CA Inter Laws Important Question
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Question 1.
H Ltd. is the holding company of S Pvt. Ltd. As per the last profit and loss account for the year ending 31st March, 2022 of S Pvt. Ltd., its turnover was ₹ 1.80 crore; and paid up share capital was ₹ 80 lakh. The Board of Directors wants to avail the status of a small company.
The Company Secretary of the company advised the directors that the company cannot be categorized as a small company. In the light of the above facts and in accordance with the provisions of the Companies Act, 2013, you are required to examine whether the contention of Company Secretary is correct, explaining the relevant provisions of the Act.
Answer:
As per section 2(85) of the Companies Act, 2013, Small company means a company, other than a public company, —
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8;
(C) a company or body corporate governed by any special Act.
In the instant case, as per the last profit and loss account for the year ending 31st March, 2022 of S Pvt. Ltd., its turnover was to the extent of ₹ 1.80 crore, and paid-up share capital was ₹ 80 lakh.
Though S Pvt. Ltd., as per the turnover and paid-up share capital norms, qualifies for the status of a ‘small company’ but it cannot be categorized as a ‘small company’ because it is the subsidiary of another company (H Ltd.). Hence, the contention of the Company Secretary is correct.
Question 2.
Following is the security issued by Kleshrahit Ltd. :-
| Company | Securities Issued |
| Kleshrahit Ltd. | Listed non-convertible redeemable preference shares issued on private placement basis in terms of relevant SEBI Regulations. |
Equity shares issued by the Kleshrahit Ltd. are not listed in any of the recognized stock exchanges.
In the context of aforesaid facts, answer the following question:-
Whether the aforesaid companies can be considered as listed company?
Answer:
Question 3.
Kavya Ltd. has a paid up share-capital of Rs. 80 crores. Amjali Ltd. holds a total of Rs. 50 crores of Kavya Ltd. Now, Kavya Ltd. is making huge profits and wants to expand its business and is aiming at investing in Amjali Ltd.
Kavya Ltd. has approached you to analyse whether as per the provisions of the Companies Act, 2013, they can hold 1/10th of the share capital of Amjali Ltd.
Answer:
Question 1.
S Ltd acquired 10% paid up share capital of H Ltd on 15th March 20X1. H Ltd acquired 55% paid up share capital of S Ltd on 10th March 20X2. H Ltd. on 25th September, 20X4 decided to issue bonus shares in the ratio of 1:1 to the existing shareholders. Accordingly, bonus shares were allotted to S Ltd. Examine under the provisions of the Companies Act, 2013 and decide:
(i) the validity of holding of shares by S Ltd. in H Ltd.
(ii) allotment of Bonus shares by H Ltd. to S Ltd.
Answer:
As per Section 19 of the Companies Act, 2013, no company shall, hold any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void.
However, this shall not apply where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.
In the given case, H Ltd. has acquired 55% paid up share capital of S Ltd. on 10th March, 20X2. Whereas, S Ltd. has been holding 10% paid up share capital of H Ltd. since 15th March, 20X1. The said instance as asked in the question falls under the exception stated above.
Therefore -
(i) Holding of shares by S Ltd. in H Ltd. is valid in view of the proviso (c) to section 19(1) of the Act, which states that the restrictions of provisions of section 19(1) will not be applicable where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.
(ii) Allotment of bonus shares by H Ltd. to S Ltd. is also valid in view of the above proviso.
Question 2.
Shri Laxmi Electricals Ltd. (S) is a company in which Hanuman power suppliers Limited (H) is holding 60% of its paid up share capital.
One of the shareholder of H made a charitable trust and donated his 10% shares in H and Rs. 50 crores to the trust. He appoints S as the trustee. All the assets of the trust are held in the name of S. Can a subsidiary hold shares in its holding company in this way?
Answer:
Question 3.
XYZ a One-Person Company (OPC) was incorporated during the year 2014-15 with an authorized capital of ₹ 45.00 lakhs (4.5 lakh shares of ₹ 10 each), The capital was fully subscribed and paid up. Turnover of the company during 2014-15 and 2015-16 was ₹ 2.00 crores and ₹2.5 crores respectively. Promoter of the company seeks your advice in following circumstances, whether XYZ (OPC) can convert into any other kind of company during 2016-17. Please, advise with reference to relevant provisions of the Companies Act, 2013 in the below mentioned circumstances:
(i) If promoter increases the paid up capital of the company by ₹ 10.00 lakhs during 2016-17.
(ii) If turnover of the company during 2016-17 was ₹ 3.00 crores.
Answer:
Question 1.
A Ltd. issued 1,00,000 equity shares of ₹ 100 each at par to the public by issuing a prospectus. The prospectus discloses the minimum subscription amount of ₹ 15,00,000 required to be received on application of shares and share application money shall be payable at ₹ 20 per share. The prospectus further reveals that A Ltd. has applied for listing of shares in 3 recognized stock exchanges, of which 1 application has been rejected. The issue was fully subscribed and A Ltd. received an amount of ₹ 20,00,000 on share application. A Ltd., then proceeded for allotment of shares.
Examine the three disclosures in the above case study which are the deciding factors in an allotment of shares and the consequences for violation, if any, under the provisions of the Companies Act, 2013.
Answer:
As per the requirement of the question, disclosures which are the deciding factors in an allotment of shares are laid down in section 39 of the Companies Act, 2013.
According to Section 39(1), no allotment of any securities of a company offered to the public for subscription shall be made unless-
• the amount stated in the prospectus as the minimum amount has been subscribed, and
• the sums payable on application for the amount so stated have been paid to, and received by, the company by cheque or other instrument.
• The amount payable on application on every security shall not be less than five per cent of the nominal amount of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board by making regulations in this behalf.
In the question, A Ltd. issued shares to the public by issuing of prospectus, disclosing minimum subscription, sum payable on application for the amount; and the amount received on share application is more than 5% of the nominal amount of the security.
Further, it revealed that A Ltd. has applied for listing of shares in 3 recognized stock exchanges, of which one application was rejected.
In the given instance, there is compliance to section 23, as nothing is talked about matters required to be included in the prospectus under section 26 (1) and about filing with the registrar; assuming that the said requirements have been complied with, requirement of section 39 as regards obtaining of minimum subscription and the minimum amount receivable on application (not less than 5% of the nominal value of the securities offered) are fulfilled.
The provisions of section 40 of the Companies Act, 2013 states that every company making a public offer shall, before making such offer, make an application to one or more recognized stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.
The above provision is very clear that not only the company has to apply for listing of the securities at a recognized stock exchange, but also obtain permission thereof from all the stock exchanges where it has applied, before making the public offer. Since one of the three recognized stock exchanges, where the company has applied for enlisting, has rejected the application and the company has proceeded with making the offer of shares, it has violated the provisions of section 40. Therefore, this shall be deemed to be irregular allotment of shares.
Consequently, A Ltd. shall be required to refund the application money to the applicants in the prescribed manner within the stipulated time frame.
Question 2.
ABC Limited proposes to issue series of debentures frequently within a period of one year to raise the funds without undergoing the complicated exercise of issuing the prospectus every time of issuing a new series of debentures. Examine the feasibility of the proposal of ABC Limited having taken into account the concept of deemed prospectus dealt with under the provisions of the Companies Act, 2013.
Answer:
Question 3.
With a view to issue shares to the general public a prospectus containing some false information was issued by a company. Mr. X received a copy of the prospectus from the company, but did not apply for allotment of any shares. The allotment of shares to the general public was completed by the company within the stipulated period. A few months later, Mr. X bought 2000 shares through the stock exchange at a higher price which later on fell sharply.
X sold these shares at a heavy loss. Mr. X claims damages from the company for the loss suffered on the ground the prospectus issued by the company contained a false statement. Referring to the provisions of the Companies Act, 2013 examine whether X’s claim for damages is justified.
Answer:
Question 1.
The Board of Directors of Rajesh Exports Ltd., a subsidiary of Manish Ltd., decides to grant a loan of ₹ 3 lakh to Bhaskar, the finance manager of Manish Ltd., getting salary of ₹ 40,000 per month, to buy 500 partly paid-Up equity shares of ₹ 1,000 each of Rajesh Exports Ltd.
Examine the validity of Board's decision with reference to the provisions of the Companies Act, 2013.
Answer:
As per Section 67(2) of the Companies Act, 2013, no public company shall give, whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of or for any shares in the company or in its holding company.
As per the provisions of Section 67(3)(c) of the Companies Act, 2013, nothing stated above, shall apply to the giving of loans by a company to persons in the employment of the company other than its directors or key managerial personnel, for an amount not exceeding their salary or wages for a period of 6 months with a view to enabling them to purchase or subscribe for fully paid-up shares in the company or its holding company to be held by them by way of beneficial ownership.
If we analyse the provisions of Section 67(3)(c) of the Companies Act, 2013, we can come to know that the relaxation given here can be availed only when all the following 3 conditions are fulfilled:
1. The loan has been given to the employees of the company other than its directors or key managerial personnel (not the employee of its holding company). - Therefore, this condition has not been fulfilled;
2. The amount does not exceed their salary or wages for a period of 6 months.-This condition has not been fulfilled.
3. The amount should be utilized by the employee for purchase of fully shares or subscribe for fully paid-up shares in the company or its holding company to be held by them by way of beneficial ownership. - Here Mr. Bhaskar is going to purchase the shares in Rajesh Exports Ltd., which is neither his employer company, nor holding company of his employer company and the shares are not fully paid-up. Therefore, this condition has also not been fulfilled.
Even in case Mr. Bhaskar would not have fulfilled any one of the above conditions, the decision of the Board of Directors of Rajesh Exports Ltd. would not have been valid. Therefore, we can conclude that the decision of the Board of Directors of Rajesh Exports Ltd. is not valid.
Question 2.
Following is the extract of the Balance sheet of Beltex Ltd. as on 31st March, 20X0:
| Particulars | Amount (₹) | Amount (₹) | |
| Equity & Liabilities | |||
| (1) | Shareholder’s Fund | ||
| (a) | Share Capital: | ||
| Authorized Capital: | |||
| 10,000 12% Preference Shares of ₹ 10 each | 1,00,000 | ||
| 1,00,000 equity shares of ₹ 10 each | 1,00,000 | 11,00,000 | |
| Issue & Subscribed Capital: | |||
| 8000, 12% Preference Shares of ₹ 10 each fully paid up | 80,000 | ||
| 90,000 equity shares of ₹ 10 each, ₹ 8 paid up | 7,20,000 | ||
| (b) | Reserve and Surplus | ||
| General Reserve | 1,20,000 | ||
| Capital Reserve | 75,000 | ||
| Securities Premium | 25,000 | ||
| Surplus in statement of P & L | 2,00,000 | 4,20,000 | |
| (2) | Non-Current Liabilities: | ||
| (a) | Long-term Borrowing: | ||
| Secured Loan: 12% partly convertible | |||
| Debentures @ ₹ 100 each | 5,00,000 |
On 1st April, 20X0, the company has made final call at ₹ 2 each on 90,000 Equity Shares. The call Money was received by 25th April, 20X0. Thereafter, the company decided to capitalize its reserves by way of bonus @ 1 share for every 4 shares to existing shareholders.
Answer the following questions according to the Companies Act, 2013, in above case:
(a) Which of the above-mentioned sources can be used by company to issue bonus shares?
(b) Calculate the amount to be capitalized from free reserves to issue bonus shares.
(c) If the company did not ask for the final call on April 1st, 20X0, can it still issue bonus shares to its members?
Answer:
Question 3.
Silver Oak Ltd. has the following balances in their Balance Sheet as on 31st March 20X1:
| ₹ | ||
| (1) | Equity shares capital (3.00 lakhs equity shares of ₹ 10 each) | 30.00 lacs |
| (2) | Free reserves | 5.00 lacs |
| (3) | Securities Premium Account | 3.00 lacs |
| (4) | Capital redemption reserve account | 4.00 lacs |
| (5) | Revaluation Reserve | 3.00 lacs |
Directors of the company seeks your advice in following cases:
(i) Whether company can give bonus shares in the ratio of 1:3?
(ii) What if company decide to give bonus shares in the ratio of 1:2?
Answer:
Question 1.
Comment quoting relevant provisions of the Companies Act, 2013, whether the following amount received by a company will be considered as deposit or not:
₹ 2,00,000 received by Yash Limited from its employee Mr. A, who draws an annual salary of ₹ 1,50,000, as a non-interest bearing security deposit under a contract of employment.
Answer:
Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts received by a company which will not be considered as deposits. In terms of this Rule the answers to the given situations shall be as under:
In terms of Rule 2 (1)(c)(x), any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit, shall not be treated as deposit.
₹ 2,00,000 received by Yash Limited from its employee Mr. A, who draws an annual salary of ₹ 1,50,000, as a non-interest bearing security deposit under a contract of employment will be considered as deposit in terms of sub-clause (x) of Rule 2(1)(c), for the amount received is more than his annual salary of ₹ 1,50,000.
Question 2.
ABC Limited having a net worth of ₹ 120 crores wants to accept deposit from its members. The directors of the company have approached you to advise them as to what special care has to be taken while accepting such deposit from the members in case their company falls within the category of an ‘eligible company’.
Answer:
Question 3.
Viki Limited engaged in the business of consumer durables. It is managed by a team of professional managers. The Company has not made default in payment of statutory dues, and repayment of debenture/ Institutional loan with interest. The Company advertised a circular in the newspaper dated 20th September 20X1 inviting the deposits from the members and public for the first time. The latest audited financial statement of the Company revealed the following data, as on 31.3.20X1:
Paid up share capital ₹ 70 Crores
Securities Premium ₹ 20 Crores
Free Reserves ₹ 20 Crores
Long-term borrowings ₹ 50 Crore
The Company in the advertisement invited public deposit for a period of 4 Months Plan A and Plan B for 36 Months.
Calculate the maximum amount of deposit Viki Limited can accept from the public under Plan B in case it is a wholly owned Government Company under the provisions of the said Act.
Answer:
Question 1.
Mr. Parth purchased a commercial property in Delhi belonging to PQR Limited after entering into an agreement with the company. At the time of registration, Mr. Parth comes to know that the title deed of the company is not free and the company expresses its inability to get the title deed transferred in his name, contending that he ought to have the knowledge of charge created on the property of the company. Explain,
whether the contention of PQR Limited is correct? Give your answer as per the provisions of the Companies Act, 2013.
Answer:
According to Section 80 of the Companies Act, 2013, where any charge on any property or assets of a company or any of its undertakings is registered under section 77 of the Companies Act, 2013, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.
Thus, Section 80 clarifies that if any person acquires a property, assets or undertaking in respect of which a charge is already registered, it would be deemed that he has complete knowledge of the charge from the date of its registration. Mr. Parth, therefore, ought to have been careful while purchasing property and should have verified beforehand that PQR Limited had already created a charge on the property.
In view of above, the contention of PQR Limited is correct.
Question 2.
Moon Light Ltd. is having its establishment in the USA. It obtained a loan there, creating a charge on the assets of the foreign establishment. The Company received a notice from the Registrar of Companies for not filing the particulars of charge created by the Company on the property or assets situated outside India. The Company wants to defend the notice on the ground that it shall not be the duty of the company to register the particulars of the charge created on the assets not located in India.
Do you agree with the stand taken by the Company? Give your answer with respect to the provisions of the Companies Act, 2013.
Answer:
Question 3.
Majboot Cement Ltd. (MCL) is known for its hassle free and home building solutions. Its unique products tailor made for Indian climate conditions and sustainable operations. MCL was incorporated in July 2000 with an authorized capital of 1,000 crores, According to financial statements as on 31st March, 2023, paid-up capital of Company was ₹600 crores and free reserves were ₹650 crores, Registered Office of the company situated in New Delhi, but around 15% of total members are resident of Faridabad (Haryana) . Company wants to place its Register of Members at its branch office in Faridabad.
MCL is planning to expand its existence throughout the country. For this purpose, Company has taken ₹200 crores term loan and ₹125 crores of Working Capital loan from Banks on 18" June, 2023. Charge was created on all the assets of company on that day for above loan of ₹325 crores, but company failed to register the charge with the registrar of companies within the prescribed time. The Registrar granted a grace period of further 30 days to MCL in respect of application filed by it for the same, however, still it failed to register the charge within the grace period. Finally, the application for registration of charge was furnished on 18th August, 2023.
MCL wants to convene its 23rd AGM on 10th September, 2023 at the registered office of the company Notice for the same was served on 22nd August, 2023, 78% of members have given their consent to convene AGM at shorter notice due to urgent need of funds for the expansion plan.
With reference to provisions of Companies Act, 2013, answer the following questions :
(i) Company wants to maintain its Member’s Register at Faridabad advise whether the decision of company is valid ?
(ii) Which type of Charge was created by Company on 18th June, 2023 ? Whether application filed by company on 18th August, 2023 was in compliance with provisions of Registration of Charge of Companies Act, 2013 ?
(iii) Whether the notice given to'convene AGM at shorter notice was in compliance of Companies Act, 2013 ?
Answer:
Question 1.
Mr. Laurel, a shareholder in Hardly Limited, a listed company, desires to inspect the minutes book of General Meetings and to have a copy of some resolutions. In the light of the provisions of the Companies Act, 2013 answer the following:
(i) Whether he can inspect the minutes book and to have copies of the minutes at free of cost?
(ii) Whether he can authorize his friend to inspect the minutes book on behalf of him by signing a power of authority?
Answer:
As per section 119 of the Companies Act, 2013, the books containing the minutes of the proceedings of any general meeting of a company shall be open for inspection, during business hours, by any member, without charge, subject to such reasonable restrictions as specified in the articles of the company or as imposed in the general meeting.
Any member shall be entitled to be furnished, within 7 working days after he has made a request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of any minutes.
Accordingly, following are the answers:
(i) As in given case, Mr. Laurel, in requirement with law, he can inspect the minutes book and so to have soft copies of the same up to last 3 years.
(ii) As provision does not specify anything on authorizing any one else to inspect the minutes book. Therefore, Mr. Laurel cannot authorize his friend to inspect the minutes book on behalf of him.
Question 2.
Rijwan Limited, a listed company, is in the business of garment manufacturing and has its registered office at 123, N Tower, Commercial Beta Complex, Bhiwadi, Rajasthan. The company has called its 6th Annual General Meeting at 3 PM on 22nd August, 20X1 at Ansal Plaza, Bhiwadi. Some of the members of the company have opposed to calling of the meeting at Ansal Plaza. The company has approached you to advise them in this regard.
Suppose, Rijwan Limited is an unlisted company and wants to call their 6th AGM at Jaipur, will your answer differ.
Answer:
Question 3.
Q L Ltd. is a public limited company incorporated in Surat, Gujarat with 1200 members. On 10.12.2023 a general meeting was convened in which 14 members were present in person. Mr. Mohan was acting as an authorized representative of two body corporates who are members of Q L Ltd. Shyam one of the important members was absent. The Chairman Mr. Rahi adjouned the meeting, taking plea of absence of Mr. Shyam, to same day and place next week. The members present at the meeting venue waiting to attend, opposed the decision submitting that the majority of them present now shall be unavailable next week. Referring to the provisions of Companies Act, 2013 elaborate:
(i) Whether the requisite quorum to hold meeting as required in case of public limited companies is present in this case ?
(ii) Whether Mr. Rahi could adjourn the meeting in the curent scenario?
Answer:
Question 1.
The Board of Directors of XYZ Company Limited at its meeting declared a dividend on its paid-up equity share capital which was later on approved by the company`s Annual General Meeting. In the meantime the directors at another meeting of the Board decided by passing a resolution to divert the total dividend to be paid to shareholders for purchase of investments for the company. As a result dividend was paid to shareholders after 45 days. Examining the provisions of the Companies Act, 2013, state:
(i) Whether the act of directors is in violation of the provisions of the Act and also the consequences that shall follow for the above act of directors?
(ii) What would be your answer in case the amount of dividend to a shareholder is adjusted by the company against certain dues to the company from the shareholder?
Answer:
Payment of dividend; delay in payment; adjustment against dues (Section 127 of the Companies Act, 2013):
According to Section 127 of the Companies Act, 2013, where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, is liable for the punishment under the said section.
In the present case, the Board of Directors of XYZ Company Limited at its meeting declared a dividend on its paid-up equity share capital which was later on approved by the company's Annual General Meeting. In the meantime the directors at another meeting of the Board decided by passing a resolution to divert the total dividend to be paid to shareholders for purchase of investment for the company. As a result dividend was paid to shareholders after 45 days.
(i) The Board of Directors of XYZ Company Limited violated section 127 of the Companies Act, 2013 as it failed to pay dividend to shareholders within 30 days due to their decision to divert the total dividend to be paid to shareholders for purchase of investment for the company.
Consequences: The following are the consequences for the violation of above provisions:
a) 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
b) The company shall also be liable to pay simple interest at the rate of 18% p.a. during the period for which such default continues.
(ii) If the amount of dividend to a shareholder is adjusted by the company against certain dues to the company from the shareholder, then failure to pay dividend within 30 days shall not be deemed to be an offence under Proviso to section 127 of the Companies Act, 2013.
Question 2.
AB Limited is a public company having its registered office in Coimbatore. The company has incurred a net loss of ₹ 20 lakhs in the Financial Year (FY) 20X1-X2. The Board of Directors (BOD) wants to declare dividend for the FY 20X1-X2. The balances of the company as per the latest audited financial statements are as follows:
The company has not declared any dividend in the preceding three financial years. Decide whether AB Limited is allowed to declare dividend or not for the FY 20X1-X2 by explaining the relevant provisions of the Companies Act in this regard.
If allowed to declare dividend, then state the maximum amount of dividend that can be paid by AB Limited as per the Section 123 of Companies Act 2013.
Answer:
Question 3.
Long Boots Ltd. a listed company is engaged in the manufacturing of shoes and related accessories, The Business is set on a recovery mode by the induction of the new production Manager Mr. A. The Board of Directors of the company has recommended the declaration of a dividend of 50 lakhs after a gap of eight years during which profits were inadequate to distribute the same.
The dividend thus proposed is to be met partially out of the current year profit of 16 lakhs? Accumulated profits during the past eight years were 170 lakhs which is 25% of the total share capital of the company. Referring to the provisions of the Companies Act, 2013 decide, whether the conditions with regard to declaration of dividend in case of inadequate profit are met ? You are requested to support your answer with requisite calculations.
Answer:
Question 1.
Kesar Limited, an unlisted company furnishes the following data:
(a) Paid-up share capital as on 31st March 2024 ₹49 Crore.
(b) Turnover for the year ended 31st March 2024 ₹100 Crore.
(c) Outstanding loan from bank as on 3rd March 2024 is ₹102 crore (₹105 Crore loan obtained from bank) and the outstanding balance as on 31st March 2024 ₹95 crore after repayment.
Considering the above scenario and in accordance with the provisions outlined in the Companies Act, 2013, determine whether Kesar Limited is required to appoint an Internal Auditor during the financial year 2024-2025
Answer:
According to the Companies (Accounts) Rules, 2014, every unlisted public company having:
(A) paid up share capital of ₹ 50 crore rupees or more during the preceding financial year; or
(B) turnover of ₹ 200 crore rupees or more during the preceding financial year; or
(C) outstanding loans or borrowings from banks or public financial institutions exceeding ₹ 100 crore rupees or more at any point of time during the preceding financial year; or
(D) outstanding deposits of 25 crore rupees or more at any point of time during the preceding financial year;
shall be required to appoint an internal auditor which may be either an individual or a partnership firm or a body corporate.
In the given question, Kesar Limited has outstanding loan from bank exceeding 100 crore rupees i.e., ₹ 102 crore on 3rd March 2024 (i.e. during the preceding financial year 2023-24). Hence, it is required to appoint Internal Auditor during the year 2024-25.
Question 2.
The balances extracted from the financial statement of ABC Limited are as below:
| Sr. No. | Particulars | Balances as on 31-03-20X2 as per Audited Financial Statement (₹ in crore) | Balances as on 30-09-20X2 (Provisional ₹ in crore) |
| 1 | Net Worth | 100.00 | 100.00 |
| 2 | Turnover | 500.00 | 1000.00 |
| 3 | Net Profit | 1.00 | 5.00 |
Explaining the provisions of the Companies Act, 2013, you are requested to examine whether ABC Limited is required to constitute 'Corporate Social Responsibility Committee' (CSR Committee) during the second half of the financial year 20X2-X3.
Answer:
Question 3.
The company Herbal Wellness Products Ltd. was registered in April 2018 with an authorised share capital of ₹ 300 crores divided into 30 crore equity shares of ₹10 each having its registered office at Trivandrum and listed in Bombay Stock Exchange. The company was in compliance of all legal requirements on time. The company was producing health related products such as ayurvedic medicines, medical instruments, sanitizers, masks, medical soaps etc. The aggregate value of the paid-up share capital of the company was ₹ 200 crores divided into 20 crore equity shares of ₹ 10 each at the end of the financial year 2022-23. The extract of Balance Sheet of the company as on 31st March, 2023 showed the following figures -
| Particulars | Amount (₹) crores |
| Free reserves created out of profits | 200 |
| Securities Premium account | 70 |
| Credit balance of Profit & loss account | 60 |
| Reserves created out of revaluation of assets | 25 |
| Miscellaneous expenditure not written off | 20 |
Turnover of the company during the financial year 2022-23 was ₹ 700 crores and the net profit calculated in accordance with section 198 of the Companies Act, 2013 with other adjustments as per CSR Rules was ₹ 4 crores.
The Board of Directors of the company consists of the following directors :
CA "R.C Goel" as the Managing Director
"Rudra Mittal” and ‘Pragya’ as independent directors
‘Varun’, ‘Prabodh’, ‘Disha’ and ‘Reshma’ as executive directors
Vineet, Chief Compliance Officer of the company informed the Board on 20th April, 2023 that the company attracts the provisions of section 135 of the Companies Act, 2013 and all the formalities have to be complied with accordingly. Thereafter, on 30thApril, 2023 a CSR Committee was formed consisting of the following members :
CA ‘R.C Goel’, 'Varun’, ‘Prabodh’ and ‘Vineet’ to act and comply to the provisions of Corporate Social Responsibility,
The company proposed a list of activities to spend 4% of the average net profits of the company made during the immediately preceding three financial years in pursuance of its CSR Policy, as under:
(i) The CSR projects for the benefit of employees of the company and their families only.
(ii) A contribution of ₹ 50,000 to a political party under the provisions of section 182 of the Companies Act, 2013.
(iii) A contribution to the PM CARES Fund during Covid pandemic.
(iv) Local activities like promotion of child and women education.
On the basis of above facts and by applying applicable provisions of Companies Act, 2013 and the applicable Rules therein answer the following questions :
(i) On what basis Vineet, Chief Compliance Officer arrived at this conclusion that the company attracts the provisions of section 135 of the Companies Act, 2013, as turnover of the company was only ₹700 crores ?
(ii) Advise the company, how many members are eligible to be part of Committee and what is the criterion ? Whether CSR committee formed was in compliance with the provisions of the Act and Companies (Corporate Social Responsibility Policy) - Rules, 2014 ?
(iii) Whether activities proposed by company were in accordance with provisions of the Act and Companies (Corporate Social responsibility Policy) rules, 2014 ?
Answer:
Question 1.
Answer:
Section 140 of the Companies Act, 2013 prescribes the procedure for removal of auditors. Under section 140 (1) the auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the Central Government in that behalf in the prescribed manner.
From this sub-section it is clear that the approval of the Central Government shall be taken first and thereafter the special resolution of the company should be passed.
Provided that before taking any action under this sub-section, the auditor concerned shall be given a reasonable opportunity of being heard.
Therefore, in terms of Section 140 (1) of the Companies Act, 2013 read with Rule 7 of the Companies (Audit & Auditors) Rules, 2014, the following steps should be taken for the removal of an auditor before the completion of his term:
The application to the Central Government for removal of auditor shall be made in Form ADT-2 and accompanied with fees as provided for this purpose under the Companies (Registration Offices and Fees) Rules, 2014.
The application shall be made to the Central Government within 30 days of the resolution passed by the Board.
The company shall hold the general meeting within 60 days of receipt of approval of the Central Government for passing the special resolution.
Hence, in the instant case, the decision of X Ltd. to remove AB & Associates, auditors of the company at the general meeting held on 25-5-2020 subject to approval of Central Government is not valid. The Approval of the Central Government shall be taken before passing the special resolution in the general meeting.
Question 2.
MNR Limited incorporated on 1st January 2016 as a public limited company with 60% of the paid-up share capital of the company is held by the Central Government wants to appoint its first auditors. The Managing Director of the company wants to appoint his close friend Mr. John, who is a Chartered Accountant holding Certificate of Practice issued by the Institute of Chartered Accountants of India, as the company’s first auditor?
Answer:
Question 3.
Examine the following situations in the light of the Companies Act, 2013
a) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the Annual General Meeting of the company held in September, 2018, in which he accepted the assignment. Subsequently, in January, 2019 he joined B, as a partner for the consultancy firm of Mr. B. Mr. B is working also working as a Finance Executive of X Ltd.
b) “Mr. A”, a practicing Chartered Accountant, is holding securities of “XYZ Ltd.” having face value of Rs. 900/-. Whether Mr. A is qualified for appointment as an Auditor of “XYZ Ltd.”?
c) “Mr. P” is a practicing Chartered Accountant and “Mr. Q”, the relative of “Mr. P”, is holding securities of “ABC Ltd.” having face value of Rs. 90,000/-. Whether “Mr. P” is Qualified from being appointed as an Auditor of“ABC Ltd.”?
Answer:
Question 1.
Fine Publishers, registered in Tokyo, began operating in India during the financial year 2009. The company has duly submitted all necessary documents to the registrar within the specified due date. On 1st March, 2023, Fine Publishers has shifted its principal office in Tokyo.
Is Fine Publishers required to undertake any steps due to change in address of principal office. Give your answer in reference to the provisions of the Companies Act, 2013.
Answer:
Section 380 (3) of the Companies Act, 2013, provides that where any alteration is made or occurs in the documents delivered to the Registrar under section 380, the foreign company shall, within 30 days of such alteration, deliver to the Registrar for registration, a return containing the particulars of the alteration in the prescribed form. The Companies (Registration of Foreign Companies) Rules, 2014, has prescribed that the return containing the particulars of the alteration shall be filed alongwith prescribed fees. Accordingly, Fine Publishers is required to submit to the Registrar the new address of the principal office (in Tokyo) of the company within 30 days of such alteration.
Question 2.
In the light of the provisions of the Companies Act, 2013, discuss the status of Gram Pte, which is a company registered in Singapore, that is conducting online business through telemarketing in India without a physical place of business. It is also informed that for the telemarketing business in India, its main server located outside India.
In continuance of (i) above, Prism Ltd. (registered in India), a wholly owned subsidiary company of Gram Pte decided to follow different financial year for consolidation of its accounts outside India. State the procedure to be followed in this regard.
Answer:
Question 3.
DEJY is a Company Limited incorporated in Singapore desires to establish a branch office at Mumbai. You being a practicing Chartered Accountant have been appointed by the company as a liaison officer for compliance of legal formalities on behalf of the company. Whether branch office will be considered as a company incorporated outside India. If yes, state the documents you are required to furnish on behalf of the company, on the establishment of a branch office at Mumbai.
Answer:
Question 1.
XYZ LLP was registered under the Limited Liability Partnership Act, 2008 (LLP Act) with a name that was later found to be identical to an existing company's name, XYZ OPC Pvt Ltd. This similarity was not noticed at the time of registration. Explain the provisions of the Limited Liability Partnership Act, 2008, in respect of the following:
(i) When the name of LLP is identical.
(ii) Formalities with the Registrar of Companies after name change of LLP.
Answer:
According to Section 17 of the LLP Act, 2008 -
(i) Notwithstanding anything contained in sections 15 and 16, if through inadvertence, or otherwise, the LLP, on its first registration or on its registration by new name, is registered by a name which is identical with or too nearly resembles to-
(a) that of any other LLP or a company; or
(b) a registered trade mark of a proprietor under the Trade Marks Act, 1999
as likely to be mistaken, then on an application of such LLP or proprietor referred to in clauses (a) and (b) respectively or a company, the Central Government may direct such LLP to change its name or new name within a period of 3 months from the date of issue of such direction.
Provided that an application of the proprietor of the registered trade marks shall be maintainable within a period of 3 years from the date of incorporation or registration or change of name of the LLP under this Act.
(ii) Where an LLP changes its name or obtains new name, it shall within a period of 15 days from the date of such change, give notice of the change to Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and within 30 days of such change in the certificate of incorporation, such LLP shall change its name in the LLP agreement.
Question 2.
A and B were friends. Now they have plans of setting up a supermarket in their locality. They are confused as to whether to register as a traditional partnership or as a Limited Liability Partnership. As an advisor, enumerate the differences between the two forms of business, highlighting the compliance and other legal formalities.
Answer:
Question 3.
A, B, C and D are the partners of Alpha LLP and have equal shore in the profits and losses of the LLP. A hus made an agreement to transfer 70% of his share in the profits of Alpha LLP to his daughter X.
X wanted to nocess information about the truding transactions of Alpha LLP claiming that she is entitled to the information as she receives a percentage of profits from the LLP. The partners refused to grant her access. Does X. have any remedy against the denial necording to the provisions of the Limited Liability Partnership Aet, 2008 7 Are the partners correct in denying access to X.
Answer:
Question 1.
Mr. M issued a cheque of 3,00,000 dated 31.12.2023 at 10 a.m. to Mr. N as a consideration towards the medical services provided by the later. Mr.N presented the above cheque on 31.03,2024 during the banking business hours. The cheque was dishonoured taking the plea that it was not presented within the requisite time of 3 months as provided under Section 138 of the Negotiable Instruments Act 1881. Referring to the provisions of the General Clauses Act, 1897 decide, whether the plea for dishonouring the cheque was valid.
Answer:
As per the section 9 of the General Clauses Act, 1897, in case any legislation or Regulation, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time, to use the word “from”, and, for the purpose of including the last in a series of days or any other period of time, to use the word “to”.
The first day in series is 31.12.2023 and last day is 31.03.2024. Hence, applying the above provisions, 31.12.2023 is to be excluded and 31.03.2024 is to be included in calculation as per the General Clauses Act, 1897.
Since, the cheque has been presented within 3 months i.e. on 31.03.2024, it is eligible for honor and payment. Hence, the plea of dishonouring the cheque is not valid.
Question 2.
Komal Ltd. declares a dividend for its shareholders in its AGM held on 27th September, 2018. Referring to provision of the General Clauses Act, 1897 and Companies Act 2013 advice:
i) The dates during which Komal Ltd. is required to pay the dividend?
ii) The dates during which Komal Ltd. is required to transfer the unpaid or unclaimed dividend to unpaid dividend account?
Answer:
Question 3.
Mr. Vyas is the owner of House No. 20 in Geeta Colony, Delhi. He has rented two rooms in this house to Mr. Iyer. The Income Tax Authority has served a show cause notice to Mr. Vyas. The said notice was received by Mr. Iyer and returned the notice with an endorsement of refusal. Decide with reference to provisions of "General Clauses Act, 1897.” Whether the notice was rightfully served on Mr. Vyas.
Answer:
Question 1.
Radha Limited has entered into a contract with Gopal Limited. You are invited to read and interpret the document of contract. What rules of interpretation of deeds and documents would you apply while doing so?
Answer:
The rules regarding interpretation of deeds and documents are as follows:
First and the foremost point that has to be borne in mind is that one has to find out what reasonable man, who has taken care to inform himself of the surrounding circumstances of a deed or a document, and of its scope and intendments, would understand by the words used in that deed or document.
It is inexpedient to construe the terms of one deed by reference to the terms of another. Further, it is well established that the same word cannot have two different meanings in the same documents, unless the context compels the adoption of such a rule.
The Golden Rule is to ascertain the intention of the parties of the instrument after considering all the words in the documents/deed concerned in their ordinary, natural sense. For this purpose, the relevant portions of the document have to be considered as a whole. The circumstances in which the particular words have been used have also to be taken into account. Very often, the status and training of the parties using the words have also to be taken into account as the same words maybe used by an ordinary person in one sense and by a trained person or a specialist in quite another sense and a special sense. It has also to be considered that very many words are used in more than one sense. It may happen that the same word understood in one sense will give effect to all the clauses in the deed while taken in another sense might render one or more of the clauses ineffective. In such a case the word should be understood in the former and not in the latter sense.
It may also happen that there is a conflict between two or more clauses of the same documents. An effect must be made to resolve the conflict by interpreting the clauses so that all the clauses are given effect. If, however, it is not possible to give effect of all of them, then it is the earlier clause that will override the latter one.
Question 2.
Sohel, a director of a Company, not being personally concerned or interested, financially or otherwise, in a matter of a proposed motion placed before the Board Meeting, did not disclose his interest although he has knowledge that his sister is interested in that proposal. He restrains from making any disclosure of his interest on the presumption that he is not required by law to disclose any interest as he is not personally interested or concerned in the proposal. He made his presumption relying on the ‘Rule of Literal Construction’. Explaining the scope of interpretation under this rule in the given situation, cdecide whether the decision of Sohel is correct?
Answer:
Question 3.
Imagine you are a legal advisor for a company drafting a new contract. One of the clauses in the contract states: "Notwithstanding anything contained in any other provisions of this agreement, the company reserves the right to terminate the agreement without notice if there is a breach of confidentiality by the employee." Explain to the management of the company the meaning of a non-obstante clause in legal documents and its effect on overriding other provisions with reference to decided case law.
Answer:
Question 1.
Mr. Sane, an Indian National desires to obtain Foreign Exchange for the following purposes:
(i) Remittance of US Dollar 50,000 out of winnings on a lottery ticket.
(ii) US Dollar 100,000 for sending a cultural troupe on a tour of U.S.A.
Advise him whether he can get Foreign Exchange and if so, under what conditions?
Answer:
Under provisions of Section 5 of the Foreign Exchange Management Act, 1999 certain Rules have been made for drawal of Foreign Exchange for Current Account transactions. As per these Rules, Foreign Exchange for some of the Current Account transactions is prohibited. As regards some other Current Account transactions, Foreign Exchange can be drawn with prior permission of the Central Government while in case of some Current Account transactions, prior permission of Reserve Bank of India is required.
(i) In respect of item No.(i), i.e., remittance out of lottery winnings, such remittance is prohibited and the same is included in First Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Hence, Mr. Sane cannot withdraw Foreign Exchange for this purpose.
(ii) Foreign Exchange for meeting expenses of cultural tour can be withdrawn by any person after obtaining permission from Government of India, Ministry of Human Resources Development, (Department of Education and Culture) as prescribed in Second Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Hence, in respect of item (ii), Mr. Sane can withdraw the Foreign Exchange after obtaining such permission.
In all the cases, where remittance of Foreign Exchange is allowed, either by general or specific permission, the remitter has to obtain the Foreign Exchange from an Authorised Person as defined in Section 2(c).
Question 2.
Referring to the provisions of the Foreign Exchange Management Act, 1999, state the kind of approval required for the following transactions: P requires U.S. $ 2,000 for payment related to call back services of telephones.
Answer:
Question 3.
Mr. Pravesh, an Indian National desires to obtain Foreign Exchange for the following purposes:
(i) US $140,000 for studies abroad on the basis of estimates given by the foreign university.
(ii) U.S. $10,000 for remittance towards hiring charges of transponders.
Advise him whether he can get Foreign Exchange, as per the provisions of the Foreign Exchange Management Act, 1999.
Answer:
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
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She specializes in theory subjects - Law and Auditing.
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He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
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