to Section 177 of the Companies Act, 2013 an Audit Committee
consisting of the following Directors, who are financially literate, be and is hereby
constituted:
1. Mr.—Independent Director
5. Mr.—Managing Director
6. Mr.—Chief Financial officer

“Resolved Further That Mr. (DIN), an Independent Director of the Company, having
accounting and / or related financial management expertise, be an is hereby appointed as
Chairman of the Audit Committee, and he shall preside the meeting of the Audit Committee
from time to time, and as per SS - 2 read with other applicable provisions of the Companies
Act, 2013, the Chairman of the audit committee shall be present at Annual general meeting
of the Company to answer shareholders’ queries.”
“Resolved Further That the quorum for a meeting of the Audit Committee shall be three
directors (other than the Managing Director), out of which at least two shall be
independent directors”.
“Resolved Further That the Audit Committee shall perform all the functions as laid down
in section 177(4) of the Companies Act, 2013 including but not limited to:
(a) Make the recommendation for appointment, remuneration and terms of appointment of
the auditors of the company;
(b) Revise and monitor the independence and performance of auditors of the company and
the effectiveness of the audit process.”
“Further Resolved That the Audit Committee shall review the quarterly and annual
financial statements and submit the same to the Board with its recommendation”.
(b) SNS Limited is expanding its business in UAE and to look after the business affairs
abroad proposes to appoint Vikram as an additional director. He is M. Tech and had
done his executive MBA from IIM, Bangalore and has a working experience in corporate
sector at a top-management level. Since the next Board meeting is not likely to be held
early it is proposed to appoint him as an additional director by obtaining a board approval
through resolution by circulation. You are, being a company secretary of the company,
requested to draft a resolution by circulation along with brief note thereon for
consideration and approval of the directors in compliance with the provisions of the
Answer
Resolution No.____________________________________
Mr. _____________________________________ (Director)
Dear Sir
Resolution by Circulation
The following Resolution is intended to be passed by circulation as per the provisions of
Section 175 of the Companies Act, 2013. A note explaining the urgency and necessity for
passing the said Resolution by circulation is enclosed.
“Resolved That pursuant to Section 161 of the Companies Act, 2013, and other applicable
provisions, including any modification or re-enactment thereof and the provisions of the
Articles of Association of the Company, Mr. Vikram (Name of Director), holding DIN:
_________________________ , be and is hereby appointed as an Additional Director on the Board of
the Company, effective from__________________________________________.
Resolved Further That Mr. Vikram shall hold office up to the date of the next Annual
General Meeting (AGM) of the company or the last date on which the AGM should have been
held, whichever is earlier.

Resolved Further That (Name of the Authorized Director) (DIN) be and is hereby
authorized to do all acts, deeds, matters and things as may be deemed necessary in
connection therewith.”
None of the Directors are deemed to be concerned or interested in the Resolution.
*Assent / Dissent / Require Meeting
(*Strike off whichever is not applicable)
Place:
Date:
Signature
Name of Director(DIN)
Brief note on the resolution by circulation for appointment of an additional director

The company is expanding its business in UAE for which it needs a dynamic, young,
qualified, and experienced person to head and look after the affairs of the business abroad.
Mr. Vikram has done his M.Tech from an esteemed institute of technology and after that
Executive MBA from IIM, Bangalore. He has five years’ experience of working in a corporate
sector at the top management level and can shoulder the responsibilities for which the
company is looking for.
He has provided required declaration that he is not disqualified to be appointed director of

the company, his DIN and consent to act as an additional director, if appointed.
The Articles of the Company provides for appointment of additional director by the Board of
directors.
He is recommended to be appointed additional director of the company with effect from

date the resolution, by circulation, is passed by the majority of directors.
Since the next board meeting is not likely to be held early it is proposed to appoint him as
such by obtaining the Board’s approval through a resolution by circulation to meet the
urgency. Hence, a draft circular resolution along with all supporting documents are attached
herewith for information of the directors.
Kindly indicate your response to the aforesaid Resolution, by appending your signature and
the date of signing in the space provided beneath the Resolution and return one copy to the
undersigned or by e-mail at the address mentioned below so as to reach us on or
before__________________________
All Directors are requested to return the resolution duly approved or otherwise and signed
to that effect to the registered office of the company within a period of seven days.
For_____________________________(Name of Company) Sd/-
Managing Director(DIN) / Company Secretary
e-mail id:
Address:
Contact No:

(c) Priya Garments Limited (the company) having its registered office at Hyderabad (India)
has received, in accordance with the provisions of section 115 of the Act, a special notice
from Revati, a member holding 50,000 equity shares aggregating to 5% of shareholding of
the Company’s voting capital for removal of Srinivasan, a director of the company being
indulged in the fraudulent activities detrimental to the interest of the company. Accepting
the requisition, the Board of directors, passed a resolution at its meeting held on 30th
November, 2023 to convene an extra-ordinary general meeting of the company on
Saturday, the 30th December, 2023 at l0 a.m. at the registered office of the company at
Hyderabad for removal of Srinivasan on requisition of the member. You being a Company
Secretary of the company is requested to prepare a draft notice of extra-ordinary
general meeting to be issued on lst December, 2023 along with explanatory note for
removal of Srinivasan on requisition of the member as required under the Companies
Act, 2013.
Answer
Notice of Extra Ordinary General Meeting
NOTICE is hereby given that the Extra-Ordinary General Meeting of the members of Priya
Garments Limited (“the Company”) will be held on the requisition of Ms. Revati who holds in
aggregate as on the date hereof 50,000 equity shares aggregating to 5% of shareholding of
the Company’s voting capital, on Saturday, the 30th December, 2023 at 10 a.m. at the
registered office of the Company at , Hyderabad to transact the following business:
Special Business:
1. To consider and if thought fit, to pass, with or without modification(s), following
resolution as Ordinary Resolution:
“RESOLVED THAT pursuant to Section 115 read with Section 169 of the Companies Act,
2013 and rules made thereunder, Mr. Srinivasan (DIN: ) be and is hereby removed from
his office as director of the company with immediate effect.”
RESOLVED FURTHER THAT, any Director of the Company and / or the Company
Secretary, be and are hereby severally authorized to issue notice of extra-ordinary
general meeting, file Form DIR- 12 with the Registrar of Companies and to do all such
acts/deeds/things/ as may be deemed fit to give effect to this resolution.”
By order of the Board of directors

For Priya Garments Limited
Sd-
Company Secretary
Place: Hyderabad
Date: …………..
Notes:
1. A member entitled to attend and vote is entitled to appoint a proxy to attend and vote
instead of himself. The proxy need not be a member of the company.
2. Corporate members are requested to send a duly certified copy of the Board Resolution
/ Power of Attorney authorizing its representative to attend and vote on their behalf at
an Extra-Ordinary General Meeting.
3. The proxies to be effective should be deposited at the registered office of the company
not later than 48 hours before the commencement of the meeting.
4. The relevant Explanatory Statement in terms of Section 102 of the Companies Act, 2013
is enclosed herewith.

Explanatory Statement pursuant to Section 102 of the Companies Act, 2013
A special notice as per Section 115 of the Companies Act, 2013, has been received by the
company from Ms. Revati, who holds in aggregate 50,000 Equity Shares aggregating to 5%
of shareholding of the Company’s voting capital for removal of Mr. Srinivasan
(DIN:__________________) from Directorship of the company with immediate effect on the
ground that he has indulged in fraudulent activities detrimental to the interest of the
company.
None of the Directors / Key Managerial Personnel of the Company or their relatives is, in
any way concerned or interested, financially or otherwise, in the resolution set out as Item
Number 1 of the Notice except as a director.
The Board recommends the Ordinary Resolution set out as Item Number 1 of the Notice for
approval by the Shareholders.
(d) You are the Company Secretary of Himachal Chemicals Limited. Pursuant to the
applicable provisions of the Companies Act, 2013, draft a board resolution to approve
and adopt a new CSR Policy of the Company.
Answer
“Resolved That pursuant to section 135 of the Companies Act, 2013 read with the
Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended from time to
time and such other provisions as may be applicable and based on the recommendation of
the CSR Committee, the Board of Directors of Himachal Chemicals Limited (the Company) do
and hereby approve a new CSR Policy in suppression of the existing CSR Policy
dated_________________________ (May 15, 2021 or any other date) in compliance with the
requirements under Companies (Corporate Social Responsibility Policy) Amendment Rules,
2021.”
“Resolved Further That the new CSR Policy of the Company be and is hereby approved and
adopted by the Board of Directors of the Company and the same be signed by Mr. /
Ms._____________________, Director for identification purpose.”
“Resolved Further That all the Directors of the Company and /or the Company Secretary of
the Company and /or the CFO of the Company, be and are hereby authorized severally to
take necessary steps to give effect to the above resolutions and do all such acts, deeds and
things as may be required to ensure compliance of the CSR Policy including disseminating
the contents of revised policy on the website of the Company.”

OR
(i) Referring to the provisions of the Companies Act. 2013 read with SS-1 explain, whether
the board meeting can be convened at a shorter notice and what are the conditions subject
to which such meeting may be held ? When shall the decision of the Board taken at the
meeting called at a shorter notice come into effect, if the company does not have an
independent director ? Also, state the venue for the Board meeting, if conducted through
video conferencing/ audio-video means where directors participated from the different
places/cities.
Answer
Section 173(3) of the Companies Act, 2013 requires that not less than seven days’ notice in
writing shall be given to the directors for the Board meeting. Notice issued at a shorter
period than 7 days shall be called as a shorter notice. As per SS-1 the fact that the meeting is
being held at a shorter notice shall be stated in the notice. Therefore, yes the Board Meeting
can be convened at a shorter notice.
Board meeting, at a shorter notice to transact urgent business shall be held, subject to
following conditions:
(a) If the company is required to have independent director:
1. Presence of at least one independent director is required.
2. In case of absence of independent director, decision taken at such meeting shall be
circulated to all the directors, and shall be final only on ratification thereof by at
least one independent director.
As per para 1.3.11 of the SS-1, in case the company does not have an Independent Director,
the decisions shall be final only on ratification thereof by a majority of the Directors of the
company, unless such decisions were approved at the Meeting itself by a majority of
Directors of the company.
As per Rule 3(6) of the Companies (Meetings of Board and its Powers) Rules, 2014, with
respect to every meeting conducted through video conferencing or other audio-visual
means authorized under these rules, the scheduled venue of the meeting as set forth in the
notice convening the meeting, shall be deemed to be the place of the said meeting and all
recordings of the proceedings at the meeting shall be deemed to be made at such place.

(ii) JK Scooters Ltd. is a listed company and wants to appoint a small shareholders’ directors
suo motu. You are being a Company Secretary of the company apprise the managing
director on the following points, referring to the provisions of the Companies Act,
2013.
(a) Is it mandatory for a listed company to appoint small shareholders’ director with or
without receiving a notice from requisite number of such shareholders?
(b) Tenure of office and retiring by rotation ?
(c) Number of small shareholders’ directorship.
(d) Small shareholders’ director to be an independent director.
Financial information for Questions 6A(iii) & 6A(iv) :

You are CFO of GCL Textiles Limited. The last three years’ Balance Sheet of GCL Textiles
Limited contains the following financial information and figures:
(All amount in )
As at 31.03.2021 As at 31.03.2021 As at 31.03.2021
Paid up capital 25,00,000 25,00,000 37,50,000

General Reserve 20,00,000 21,25,000 25,00,000
Credit Balance in Profit & Loss
account 2,50,000 3,75,000 5,00,000
Debenture Redemption Reserve 7,50,000 10,00,000 12,50,000
Securities Premium 1,00,000 1,00,000 1,00,000
Secured Loans 5,00,000 7,50,000 15,00,000
Ongoing through other records of the Company, the following is also determined:
Net profit for the year(as calculated 6,25,000 9,50,000 17,25,000
in accordance with the provisions of
the Companies Act, 2013)
In the ensuing Board Meeting of GCL Textiles Limited scheduled to be held on 15th
October 2023, among other items of agenda, following items are also appearing :
(a) To decide about borrowing from Banks/Financial institutions on long-termbasis.
(b) To decide about contributions to be made to charitable funds.
Based on above information, you are required to find out as per the provisions of the
Companies Act, 2013, the following :
Answer
(a) According to Section 151 of the Companies Act, 2013 read with rule 7(1) of the
Companies (Appointment and qualifications of Directors) Rules, 2014, a listed company
may have one director elected by such small shareholders in such manner and on such
terms and conditions as may be prescribed. A listed company, may upon notice of not
less than:
1. One thousand small shareholders; or
2. One-tenth of the total number of such shareholders, whichever is lower; have a small
shareholders director elected by the small shareholder.
A ‘Small Shareholder’s Director’ may be elected voluntarily by any listed company. Thus,
a listed company, may, on its own, act to appoint a Small Shareholder’s Director. In such
a case, no notice from small shareholder(s) is required. The Act has used the expression
“may” and not “shall.” Hence, it is not mandatory for a listed company to appoint small
shareholders’ director.

(b) As per rule 7(5) of the of the Companies (Appointment and qualifications of Directors)
Rules, 2014, the tenure of small shareholders’ director shall not exceed a period of 3
consecutive years and he shall not be liable to retire by rotation. Further he shall not be
eligible for re-appointment after the expiry of his tenure.
(c) As per rule 7(8) of the of the Companies (Appointment and qualifications of Directors)
Rules, 2014, a person shall not hold the office of small shareholders’ director in more
than two companies. If second company is in competitive business or is in conflict with
business of the first company, he shall not be appointed in second company.
(d) As per rule 7(4) of the of the Companies (Appointment and qualifications of Directors)
Rules, 2014, Small shareholders’ director shall be considered as an independent
director, if-
1. he is eligible for appointment as an independent director as per sub-section (6) of
section 149; and
2. he gives a declaration of his independence as per sub-section (7) of section 149.
(iii)Amount upto which the Board of Directors of GCL Textiles Limited can borrow from
Banks/Financial institution without seeking the approval of members in general
meeting; and
Answer
Section 180 of the Companies Act, 2013 deals with the restrictions on the power of Board. As per
Section 180(1)(c) of the Companies Act, 2013, the Board of Directors of a company, without
obtaining the approval of shareholders in a general meeting by passing special resolution, can
borrow money including money already borrowed upto an amount which does not exceed the
aggregate of paid-up capital of the company, free reserve and securities premium. Such
borrowing shall not include temporary loans obtained from the company’s bankers in ordinary
course of business. Here, free reserves do not include the reserves set apart for specific purpose.
Since the decision to borrow is to be taken in a meeting to be held on 15th October 2023, the
figures relevant for this purpose are the figures as per the Balance Sheet as at 31.03.2023.
According to the above provisions, the Board of Directors of GCL Textiles Limited can borrow,
without obtaining approval of the shareholders in general meeting, upto an amount calculated as
follows:
Particulars Amt in Rs.

Paid up Capital 37,50,000
General Reserve(being free reserve) 25,00,000
Credit balance in Profit & Loss Account (to be treated asfree
reserve) 5,00,000
Debenture Redemption Reserve

(This reserve is not to be Considered since it is kept apartfor
specific purpose of debenture redemption) -
Securities Premium 1,00,000

Aggregate premium of paid up capital, Free reserve And
securities premium 68,50,000

Total borrowing power of the Board of Directors of the
company, i.e.100% of the aggregate of paid up capital, free
reserves and securities premium 68,50,000
Less : Amount already borrowed as secured loans 15,00,000
Amount upto which the Board of Directors can further
Borrow without the approval of shareholders in a general
meeting 53,50,000
(iv) The amount upto which the Board of Directors of GCL Textiles Limited can contribute
to Charitable funds during the financial year 2023-24 without seeking the approval of
members in general meeting.
Answer
As per section 181 of the Companies Act, 2013, the Board of directors of a Company without
obtaining the approval of shareholders in a general meeting, can make contributions to genuine
charitable and other funds upto an amount which, in a financial year, does not exceed five per
cent of its average net profits during the three financial year’s immediately preceding, the
financial year.
Accordingly, to the above provisions, the Board of Directors of GCL Textiles Limited can make
contributions to charitable funds, without obtaining approval of the shareholders in a general
meeting, upto an amount calculated as follows:
Net Profit for the three years (as calculated in accordance with the provisions of the Companies
Act, 2013):
Particulars Rs.
For the financial year ended 31.03.2021 6,25,000
Total 33,00,000
Average of net profits during three preceding years 11,00,000
Five percent thereof 55,000
Hence, the maximum amount that can be donated by the Board of Directors to charitable
funds by GCL Textiles Limited during the financial year 2023-24 will be Rs. 55,000 without
seeking the approval of the shareholders in a general meeting.

Company Law
June – 2024
Exam Paper
PART - I
Case Study
Manoranjan, a young Journalist and MBA with flair for writing started a small net-based
business of content writing in the year 2011 by the name-Nirbheek Contents. Initially, his
business focused on website copywriting and business blog writing. Riding the wave of
sourcing work from India by western countries, his business grew quite rapidly.
Having taken the business to the highest level his focus shifted from writing contents
himself to have a team to write content. He personally monitored them to ensure quality.
In the year 2016, he formed a media company namely (MTR) Ltd. in Delhi and had a team
of fifty persons who were working with him on regular basis.
With the initiative of Manoranjan being very ambitious and positive about his business
MTR Ltd. expanded the business by entering into the business of printing books, journals,
exporting printed material to the foreign clients etc. After few years the Board decided
for demerging its both business where MTR Limited (MTR or "Demerged Company") shall
remain engaged in media business and a new company i.e., ATR Limited (ATR or
"Resulting Company") which was formed will engage in the printing business.
The Board of Directors of MTR & ATR approved the scheme of arrangement in their
respective meetings. Accordingly, the complete printing business, as a going concern of
the demerged entity, was required to be transferred including its assets and liabilities
which belong to the printing business of the demerged company to the resulting
company. However, the immovable properties were excluded from the deal.
A meeting of members of MTR Limited was convened under the order of the Hon'ble
NCLT to consider a scheme of compromise and arrangement. Notice of the meeting was
sent in the prescribed manner to all the 1200 members holding in the aggregate
1,00,00,000 shares. The meeting was attended by 900 members holding 60,00,000
shares. 420 members holding 44,00,000 shares voted in favor of the scheme. 360
members holding 12,00,000 shares voted against the scheme. The remaining members
abstained from voting.
A group of creditors of MTR Limited was against the ongoing scheme of arrangement and
they made a complaint to the concerned Registrar of Companies (the Registrar) alleging
that the management of the company has indulged in destruction and falsification of the
accounting records of the company and proposed scheme is not in the interest of the
unsecured creditors.
The registered office of ATR Ltd. is presently situated in the premises of MTR Ltd.
However, in order to have a separate registered office for corporate business ATR Ltd.
hired the premises in the same city where its registered office will be shifted after
complying with the legal formalities. XYZ Limited, an associate company of MTR Limited,

has a paid-up capital of 460 lakhs and accumulated free reserves of 740 lakhs. Loss for
the year ending 31st march, 2023 is ₹ 74 lakhs.
Dividend was declared at the following rates during the three years immediately preceding to the year
2022-23:
Year 1 10%
Year 2 12%
Year 3 14%
Based on the above information and referring to the provisions of the Companies Act, 2013 answer the
following:
(a) Examine, whether the scheme of compromise and arrangement is approved by the requisite
majority of members.
Answer
Section 230(6) of the Companies Act, 2013 states that the scheme shall be approved when at a
meeting held in pursuance of section 230(1), majority of persons representing three-fourths in
value of the creditors, or class of creditors or members or class of members, as the case may be,
voting in person or by proxy or by postal ballot, agree to any compromise or arrangement
scheme.
In this case out of 1200 members, 900 members attended the meeting, but only 780 members
voted at the meeting. As 420 members voted in favor of the scheme, the requirement relating to
majority in number (i.e. 390) is satisfied. 780 members who participated in the meeting held
56,00,000 shares, three-fourth of which works out to 42,00,000 shares while 420 members
(more than 390 i.e. 50% of 780) who voted for the scheme held 44,00,000 shares (more than
42,00,000 shares).
As both the requirements are fulfilled, the scheme is approved by the requisite majority.
(b) A group of creditors of MTR Limited, not satisfied with the scheme being approved in a
fraudulent manner, made a complaint to the Registrar of Companies (the Registrar) and
the Registrar, immediately on receiving the complaint, attempted during the business
hours at 11 a.m. on 25th September, 2023 to enter the premises of the company for
seizure of the record but the company opposed to it on the contention that the Registrar
has no power to enter the premises and seize the record without the order of the special
court. Decide, whether the contention of the company is valid.
Answer
Section 209 (1) of the Companies Act, 2013 states that, if the Registrar has reasonable ground to
believe that the books and papers of
 a company or
 relating to the key managerial personnel or
 any director or
 auditor or
 company secretary in practice if the company has not appointed a company secretary
are likely to be destroyed, mutilated, altered, falsified or secreted he may, after obtaining an
order from the special court for the seizure of such books and papers,
(a) enter with such assistance as may be required and search the place or places where such
books or papers are kept; and
(b) seize such books and papers as he considers necessary after allowing the company to take
copies of or extracts there from, such books or papers at its cost.

According to the above provisions, the Registrar has failed to obtain permission from the special
court; So, he is not authorized to enter the premises of the company and seize the books of
account of MTR Limited. Hence, the contention of the MTR Limited is valid in law.
(c) What is the maximum rate at which the dividend can be declared by XYZ Limited ?
Answer
In the case of XYZ Limited there is inadequacy or absence of profits during the current year ending
on 31st March, 2023. Hence, as per rule 3 of the Companies (Declaration and Payment of Dividend)
Rules, 2014, the rate of dividend declared shall not exceed the average of the rate at which
dividend was declared by it in the immediately preceding 3 financial years. The average rate
of dividend is 12% (10%+12%+14% divided by 3) and the maximum amount of dividend can be Rs.
55.2 lakh (12% of Paid-up Capital i.e. Rs. 460 lakhs)
(d) What is the amount available for declaration of the dividend subject to fulfillment of
other conditions in case XYZ Limited declares the dividend ?
Answer
Total amount to be drawn from such accumulated profits shall not exceed 1/10th of the sum of
its paid-up share capital and free reserves as per the last audited financial statements.
The amount so drawn shall first be utilised to set off the losses incurred in the financial year in
which dividend is declared before any dividend in respect of equity shares is declared.
Paid-up capital + Free reserves = Rs. (460+740) Lakhs
(Total paid up capital & free reserves) = Rs. 1200 Lakhs
10% thereof – Rs. 120 Lakhs
Less: loss for the year – Rs. 74 Lakhs
Amount available = Rs. 46 Lakhs
Hence, the quantum of dividend is further restricted to Rs. 46 lakhs.
(e) Referring to the provisions of the Companies Act, 2013 explain the managing director of
ATR Ltd. the formalities to be completed before and after shifting of the registered office
clarifying whether the approval of members of the company through a special resolution
is required for it.
Answer
ATR Ltd. is shifting its registered office within the local limits of same town/city. Hence, the
following procedure / formalities to be completed:
Before shifting:
Before shifting of the registered office, the Board resolution in the meeting of Board of directors
will have to be passed authorizing the director to shift the registered office to the new place.
After shifting:
An intimation of the change of registered office and verification of registered address shall be
given to the Registrar.
 E-Form INC-22 is required to be filed within 30 days of such change.
It is further be clarified that this change does not involve alteration of memorandum and the
change is within the local limits of the same city. Hence, the Board is the competent authority to
change the situation of the registered office of the company and approval of the members of the
company is not required.

(a) P Limited (the company) is a wholly owned subsidiary of Q Limited. The company P
Limited wants to make an application for the merger Holding and Subsidiary companies
under Section 232 read with Section 230 of the Companies Act, 2013. The Company
Secretary of Q Limited is of the opinion that the company cannot apply for merger as per
Section 232 of the Act and it shall be mandatory for the company to apply for merger as
per Section 233 of the Act i.e., Fast Track Merger. Is the contention of the Company
Secretary tenable as per the Act?
Answer
As per section 233(1) of the Companies Act 2013, notwithstanding the provisions of section 230
and section 232, a scheme of merger or amalgamation may be entered between:
 2 or more small companies or
 a holding company and its wholly owned subsidiary company or
 Such other class or classes of companies as prescribed.
1. two or more start-up companies; or
2. one or more start-up company with one or more small company.
The provisions given for fast track merger in section 233 of the Act are optional in nature and
not a compulsion on the company. Section 233(14) states that a company covered under Section
233 may use the provisions of section 232 for the approval of any scheme for merger or
amalgamation.
Therefore, with respect to schemes of arrangement or compromise falling within the purview of
section 233 of the Companies Act, 2013, the concerned companies may, at their discretion, opt
to undertake such schemes under sections 230 to 232 of the Act.
Hence, here the opinion of Company Secretary of Q Limited can be said to be not correct and his
contention is not valid as per the law. The company shall have an option to choose between
normal process of merger under Section 232 read with Section 230 and fast track merger under
Section 233.
(b) XYZ Limited, a listed company was incorporated on 1st August, 2020 with the objective of
dairy business. Demand for dairy products was high in the area due to that the sales are
remarkable, and business was outstanding. Hence, the Board of Directors in its meeting
approved the proposal to set up a new unit in West Bengal and also resolved to raise the
funds by issuing shares of the company to the public. The company intends to raise share
capital by issuing equity shares in different stages over a certain period of time
according to the construction works of the new unit. However, the company does not
wish to issue prospectus each and every time of issue of shares. What can be the way
out for the company to follow to avoid repeated issuance of prospectus ? Advise. in
light of the provisions of the Companies Act, 2013.
Answer
Company can issue shelf prospectus under Section 31 of the Companies Act, 2013, read with
Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 to avoid
repeated issuance of prospectus.
Definition: Shelf Prospectus means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over a certain
period without the issue of a further prospectus. In simple terms Shelf Prospectus is a single
prospectus for multiple public issue. Issuer is permitted to offer and sell securities to the public
without a separate prospectus for each act of offering for a certain period.

Validity Period: Under section 31 of the Act, any class or classes of Companies, as the Securities
and Exchange Board (SEBI) may provide by regulations in this behalf, may file a shelf prospectus
with the Registrar. Such prospectus is to be submitted at the stage of the first offer of securities
which shall indicate a period not exceeding one year as the period of validity of such prospectus.
The validity period shall commence from the date of opening of the first offer of securities under
that prospectus, and in respect of a second or subsequent offer of such securities issued during
the period of validity of that prospectus, no further prospectus is required.
Filing of Information Memorandum (FORM PAS-2) with ROC: An information memorandum

is required to be filed by a company filing a shell prospectus which shall contain all material
facts relating to new charges created, changes in the financial position of the company as have
occurred between the first offer of Securities or the previous offer of securities and the
succeeding offer of securities; and such other changes as may be prescribed.
The Information Memorandum shall be prepared in Form PAS-2 and filed with the Registrar
within one month prior to the issue of a second or subsequent offer of securities under the shelf
prospectus.
Where an information memorandum is filed, every time an offer of securities is made, such
memorandum together with the shelf prospectus shall be deemed to be a prospectus.
(c) Sunrise Online Coaching Limited (the company) is registered in Singapore. It has no
place of business established in India, however, it is conducting online educational
courses and providing online tutorials and coaching for various courses by charging
fee for Indian students who have joined the courses online from India. The registered
office is situated at Singapore and having its main server for online coaching outside
India. State the status of the company under the provisions of the Companies Act,
2013.
Answer
Under section 2 (42) of the Act, “Foreign Company” means any company or body corporate
incorporated outside India.
which, –
(a) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
(b) conducts any business activity in India in any other manner.
According to Rule 2(l)(c)(iv) of the Companies (Registration of Foreign Companies) Rules, 2014.
“Electronic mode” means carrying out electronically based, whether main server is installed in
India or not, including, but not limited to online services such as telemarketing, telecommuting,
telemedicine, education, and information research.
In the above case, Sunrise Online Coaching Limited is a company registered in Singapore. It has
no place of business established in India but is doing online business through electronic mode in
India having its main server for online business outside India.
As per the definition of “Electronic Mode”, the Company incorporated outside India, conducting
business in India through electronic mode whether main server is installed in India or not, the
company will be treated as a foreign company.

(d) M/s. NRS Biochemicals Limited is planning to buy-back of its shares during the
financial year 2023-24 but the company has defaulted in the payment of term loan
and interest thereon to its bankers and not filed the annual return for the financial
year 2022- 23. The company seeks your advice as to how and when the company can
buy- back its shares under these circumstances as per the provisions of the
Answer
Circumstances prohibiting buy-back [Section 70(1) of the Companies Act, 2013]
No company shall directly or indirectly purchase its own shares or other specified securities
(a) through any subsidiary company including its own subsidiary companies;
(b) through any investment company of group of investment companies; or
(c) if a default, is made by the company, in the repayment of deposits accepted either before or
after the commencement of this Act, interest payment thereon, redemption of debentures
or preference shares or payment of dividend to any shareholder, or repayment of any term
loan or interest payable thereon to any financial institution or banking company: However,
the buy-back is not prohibited, if the default is remedied and a period of three years has
lapsed after such default ceased to subsist.
According to section 70(2) No company shall, directly or indirectly, purchase its own shares or
other specified securities in case such company has not complied with the provisions of sections
92 (Annual Return), section 123 (Declaration of Dividend), section 127 (punishment for failure
to distribute dividend) and section 129 (Financial Statement).
Therefore, NRS Bio Chemicals Limited cannot buy back its share until the expiry of cooling
period (3 years) after the default is remedied since it has defaulted in repayment of loan and not
filed the annual return for the financial year 2022-23.
(e) Global Services Limited is planning to issue. its equity shares through private
placement to some of the persons residing outside India. There is a provision in the
Articles of Association of the company for issuing equity shares to the foreigners
through private placement. Board in its meeting approved the resolution ailotting
10,000 shares to A and B who reside outside India. You are requested to elucidate the
compliance requirement of the following referring to the provisions of the Companies
Act, 2013:
(i) Maintenance of foreign register of members?
(ii) Option available, if any, to discontinue the maintenance of foreign register of
members.
Answer
(i) Section 88(4) of the Companies Act, 2013 empowers companies to keep foreign registers of
members or debenture- holders, other security holders or beneficial owners residing
outside India. It states:
“A company may, if so, authorized by its articles, keep in any country outside India, in such
manner as may be prescribed, a part of the register referred to in section 88(1), called
“foreign register” containing the names and particulars of the members, debenture-holders,
other security holders or beneficial owners residing outside India.”
A foreign register is deemed to be a part of the company’s principal register and it should be
kept in the same manner as the principal register and be likewise open to inspection.

A duplicate of such register should be maintained at the registered office in India and all
entries made in the foreign register should be made in the duplicate register at the
registered office as soon as possible.
(ii) According to Rule 7(11) of the Companies (Management and Administration) Rules, 2014,
the company may discontinue the keeping of any foreign register; and thereupon all entries
in that register shall be transferred to some other foreign register kept by the company
outside India or to the principal register.
Thus, in the given case the Company has the option to discontinue maintenance of foreign
register of members.
3. Attempt the following
(a) Referring to the provisions of the Companies Act read with the relevant Rules
examine, whether the following amounts received by a company will be considered
as deposits or not:
(i) Tiwari Exports Limited has raised 12,00,000 through issue of non-convertible
debentures not constituting a charge on the assets of the company and listed on a
recognized stock exchange as per the applicable regulations made by the
Securities and Exchange Board of India.
(ii) National Refrigeration Ltd., a leading fridge manufacturer in North India, received
2 crore from Mr. Ankit for supply of 2000 fridge and made appropriation of such
advance after expiry of 390 days from the date of acceptance of such advance.
(iii) Lalit ceased to be a director of ABC Pvt. Limited (the company) by resignation w.e.f. June
15. 2023 and the company received Rs. 50,00,000/- (Rupees Fifty lakh) from Priya (spouse
of Lalit) on June, 10, 2023 and the amount was self-earned savings of Mr. Priya as per her
declaration.
[2+2+1-5 Marks]
Answer
Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 provides the
provisions relating to various amounts received by a company which will not be considered
as deposits. In terms of this Rule, the answers to the given situations shall be as under:
(i) Rs. 12,00,000 raised by Tiwari Exports Limited through issue of non- convertible
debentures not constituting a charge on the assets of the company and listed on
recognised stock exchange as per the applicable regulations made by the SEBI, will not
be considered as deposit in terms of sub- clause (ixa) of Rule 2 (1) (c).
(ii) Rs. 2,00,00,000 (Rupees Two crore) received by National Refrigeration Limited from Mr.
Ankit, as an advance for the supply of goods, but appropriated the said advance after the
expiry of 390 days (i.e., more than 365 days). Hence, this amount will be considered as
deposit in terms of Rule 2 (1) (c)(xii)(a).
(iii) Rs. 50,00,000 by ABC Pvt Limited from Ms. Priya (i.e. relative of Director), will not be
considered as deposit in terms of sub-clause (viii) of Rule 2 (1) (c), because she has
given a declaration that the amount is given out of her self-acquired funds and not from
borrowing etc.

(b) ABC Ltd. is engaged in the manufacture of ayurvedic medicines, sales are good. Over the years,
it has built a good reputation in the market made the huge profits and its Balance Sheet as at
31st March, 2023 shows the following position:
Authorized Share Capital (50,00,000 equity shares of face value of 10/-

each) ₹5.00,00,000/-
Issued, subscribed and paid-up share (10,00,000 equity shares of lace value of
capital 210/-cach, fully paid-up) ₹ 1,00,00,000
Free Reserves ₹30,00,000
Securities Premium ₹10,00,000
Debenture Redemption Reserve ₹10,00,000
The Board of Directors proposes to declare a bonus issue of 1 share for every 2 shares held by
the existing shareholders. The Board wants to know the sources, conditions of bonus issue
and the maximum number of bonus shares that can be issued under the provisions of the
[5 Marks]
Answer
According to section 63(1) of the Companies Act, 2013, a company may issue fully paid-up
bonus shares to its members. in any manner whatsoever, out of- (Sources)
 Its free reserves
 Securities premium account
 The capital redemption reserve account
No issue of bonus shares shall be made by capitalising reserves created by the revaluation
of assets
Conditions for issue of Bonus Shares

In terms of section 63(2) of the Companies Act, 2013, no company shall capitalise its profits
or reserves for the purpose of issuing fully paid-up bonus shares, unless-
(a) Authorisation in AOA: It is authorised by its articles.
(b) Passing of Ordinary Resolution: It has, on the recommendation of the Board, been
authorised in the general meeting of the company.
(c) No defaults: It has not defaulted in payment of interest or principal in respect of fixed
deposits or debt securities issued by it; it has not defaulted in respect of the payment of
statutory dues of the employees, such as, contribution to provident fund, gratuity and
bonus.
(d) Fully paid-up shares: The partly paid-up shares, if any outstanding on the date of
allotment, are made fully paid-up.
(e) The company which has once announced the decision of its Board recommending a
bonus issue, shall not subsequently withdraw the same.
(f) No issue in lieu of dividend: The bonus shares shall not be issued in lieu of dividend.
Maximum number of shares to be issued:

The company proposes to issue 1 bonus share for every 2 equity shares. The issued and
fully paid- up shares are 10,00, 000. Hence, the company wants to issue 5,00,000 shares, the
face value of which will be Rs. 50,00,000 and reserve of equal amount is required.
As per Section 71 of the Companies Act, 2013, where the company has created a debenture
redemption reserve account, the amount credited to such account shall not be utilised by
the company except for the redemption of debentures.
The aggregate of eligible reserves come to Rs. 40,00,000 (Rs. 30,00,000+10,00,000).

Hence, sufficient reserves are not available and the company cannot implement its proposal
to issue 1 bonus share for every 2 shares.
(c) The Board of Directors of Green Stone Limited (the company) consists of total 8 executive
directors and 2 non-executive directors. 4 executive directors in collusion with the auditor of
the company manipulated the accounts of the company in their own interest. By knowing the
conspiracy, the other directors decided to file an application before the Nation Company Law
Tribunal (the Tribunal) to pass the order for the removal of the auditor. In view of the given
facts and referring to the provisions of the Companies Act, 2013 advise the applicant
directors :
(i) Whether the Tribunal is a competent authority to entertain the application of few
directors for removal of auditor of the company ?
(ii) Will the auditor of Green Stone Limited be eligible to be appointed as an auditor of other
company, if he is removed by the order of the Tribunal ?
[3+2 = 5 Marks]
Answer
Given problem is based on removal of auditor by Tribunal in event of fraud u/s 140(5) of the
Companies Act 2013.
As per the provisions of Section 140(5) of the Companies Act, 2013, the Tribunal may either
 Suo motu or
 on an application made to it by the Central Government or
 by any person concerned,
if it is satisfied that the auditor of a company has whether directly or indirectly acted in a fraudulent
manner, or abetted or colluded in any fraud by, or in relation to, the company or its directors or
officers , it may, by order, direct the company to change its auditors.
Section further states that if the application is made by the Central Government and the Tribunal is
satisfied that any change of the auditor is required, it shall within 15 days of receipt of such
application, make an order that he shall not function as an auditor and the Central Government may
appoint another auditor in his place.
An auditor, whether individual or firm, against whom final order has been passed by the Tribunal
under this section shall not be eligible to be appointed as an auditor of any company for a period of
five years from the date of passing of the order and the auditor shall also be liable for action under
section 447.
Based upon the above provision. we may conclude as follow: -

1. This Section authorizes the Tribunal to pass order for directing the company to change the
auditor. However, the Tribunal shall not directly remove the auditor. The application is tenable
as it is made by the persons concerned.
2. Auditor pf Green Stone Limited so removed shall not be eligible for appointment as an auditor of
any company for a period of five years from the date of passing of the order and the auditor shall
also be liable for action under section 447.

(a) Investigation proceeding under the provisions of the Companies Act, 2013 is being
carried out against XYZ Limited (the company). During the investigation, the Tribunal
has a reasonable ground to believe that a removal, transfer or disposal of funds,
assets or properties of the company is likely to take place in a manner that would
be prejudicial to the interest of the company. In this connection, the Tribunal
requested the company’s legal advisers and the bankers respectively to disclose and
furnish a copy of the relevant communication made by them to the company. But they
refused to share any document or disclose any information relating to their
clients under investigation. Under the circumstances, the Tribunal wishes to pass
an order to :
(i) Freeze the assets of the company.
(ii) Punish the company for the contravention, if any, of the order of the Tribunal.
(iii) Compel the legal advisers and the bankcrs to provide the required
information.
In the light of the provisions of the Cornpanies Act, 2013 analyses, whether the
Tribunal has the power to do so in respect of the above situations.
[2+1+2=5 Marks]
Answer
Powers of tribunal as to freezing of assets of Company and imposing
(i) As per Section 221 of the Companies Act, 2013, where it appears to tribunal (NCLT) on
reasonable ground to believe that removal or transfer or disposal of funds, assets or
properties of company is likely to take place in manner prejudicial to interests of
company or its shareholders or creditors or in public interest, tribunal may by order
direct that such transfer, removal or disposal shall not take place during such period not
exceeding 3 years as may be specified in the order or may take place subject to such
conditions and restrictions as the tribunal may deem fit.
Hence, the tribunal may pass an order to freeze the assets of the company
(ii) In case of any removal, transfer or disposal of funds, assets, or properties of the company
in contravention of the order of the Tribunal as specified above, the company shall be
punishable with fine which shall not be less than Rs.1 lakh but which may extend to Rs.
25 lakhs.
Hence, the tribunal may punish the company for the contravention of the order of the
tribunal.
(iii) In term of Section 227 of the Companies Act, 2013 even during an investigation, the legal
adviser cannot be compelled to provide the information of any privileged communication
made to him in that capacity, except as respects the name and address of his client, or by
the bankers of any company, body corporate, or other person of any information as to the
affairs of any of their customers, other than such company, body corporate, or person, to
the Tribunal or to the Central Government or to the Registrar or to an inspector
appointed by the Central Government.
Hence, the legal advisers and bankers of XYZ limited cannot be compelled to provide
privileged communication.

(b) State, whether the following persons are eligible to be appointed as auditor of a
company under the provisions of the Companies Act, 2013 :
(i) Directors of MNO Ltd. (the company) want to appoint Keshav, a fellow member of
ICAI and practicing Chartered Accountant as an auditor of the company. Naveen,
one of the partners of Keshav’s CA firm, has given guarantee for Rs. 1.10 lakhs
only in connection with indebtedness of any third person to a subsidiary of the
company.
(ii) Directors of DEF Ltd. want to appoint Aryaman, a practicing Chartered Accountant
as an auditor of the company. Aryaman is indebted to the companyfor ` 4,95,000.
(iii) Manju is working as purchase manager in RST Ltd. directors RST Ltd. want to
appoint Vaibhav, husband of Manju as an auditor of the company.
[2+2+1=5 M arks]
Answer
(i) As per section 141(3)(d)(iii) of the Companies Act, 2013 read with rule 10 of the
Companies (Audit and Auditors) Rules, 2014, an auditor is disqualified to be appointed
as an auditor if he or his relative or partner has given a guarantee or provided any
security in connection with the indebtedness of any third person to the company, or its
subsidiary, or its holding or associate company or a subsidiary of such holding company,
in excess of one lakh rupees.
In the given situation, Keshav will be disqualified to be appointed as an auditor of MNO

Ltd as his partner (i.e. Naveen) had given a guarantee for Rs. 1.10 lakhs (i.e. more than
the limit of Rs. 1 lakh), in connection with the indebtedness of any third person to the
subsidiary of the company.
(ii) As per section 141(3)(d)(ii) of the Companies Act, 2013 read with rule 10 of The
Companies (Audit and Auditors) Rules, 2014, an auditor is disqualified to be appointed
as an auditor if he or his relative or partner is indebted to the company, or its subsidiary,
or its holding or associate company or a subsidiary of such holding company, in excess
of rupees 5 Lacs.
In this case, Aryaman will not be disqualified to be appointed as an auditor of DEF Ltd.
As he is indebted to DEF Ltd. for Rs. 4,95,000 which is within the limit (i.e. less than Rs. 5
lacs)
(iii) In this case, since Manju, wife of Vaibhav, (Chartered Accountant) is the Purchase
Manager (not a director or KMP) of RST Ltd.
Hence, Vaibhav will not be disqualified to be appointed as an auditor in the said
Company.

(c) Rockstar Limited (the company) is having its registered office at Hyderabad and also
set-up an establishment in the Germany. It obtained a loan from the German bank
creating a charge on the assets of the foreign establishment. The company received a
notice from the Registrar of Companies (the Registrar) for not filing the particulars of
charge created by the company on the property or assets situated outside India. The
company wants to defend the notice on the ground that the company is not required
to register the particulars of the charge created on the assets not located in India.
Referring to the provisions of Companies Act, 2013 advise the company, whether the
stand taken by the company is correct. Also, apprise the company of the provision
regarding the timeline without extension, for registering the particulars of the charge
and the effect of its non-registration.
[5 Marks]
Answer
Registration of the particulars of the charge created:
According to section 77 of the Companies Act, 2013, it shall be the duty of every company
creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise and situated in or outside India, to register the
particulars of the charge. Thus, charge may be created within India or outside India. Also,
the subject-matter of the charge i.e. the property or assets or any of the company’s
undertakings, may be situated within India or outside India.
In the given question, the company has obtained a loan by creating a charge on the assets of
the foreign establishment. As per the above provisions, it is the duty of the company
creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise and whether situated in or outside India, to
register the particulars of the charge. Hence, the stand taken by Rockstar Limited not to
register the particulars of charge created on the assets located outside India is not correct.
Timeline: The particulars of the charge together with a copy of the instrument, if any,
creating or modifying the charge shall be filed with the Registrar within a period of 30 days
of the date of creation or modification of charge.
Effect of non-registration of Charges:

According to Section 77 (3) of the Companies Act, 2013, where the particulars of the charge
created are not filed with the Registrar of Companies, such charge created by a company
shall not be taken into account by the liquidator appointed under the Companies Act, 2013
or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other creditor of
the company.

OR
4A. Explain the following [5 Marks Each]
(i) Suresh has done his MBA from a reputed Institution of Management and wants to
incorporate a private or public company to start e-commerce business in various
daily need products. Explain him the distinctions between these two types of
companies referring to the provisions of the Companies Act, 2013.
Answer
Following are the main points of distinction between a private company and a public
company with specific reference to the Companies Act, 2013
1. Minimum Number of Members:

In case of a private company, the minimum number of persons to form a company are
two, while it is seven in the case of public company. (Section 3)
2. Maximum number of Members:

In case of private company. the maximum number of members shall not exceed two
hundred, whereas there is no such restriction on the maximum number of members in
the case of a public company.
3. Transferability of Shares:
As per section 44 of the Companies, Act, 2013, the shares of any member in a company
shall be movable property and transferrable in the manner provided by the Articles of
Association of the company. In a private company, by its very definition, Article of
Association of a private company must contain restrictions on transferability of shares.
4. Prospectus:
A private company cannot issue a prospectus, the Act prohibits any invitation to the
public to subscribe for any securities of the company. while a public company may,
through prospectus, invite the public to subscribe for its securities. {Section 2(68)}
5. Minimum numbers of Directors:

A private company must have at least two directors on Board, whereas a public
company must have at least three directors on Board. (Section 149)
6. Retirement of Directors:
Directors of a private company are not required to retire by rotation, but in case of a
public company at least 2/3rd of the directors must be such whose period of office is
subject to retirement by rotation. (Section 152)
7. Quorum for General Meetings:

Unless the Articles of Association of the company provide for a larger number, in case of
public company the quorum for general meetings shall be:
(i) five members personally present if the number of members as on the date of
meeting is not more than one thousand.
(ii) fifteen members personally present if the number of members as on the date of
meeting is more than one thousand but up to five thousand.

(iii) thirty members personally present if the number of members as on the date of the
meeting exceeds five thousand.
In case of a private company, unless Articles of Association provide for a higher number,
two members personally present. shall be quorum for a meeting of the company.
(ii) The issued and paid-up share capital of DEF Limited (the company) is ` 20 crores
consisting of 20,00,000 equity shares of ` 100 each. 'The said company has 2000
members. A petition was submitted before the Tribunal signed by 320 members
holding 40,000 equity shares of the company for the purpose of relief against
oppression and mismanagement by majority shareholders. Examining the provisions of
the Company Act, 2013, decide, whether the said petition is maintainable or not.
Also, explain the impact on the maintainability of the above petition, if subsequently
160 members, who had signed the petition, withdrew their consent.
Answer
As per provisions of Section 244 of the Companies Act, 2013, in the case a company having
share capital, following members are eligible to apply for relief against oppression and
mismanagement under Section 241 namely:
(a) not less than100 members of the Company or not less than 1/10th of the total number of
its members whichever is less; or
(b) any member or Members holding not less than 1/10th of the issued share capital of the
company,
subject to the condition that the applicant or applicants has or have paid all calls and other
sums due on his or their shares.
The share holding pattern of DEF Limited is given as follows:

The issued and paid-up share capital of DEF Limited is Rs. 20,00,00,000 (Rupees Twenty
Crore) consisting of 20,00,000 equity shares of Rs.100 each.
The petition alleging oppression and mismanagement has been made by some
members as follows:
1. No. of members making the petition – 320
2. Amount of share capital held by members making the petition - Rs. 40,00,000 (40,000
shares * Rs. 100)
The petition shall be valid if it has been made by the lowest of the following;
100 members; or
200 members (being 1/10th of 2000); or
Members holding Rs. 2,00,00,000 share capital (being 1/10th of Rs. 20,00,00,000)
As it is evident, the petition made by 320 members (being more than 100 members) meets
the eligibility criteria specified under section 244 of the Companies Act, 2013 as it exceeds
the minimum requirement of 100 members in this case. Therefore, the petition is
maintainable.
The consent to be given by the shareholder is reckoned at the beginning of the proceedings.
The withdrawal of consent by any shareholder during the course of proceedings shall not
affect maintainability of the petition. (Rajamundry Electric Corporation Vs. V. Nageswar Rao
A.I.R.)

(iii) Explain the concept of ‘‘Indoor Management’ with exception of forgery and negligence
as per the provisions of the Companies Act, 2013.
Answer
While the doctrine of, “constructive notice” seeks to protect the company against the
outsiders, the principal of “indoor management” operates to protect the outsiders against
the company.
This doctrine emphasizes on the concept that an outsider whose actions are in good faith
and has entered into a transaction with a company can have a presumption that there are no
irregularities internally and all the procedural requirements have been complied with by
the company. The doctrine of indoor management, also known as the Turquand rule is about
one fifty years old, which protects outsiders against the actions done by the company.
Section 176 of the Companies Act, 2013 provides for the validity of acts of Directors - No act
done by a person as a director shall be deemed to be invalid, notwithstanding that it was
subsequently noticed that his appointment was invalid by reason of any defect or
disqualification or had terminated by virtue of any provision contained in this Act or in the
Articles of the company; Provided that nothing in this section shall be deemed to give
validity to any act done by the director after his appointment has been noticed by the
company to be invalid or have been terminated.
The object of the section is to protect persons dealing with the company - outsiders as well
as members by providing that the acts of a person acting as director will be treated as valid
although it may afterwards be discovered that his appointment was invalid or that it had
terminated under any provision of this Act or the Articles of the company [Ram Raghubir Lal
v. United Refineries (Burma) Ltd., (1932) 2 Com Cases 359; AIR 1931 Rang 139.
Exceptions:
Forgery – The rule of indoor management does not extend to transactions involving forgery
or to transactions which are otherwise void or illegal ab initio.
Negligence – The ‘doctrine of indoor management’, in no way, rewards those who behave
negligently. Thus, where an officer of a company does something which shall not ordinarily
be within his powers, the person dealing with him must make proper enquiries and satisfy
himself as to the officer’s authority. If he fails to make an enquiry, he is estopped from
relying on the Rule.

PART - II
5. Explain the following
Case Study
You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has
proposed in November, 2023 to make an investment of Rs. 80 lakhs in the equity shares of
Hunny Investment (Pvt.) Ltd. the face value of which is Rs. 40 lakh. The financial
data related to Bunny Ltd. and Hunny Investment (Pvt.) Ltd. as on 31st March, 2023 is
furnished below :
Particulars Bunny Ltd. Hunny Investment Pvt. Ltd.
(Rs. in Lakh) (Rs. in Lakh)
I. Authorized Capital 800 400
II. Subscribed and paid- up
capital
(a) Equity shares 240 300
(b) Preference shares 20 —
III. Capital Reserves 20 30
IV. Free Reserves 20 —
V. Borrowings from Public 40 —
Financial Institution
(A) Bunny Ltd. (the company) furnished the following information related to it as on the
date of proposed acquisition :
1. No other body corporate has invested any money in its share capital.
2. The company has granted guarantee to the tune of ` 100 lakh to a nationalized
bank in connection with the loan granted to Richa Ltd.
3. It has granted housing loan of ` 20 lakh to its employees, other than its managing
director or whole-time director.
(B) Hunny Investment (Pvt.) Ltd. furnished the following other information related to it :
1. The total assets as on 31st March, 2023 were ` 330 lakh including investment in
shares & debentures of body corporate ` 200 lakh.
2. The income derived from investment in shares and debentures was ` 30 Lakh out of
the gross income of ` 100 Lakh.
Of the total shareholders of the company there are 20,000 shareholders who are holding
shares of nominal value of not more than ` 20,000 each. A total number of 1500
such small shareholders have proposed Mr. X as their candidate to be the small
shareholders’ director.
Based on the above information and referring to the provisions of the Companies Act,
2013 and relevant notifications/circulars issued by the Ministry of Corporate Affairs
(MCA) answerthe following :

(a) Identify the authority and the mode of approval for the investment proposal of
` 80 lakh in the equity shares in the above scenario.
[5 M arks]
Answer
Section 186 of the Companies Act, 2013(the Act) deals with the provisions relating to Loan
and Investment by a Company. According to Section 186(2) of the Act, no Company shall
directly or indirectly -
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body
(c) acquire, by way of subscription, purchase or otherwise, the securities of any other body
corporate,
exceeding 60% of its paid-up share capital (equity and preference), free reserves and
securities premium account or 100% of its free reserves and securities premium account,
which ever is more.
As per Section 186 (3) of the Act, where the aggregate of the loan and investment so far
made, the amount for which guarantee or security so far provided to or in all other bodies
corporate along with the investment, loan guarantee or security proposed to be made or
given by the Board, exceed the limits specified under Section 186(2) of the Act, no
investment or loan shall be made or guarantee shall be given or security shall be provided
unless previously authorized by a special resolution passed in a general meeting.
As per Section 186 (5) of the Act, any investment shall be made or loan or guarantee or
security given by the Company only after the resolution sanctioning it is passed at a meeting
of the Board with the consent of all the directors present at the meeting and the prior
approval of the Public financial Institution concerned where any term loan is subsisting
shall also be obtained.
Calculation
According to the information given in the problem:
60% of paid-up share capital (equity and preference), Free reserves and securities premium
account is Rs. 168 Lakh
(i.e. 60% of [Rs. 240 + 20+20] = Rs.168 Lakh) or
100% percent of its free reserves and securities premium account is Rs. 20 lakh;
Hence, investment up-to Rs. 168 lakh is allowed without seeking prior authority by special
resolution passed in a general meeting.
Bunny Ltd has already given guarantee to the tune of Rs. 100 Lakh to a Nationalized Bank in
connection with the loan granted to Richa Ltd.
The aggregate of the loans and investments so far made, the amount for which guarantee or
security so far provided to or in all other bodies corporate, along with the investments,
loans, guarantee or security proposed to be made is Rs. 180 Lakh (i.e. Rs. 100 Lakh existing
guarantee + proposed investment of Rs. 80 Lakh) which is exceeding the limit of Rs. 168
Lakh.

Therefore, the proposed investment shall be first approved by the Board with the consent of
all the directors present at the meeting (i.e. unanimously) and then approved by the
members by passing a Special resolution.
Note:
The MCA has clarified that loans and/or advances made by the companies to their
employees, other than the Managing or Whole Time Director are not governed by Section
186 of the Act. Hence, it is not considered in the computation of limit.
(b) (i) Whether approval of the Public Financial Institution would be required for the
investment proposal ?
(ii) Is there any exemption available to Bunny Ltd. in case Bunny Ltd. is a private
company ?
[3+2=5 M arks]
Answer
(i) In terms of Section 186(5) of the Companies Act, 2013, prior approval of the Public
Financial Institution (PFI) shall not be required where:
 the aggregate of the loan and investment so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate along with
the investment, loan guarantee or security proposed to be made or given by the
Board, does not exceeding sixty per cent. of its paid-up share capital, free reserves
and securities premium account or one hundred per cent. of its free reserves and
securities premium account, whichever is more under Section 186(2) of the Act; and
 there is no default in repayment of loan installments or payment of interest thereon
as per the terms and conditions of such loan to the PFI.
However, in this case, for the Bunny Limited, the aggregate of the amount for which
guarantee or security so far provided, along with the investments, proposed to be made
is Rs. 180 Lakh (i.e. Rs. 100 Lakh existing guarantee + proposed investment of Rs. 80
Lakh) which has exceeded the limit of Rs. 168 Lakh (i.e.the limits specified under Section
186(2) of the Act).
Since the proposed investment will exceed the limits specified under section 186(2) of
the Act, prior approval of the Public Financial Institution will be required.
(ii) Section 186(2) stipulates that no company shall directly or indirectly. give any loan to
any person or other body corporate;
give any guarantee or provide security in connection with a loan to any other body
acquire by way of subscription, purchase or otherwise, the securities of any other body
corporate, exceeding sixty per cent. of its paid-up share capital, free reserves and
securities premium account or one hundred per cent. of its free reserves and securities
premium account, whichever is more.
Accordingly, Section 186 of the Companies Act, 2013 is applicable to both public and
private companies.
Hence, no exemption is available to Bunny Ltd. in case it is a private company.

(c) Whether Hunny Investment Pvt. Ltd. is an investment company based on the data
given above ?
[5 M arks]
Answer
It is clarified by way of clause (a) of Explanation to Section 186 of the Companies Act, 2013
that the expression “investment company” means a company whose principal business is
the acquisition of shares, debentures or other securities.
Further, a company will be deemed to be principally engaged in the business of acquisition

of shares, debentures or other securities:
 if its assets in the form of investment in shares, debentures or other securities constitutes
not less than fifty percent of its total assets; or
 if its income derived from investment business constitutes not less than fifty percent as a
proportion of its gross income.
From the above provisions, it is clear that even if a company satisfies any one out of two
criteria, it would be treated as an investment company.
Investment Test
The total assets of Hunny Investment Pvt Ltd. as on 31.03.2023 is Rs.330 Lakh.
Investment in shares and debentures of a body corporate is Rs. 200 lakh which is more than
50% of the total assets.
Income Test
Income derived from investment in shares and debentures is Rs. 30 Lakh which is less than
50% of the gross income of Rs. 100 Lakh
Since, Hunny Investment Pvt. Ltd satisfies the Investment Test, it is an Investment Company.
(d) Whether the group of 1500 small shareholders are entitled to propose the
appointment of small shareholders’ director ? Is it mandatory for the company to
appoint such director, if a valid notice is received from the small shareholders ?
Decide, the tenure of the small shareholders’ director.
[5 M arks]
Answer
Terms & Conditions for Small Shareholders’ Director
Section 151 read with Rule 7 of the Companies (Appointment and Qualification of Directors)
Rules, 2014 laid down the following terms and conditions for appointment of Small
Shareholders Director (SSD), which include inter alia the following:
Election of small shareholders director:

A listed company, may upon notice of not less than:
 One thousand small shareholders; or
 one-tenth of the total number of such shareholders,
whichever is lower; have a small shareholder director elected by the small shareholder.
1/10th of the small shareholders (SS) would come to 2000. However, the notice has been
given by more than 1000 small shareholders. Hence, they are entitled to make such
requisition.

Whether mandatory:
A listed company may upon notice appoint Small Shareholder Director (SSD). A Small
Shareholders’ Director may be elected voluntarily by any listed company. Thus, a listed
company may on its own, act to appoint a Small Shareholder’s Director. In such a case, no
notice from small shareholder(s) is required. The word used is “may” in Section 151 read
with Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
Hence, it is not mandatory for the company to appoint SSD, even if the notice is received
from the eligible SS.
Tenure of office and no retirement by rotation:

The tenure of small shareholder director shall not exceed a period of 3 consecutive years
and he shall not be liable to retire by rotation. Further he shall not be eligible for re-
appointment after the expiry of his tenure.
(a) You are the CFO of XYZ Textiles Limited, a listed company in Tamil Nadu. Pursuant to
the applicable provisions of the Companies Act, 2013 and taking into account the
requirement of SEBI Regulations, draft a board resolution for appointment of a
whole-time company secretary of the company.
Answer
“RESOLVED THAT Pursuant to the provision of section 203 (1) of the Companies Act, 2013
read with rule 8 and 8A of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules 2014 and any other applicable provisions of the Act and Rules framed
thereunder, including any amendments thereto or reenactment thereof from time to time,
Mr………………….. Membership No…………………………of the Institute of Company Secretaries
of India (ICSI) be and is hereby appointed as the “Company Secretary” of XYZ Textiles
Limited (the Company) on the terms and condition including the terms of remuneration as
per appointment letter placed before the meeting, and as recommended by the nomination
and remuneration committee.”
“RESOLVED FURTHER THAT pursuant to regulation 6 and 30 read with clause 7 of para A
of Part A of Schedule III of SEBI (Listing Obligation And Disclosure Requirement) Regulation
2015, Mr. be and is hereby designated and appointed as the “Compliance Officer” of the
company and authorised to make all the compliances as may be applicable to the company
under the SEBI (Listing Obligation And Disclosure Requirement) Regulation 2015, various
other SEBI Regulation, Securities Contract Regulation Act 1956, Industrial and labour laws
and other laws as may be applicable to the Company from time to time.”
“RESOLVED FURTHER THAT the company secretary and compliance officer be and is
hereby authorised to sign various documents and file forms/ returns on behalf of the
company as may be necessary and to do all such acts, deeds. things, and matters incidental
there to give effect to the aforesaid resolution.
“RESOLVED FURTHER THAT Mr…………………….. ,Managing Director of the Company be and

is hereby authorised to sign and submit necessary forms / returns for the appointment of
company secretary with the Registrar of Companies, …………………….., and also be authorised
to intimate the same to the appropriate authorities / regulatory bodies and to do all such
acts and deeds as may be necessary in this regard.”

(b) Draft a specimen of notice of the Board Meeting considering the provisions of the
Answer
Notice of the......................(insert sequence number of the meeting) Board Meeting
of……………………. Pvt Ltd /Ltd having its registered office at....................................
To,
Mr. / Ms. (Director Name)
… (Address)
Dear Sir/Madam,
Pursuant to the requirement of Section 173 (3) of the Companies Act. 2013 read with
applicable Secretarial Standards, notice is hereby given that …………………….(insert sequence
number of the meeting) meeting of the members of the Board of Directors of the Company
will be held on..........................(Day oftheweek), the.............................(Date) day
of…….(Month),.............................
(year) at ......... (time) at… (address of the venue of the meeting).
The agenda of the business to be transacted at the meeting, along with detailed notes
thereon and requisite annexures are enclosed herewith.
You are requested to make it convenient to attend the meeting.

Directors may attend the meeting in person or through Video Conferencing / Other Audio
Video Means (VC/ OAVM). A Director desirous of attending the meeting through VC/ OAVM
should inform well in time so as to make suitable arrangements accordingly.
For…………………………………….(Name of the Company)
Sd/-
(Name)
(Designation)
Place:
Date:
Enclosure: Agenda of the business to be transacted at the meeting.
(c) (i) Draft a sample Board resolution for the approval and adoption of a new CSR
policy.
(ii) Draft a specimen Board resolution for approval of Board’s Report.
[3+2=5 Marks]
Answer
(i) Sample Board Resolution to approve and adopt a new CSR Policy
“RESOLVED THAT pursuant to section 135 of the Companies Act, 2013 read with the
Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended from time
to time and such other provisions as may be applicable and based on the
recommendation of the CSR Committee, the Board of Directors of the company do and
hereby approve a new CSR Policy in supersession of the existing CSR Policy dated in
compliance with the requirements under Companies
(Corporate Social Responsibility Policy) Amendment Rules, 2021.
RESOLVED FURTHER THAT the new CSR Policy be and is hereby approved and signed
by Mr./ Ms. Director.
RESOLVED FURTHER THAT the Directors of the company be and are hereby authorized
severally to take necessary steps to give effect to the above resolutions and do all such

acts, deeds and things as may be required to ensure compliance of the CSR Policy
including disseminating the contents of revised policy on the website of the company.”
(ii) Specimen Board Resolution for approval of the Board’s Report

“RESOLVED THAT the Boards’ Report to be sent to the Shareholders of the company for
the year ended 31st March.............. prepared in accordance with the provisions of Section
134 of the Companies Act, 2013 together with all the Annexures thereto ( as per draft
placed before the Board and initialed by the Chairman for identification purposes) be
and is hereby approved and the same be signed by Shri………………….Chairman of the
company, or in his absence, by Shri………………. Managing Director and
Shri………………Director for and on behalf of the Board of Directors of the company.”
(d) Draft a Specimen of the minutes of Extra-Ordinary Meeting where Ankush was appointed
as an independent director.
Answer
MINUTES OF THE PROCEEDINGS OF THE EXTRA ORDINARY GENERAL MEETING OF
(Name of the Company) HELD ON .................... (day)……………(date) 20……………..FROM
.................
TO………..A.M./P.M AT…………………………………………(address)…………………………….
The following were present:
1. Mr. A (in the Chair)
2. Mr. B (Director and Member)
3. Mr. C (Director)
4. Mr. F (Company Secretary)
5. (Members present in person) (state number}
6. (Members present by Proxy) {state number}
Mr. G, Partner of M/s,…………………………..Chartered Accountants, Auditors of the Company,
Chairman
In accordance with Article of the Articles of Association, Mr. A, Chairman of the
Board of Directors took the Chair.
Introduction
The Chairman welcomed the Members and introduced the Directors seated on the Dias. The
Chairman stated that Mr. and Mr.......Directors, could not attend the Meeting due to...............
(explain the reason for absence).
Quorum
The Chairman stated that the requisite Quorum was present and called the meeting to order.
Notice
With the consent of the Members present, the Notice convening the Extra-Ordinary General
Meeting of the Company was taken as read.
The business of the Meeting, as per the Notice thereof, was thereafter taken up item-wise.
Appointment of Independent Director Proposed by : Mr. ................... Seconded by : Mr.
.................... The Chairman explained the profile of Mr. Ankush to the members. He explained
that in order to broadbase the board, it was proposed to appoint Mr. Ankush , a legal expert
as an Independent Director.

The fo1lowing Resolution having been proposed and seconded respectively by the
aforementioned Members was put to vote as an Ordinary Resolution:
“RESOLVED THAT pursuant to the provisions of Sections 149, 150(2), 152 and any other
applicable provisions of the Companies Act, 2013 and any other rules made there under
read with Schedule IV to the Companies Act. 2013, approval of the Company be and is
hereby accorded for appointment of Mr. Ankush (DIN No. ), as an Independent Director of
the Company to hold the office for a period of 3 years i.e. up to…………………AND THAT by
virtue of sub-section (13) of Section 149 of the Companies Act, 2013 he shall not be liable to
retire by rotation.”
The Chairman enquired from the Members present if there were any clarifications required
on the same. Since none of the Members required any clarification, the Ordinary Resolution
was put to vote and on a show of hands , declared carried by the requisite majority.
Close Of The Meeting

There being no other business to transact the Meeting closed with a vote of thanks to the
Chair.
Date:…………………..
Place:………………. Chairman
OR
(i) The Board of Directors of the company presents the following financial data extracted
from the company’s financial statements as at 31st March, 2024 :
Particulars ` (Cr.)
Authorised equity share capital 240
Paid-up equity share capital 40
Debenture redemption reserve 40
Revaluation Reserve 80
Profit and Loss (Loss) (40)
Due to losses in the financial year 2023-24, the Board of Directors is exploring the
option to pay the remuneration to the managing director of the company, not more
than the remuneration that law permits for which the managing director agreed. You
being a company secretary advise the Board of Directors the maximum remuneration
payable to the managing director in case of losses or inadequacy of profits to the
company without seeking approval of any other authorities.
Answer
Section 197 read with Section 198 and Schedule V of the Companies Act, 2013 deals with the
provisions related to managerial remuneration.
As per Section 197 (3) of the Act, notwithstanding anything contained in sub-sections197
(1) and 197(2), but subject to the provisions of Schedule V, if in any financial year, a
company has no profits or its profits are inadequate, the company shall not pay to its
directors, including any managing or whole time director or manager, or any other non-

executive director, including an independent director by way of remuneration any sum
exclusive of any fees payable to directors under 197 (5) hereunder except in accordance
with the provisions of Schedule V whereunder slab- wise limit on managerial remuneration
on the basis of the effective capital of the company has been stipulated.
Computation of Effective Capital of Company for determining managerial remuneration:
Particulars Rs. (Cr.)
Paid-up equity share capital 40
Debenture redemption reserve 40
Revaluation Reserve (excluded) ----
Profit and Loss (Loss) (40)
Effective Capital 120
As per the limit stipulated if the effective capital is INR 100 crores and above but less than
INR 250 Crores the maximum yearly remuneration payable to the managerial persons shall
not exceed INR 120 Lakhs.
In the given scenario, the effective capital of the company is INR 120 crores. Hence, the
company can pay renumeration to the managing director maximum up-to Rs. 120 lakhs
without seeking approval of shareholders by passing a special resolution.
(ii) Explain the compliance requirement for holding of annual general meeting (the AGM)
of the company including the listed company and One Person Company as per the
provisions of the Companies Act, 2013 and applicable Regulation of SEBI (Listing
Obligations and Disclosure requirements) Regulations, 2015.
Answer
Holding of Annual General Meeting (Section 96 of the Companies Act, 2013)
1. Annual general meeting should be held once in each calendar year.
2. First annual general meeting of the company should be held within 9 months from
the closing of the first financial year. Hence it shall not be necessary for the company
to hold any annual general meeting in the year of its incorporation.
3. Subsequent annual general meeting of the company should be held within 6 months
from the date of closing of the relevant financial year.
4. The gap between two annual general meetings shall not exceed 15 months.
5. Every annual general meeting shall be called during business hours, that is, between
9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at
the registered office of the company or at some other place within the city, town or
village in which the registered office of the company is situate.
6. Annual General Meeting of an unlisted company may be held at any place in India if
consent is given in writing or by electronic mode by all the members in advance.
Additional Compliance for listed Companies: - Additionally, for listed entities, Regulation
44(5) and 44(6) of SEBI (LODR) Regulations, 2015 provides that the top 100 listed entities
by market capitalization. determined as on March 31st of every financial year shall hold

their annual general meeting within a period of five months from the date of closing of the
financial year. The top 100 listed entities shall provide one-way live webcast of the
proceedings of the annual general meetings.
Explanation: The 100 entities shall be determined on the basis of market Capitalization, as
at the end of the immediate previous financial year.
Exemption to OPC: As provided in sub-section (1) of section 96, one person company is not
required to hold Annual General meeting
As per 1.1 of SS-2 provides that the Board shall, every year, convene or authorize convening
of meeting of its members called the Annual General Meeting to transact items of ordinary
business specifically required to be transacted at an annual general meeting as well as
special business, if any. If the Board fails to convene its Annual General Meeting in any year,
any member of the company may approach the prescribed authority which may then direct
the calling of the Annual General Meeting of the company.
(iii) Rohit, a director of a company to know the provisions of the Companies Act, 2013
relating to inspection and extract of minutes of the Board meetings by the director,
member and other persons and preservation period thereof. Explain.
Answer
Inspection and Extracts of Minutes of Board meetings
 The Minutes of Meetings of the Board and any Committee thereof can be inspected by
the Directors. Extracts of the Minutes shall be given only after the Minutes have been
duly entered in the Minutes Book. However, certified copies of any Resolution passed at
a Meeting may be issued even earlier, if the text of that Resolution had been placed at
the Meeting.
 A Director is entitled to inspect and receive, a copy of the Minutes of a Meeting held
before the period of his Directorship. A Director is entitled to inspect and receive a copy
of the signed Minutes of a Meeting held during the period of his Directorship, even if he
ceases to be a Director.
 The Company Secretary in Practice appointed by the company, the Secretarial Auditor,
the Statutory Auditor, the Cost Auditor or the Internal Auditor of the company can
inspect the Minutes as he may consider necessary for the performance of his duties.
 While providing inspection of Minutes Book, the Company Secretary or the official of
the company authorised by the Company Secretary to facilitate inspection shall take all
precautions to ensure that the Minutes Book is not mutilated or in any way tampered
with by the person inspecting.
A Member of the company is not entitled to inspect the Minutes of Meetings of the Board for
the purpose and shall be kept in the registered office or such place as Board may decide.
Preservation of Minutes
The minutes books of the Board and committee meetings shall be preserved permanently
and kept in the custody of the Company secretary of the company or any director duly
authorized by the Board for the purpose and shall be kept in the registered office or such
place as Board may decide
Where, under a scheme of arrangement, a company has been merged or amalgamated with
another company, Minutes of all Meetings of the transferor company, as handed over to the
transferee company, shall be preserved permanently by the transferee company,
notwithstanding that the transferor company might have been dissolved. The above
provisions can be explained to him.

(iv) Sunil, a shareholder (holding 15% shares) of JJ Chemicals Limited (the company) and
other shareholders have lost confidence in the managing director (MD) of the
company who is a director not liable to retire by rotation and was re-appointed as
managing director for 5 years w.e.f. 1st April, 2024 in the last annual general meeting
of the company held in 2023. Sunil wants to know from you the procedure/steps to
be taken by him and the companyin this behalf.
Answer
Removal of a non-rotational managing director is possible, since section 169 of the
Companies Act, 2013 empowers the members to remove any director, whether he is
rotational or non- rotational director, or managing director, whole time director or a non-
executive director.
Procedure/Steps to be taken by Mr. Sunil

Mr. Sunil shall have to give a special notice to the company in accordance with the
provisions of Section 115 of the Companies Act, 2013. In the special notice. Mr. Sunil shall
propose a resolution for removal of the managing director. The special notice must be - (i)
given to the company not earlier than 3 months before the date of the general meeting but at
least 14 days before the general meeting (excluding the day on which such notice is given
and the day of the general meeting); (ii) signed by member(s) holding not less than 1 % of
total voting power or member(s) holding shares on which an aggregate sum of not less than
five lakh rupees has been paid up on the date of the notice..
Procedure/Steps to be taken by the company

(a) On receipt of notice by the company: The Company shall immediately after the receipt of
the notice, give its members notice of the resolution at least seven days before the
meeting, exclusive of the day of dispatch of notice and day of the meeting, in the same
manner as it gives notice of any general meetings.
(b) Publication of notice: Where it is not practicable to give the notice in the same manner as
it gives notice of any general meetings, the notice shall be published in English language
in English newspaper and in vernacular language in a vernacular newspaper, both having
wide circulation in the State where the registered office of the Company is situated. Such
notice shall also be posted on the website, if any, of the Company. Such notice shall be
published at least seven days before the meeting, exclusive of the day of publication of
the notice and day of the meeting.
(c) On receipt of special notice, the company shall send a copy to the managing director
concerned.
(d) The concerned Managing director, whether or not he is a member of the company, shall
be entitled to be heard on the resolution at the meeting.
(e) Managing Director concerned if make representation in writing to the company and
requests its notification to members of the company, the company shall, if the time
permits it to do so,–
 in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and
 send a copy of the representation to every member of the company to whom notice
of the meeting is sent (whether before or after receipt of the representation by the
company), and if a copy of the representation is not sent as aforesaid due to
insufficient time or for the company’s default, the concerned director may without
prejudice to his right to be heard orally require that the representation shall be read
out at the meeting.
(f) The general meeting shall be held.

(g) The managing director shall have a right to be heard at the meeting. The right to make an
oral representation is in addition to written representation.

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S. No Chapter Heading Page No.

Company Law Old Course

1 December – 2018 1.1 – 1.12

2 June – 2019 2.1 – 2.16

3 December – 2019 3.1 – 3.20

4 December – 2020 4.1 – 4.16

5 June – 2021 5.1 – 5.19

6 December – 2021 6.1 – 6.19

7 June – 2022 7.1 – 7.17

8 December – 2022 8.1 – 8.22

9 June – 2023 9.1 – 9.21

10 December – 2023 10.1 – 10. 20

11 June – 2024 11.1 – 11.20

Company Law New Course

1 December – 2023 1.1 – 1.26

2 June – 2024 2.1 – 2.27

1. Comment on the following [5 Marks Each]

(c) A public company may issue secured irredeemable debentures.

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Attempt all parts of either Q. No. 2 or Q. No. 2A

2. Attempt the following [3 Marks Each]

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2A. Attempt the following [3 Marks Each]

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

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(iii) A member of an incorporated company becomes insolvent. He claimed right to vote

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Further debt equity ratio is

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4. Explain the following [5 Marks Each]

Can company constitute a Nomination and Remuneration committee consisting of same

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Attempt all parts of either Q. No. 5 or Q. No. 5A

5. Explain the following [4 Marks Each]

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5A. Attempt the following [4 Marks Each]

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Hence the demand of members is not tenable.

6. Attempt the following [5 Marks Each]

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It would be necessary that the communication, in order to be effective, shall be by a registered

Hence Rakesh is not guilty of professional misconduct in this case.

Hence Rakesh is guilty of professional misconduct in this case.

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1. Comment on the following [5 Marks Each]

2.1 Unacademy Unlock/Discount Code AVC

Attempt all parts of either Q. No. 2 or Q. No. 2A

2. Attempt the following [3 Marks Each]

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(d) Who is a ‘‘related party’’ as defined in Section 2 (76) ?

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2A. Attempt the following [3 Marks Each]

(b) Draft ‘‘A specimen of deed of Assignment of shares of a company’’.

THE DEED WITNESSES:

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3. Attempt the following [5 Marks Each]

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