CA INTERMEDIATE

CORPORATE AND OTHER LAWS

PART – I: COMPANY LAW

CLASS TEST - UNIT 4: SHARE CAPITAL AND DEBENTURES

Maximum Marks: 50
Maximum Time: 1.5 Hrs
Division A: Case Scenario

Mr. I J Gulati is a renowned research scholar in the field of agricultural science and had
worked as a professor in the Agricultural University of Rajasthan. Mr. Gulati possesses
diverse experience in latest techniques in irrigation and shed farming with technological
intervention. He joined the board of National Fertilizers Limited (NFL) and Doon Agro
Products Limited (DAPL) as an expert advisor and was later elevated to director in both the
companies.

The share capital of NFL is divided into different classes of shares. NFL wants to entrust
varied rights to the shares of a particular class, for this purpose they took consent in writing
from ¾th of the holders of the issued shares of that class but didn’t pass the special
resolution. Although terms of issue of the shares of that class don’t prohibit the variation,
the memorandum of the company does not contain any such provision regarding the
variation of rights.

Mr. Gulati incorporated OPC which helps farmers of the region with forecasts on the
weather, new agricultural techniques, various fund schemes including the opportunity of
interest subsidies and subvention, marketing opportunities, gains in supporting the business
of fisheries, etc. Mr. Porwal who was appointed as a nominee, decided to permanently settle
down with his son in USA. Hence prior to leaving for the US, he wishes to withdraw his
consent as nominee.

NFL holds 54% of the total share capital of Doon Fertilizers Limited (DFL), by virtue of
this, NFL can exercise voting rights equivalent to 48% of the total voting power at DFL.
NFL can change the composition of the board because it can appoint 5 out of a total of 12
directors at the board of DAPL.

The relevant extracts from the balance sheet of DAPL are given below. DAPL has decided
to buy-back its own shares.

Liabilities Amount (In Crores)

Paid-up Share Capital (30 crores shares of Rs. 10 300
each, fully paid – up)
Reserve and Surplus (All reserves are free) 6% 350
Secured Debentures 1000

The current market price of a share is Rs. 20 and the buy-back price is expected to be either
Rs. 21 or 22 per share. The company is proposing to buy back at-least 3 crores shares. Apart
from secured debentures, there is an unsecured debt of Rs. 200 crores. Since the price of Rs.
21/22 is not acceptable to many members it was felt that special resolution is not expected
to be passed. Therefore, it was decided to pass a board resolution to effect the buy-back.

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Buy-back process was initiated on 18th August 2020 and completed on 9th September
2020. Mr. Gulati heard some-where that the shares bought back should be physically
destroyed.

Multiple Choice Questions [2 Marks each]

1. With reference to buy-back process initiated by DAPL, identify the correct statement:
(a) DAPL can buy-back 3 crores shares @ Rs. 22 per share, as it can buy-back up to 7.5
crores shares.
(b) DAPL cannot buy-back 3 crores shares @ Rs. 22 per share, because the maximum
amount available for buy-back is 65 crores.
(c) DAPL can buy-back 3 crores shares @ Rs. 21 per share, because the maximum amount
available for buy-back is 65 crores.
(d) DAPL cannot buy-back 3 crores shares even @ Rs. 21 per share.

2. Identify the correct statement out of the following, regarding the status of DAPLL and
its relationship with NFL
(a) DAPL is a subsidiary of NFL, as NFL holds more than 50% of the total share capital of
DFL
(b) DAPL is a subsidiary of NFL, as NFL can affect the composition of the board at DFL
(c) DAPL is a subsidiary of NFL, as NFL holds more than 50% of the total share capital of
DFL and can affect the composition of the board at DFL
(d) DAPL is not a subsidiary of NFL

3. Examine the legality of variation of rights in respect of a particular class of shares by

NFL & pick the correct statement out of the following regarding validity of variation of
shareholders’ rights and compliance by NFL:
(a) Invalid, because variation of shareholders’ right is not allowed by law
(b) Variation of shareholders’ rights are valid, and necessary legal compliances are also met
in full
(c) Variation of shareholders’ rights are valid, but NFL has failed to comply with the
necessary requirement i.e. passing a special resolution at a separate meeting of the
holders of the issued shares of that class.
(d) Variation of shareholders’ rights are valid, but NFL is not authorized to entrust the same
because its memorandum doesn’t allow for the same.

4. Mr. Porwal can withdraw his consent as a nominee, by giving written notice to
(a) The sole member of the company
(b) Registrar of companies
(c) The sole member of company and to OPC
(d) OPC and to Registrar of companies

5. By selecting the correct option, evaluate the legal validity of physically destroying the
shares which were bought back by DAPL.
(a) DAPL is not legally required to physically destroy the shares
(b) DAPL shall extinguish and physically destroy the shares within a reasonable time after
completion of the process of buy-back
(c) DAPL shall extinguish and physically destroy the shares by 16th September 2020
(d) DAPL shall extinguish and physically destroy the shares by 24th September 2020

Multiple Choice Questions [1 Mark each]

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1. The company issued secured debentures and appointed a debenture trustee. The
debenture trust deed shall be executed within:
a) 60 days after allotment
b) 60 days from the date of appointment
c) 30 days after allotment
d) d) 30 days from the date of appointment (1 Mark)

2. ABC Ltd. wants to issue redeemable preference shares for a period of 35 years. Advise
whether it can do so.
a) Yes, ABC Ltd. can issue redeemable preference shares
b) Yes, ABC Ltd. can issue redeemable preference shares but for only 30 years
c) Instead of issuing of shares for 35 years, ABC Ltd. should issue irredeemable
preference shares.
d) d) Yes, ABC Ltd. can issue redeemable preference shares for a period not extending 20
years. (1 Mark)

3. Where an appeal is filed with the tribunal against the company for refusal of transfer or
transmission the tribunal shall after hearing both the parties
a) Dismiss the appeal
b) Direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order
c) Direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved
d) Any of these (1 Mark)

4. Breeze Ltd wanted to buy back its shares on 5th Sept, 2020. The company has not
defaulted in the payment of dividend declared or filing its financial statements.
However the company defaulted in the payment of term loan. Finally the company
repaid the term loan on 23rd july 2017. Can the company buy back its shares.
a) The company if it defaults in repayment of term loan it can never buy back its shares
b) The company can buy back the shares even if it has defaulted in the repayment of term
loan
c) The company can buy back its shares if the default is remedied and 3 years have lapsed.
d) The company can buy back its shares if the default is remedied and 5 years have lapsed.
(1 Mark)

5. When an unlisted public company issues shares at a premium, amount of the premium
received on those shares is transferred to a "securities premium account". For which
purpose amount lying in securities premium account shall be used?
a) In writing off preliminary expenses of the company;
b) In writing off pre-incorporation expenses of the company;
c) For purchase of immovable assets;
d) For paying managerial remuneration; (1 Mark)

Division B: Descriptive Questions

1. Shiva Cement Limited is engaged in the manufacture of different types of cements and
has got a good brand value. Over the years, it has built a good reputation and its Balance
Sheet as at March 31, 2020 showed the following position:

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 Authorized Share Capital (25,00,000 equity shares of Rs. 10/- each) Rs. 2,50,00,000
Issued, subscribed and paid-up Share Capital (10,00,000 equity shares of Rs. 10/- each,
fully paid-up) Rs. 1,00,00,000
Free Reserves Rs. 3,00,00,000

The Board of Directors are proposing to declare a bonus issue of 1 share for every 2
shares held by the existing shareholders. The Board wants to know the conditions and
the manner of issuing bonus shares under the provisions of the Companies Act, 2013.
(5 Marks)

2. Shyam Dairy Ltd., a dairy products manufacturing company wants to set up a new
processing unit at Jaipur. Due to paucity of funds, the existing shareholders are not
willing to fund for expansion. Hence, the company approached XYZ Ltd. For
subscribing to the shares of the Company for expansion purposes. Can Shyam Dairy
Ltd. Issue shares only to XYZ Ltd. under the provisions of the Companies Act, 2013. If
so, state the conditions. (5 Marks)

3. Growmore Limited’s share capital is divided into different classes. Now, Growmore
Ltd. Intends to vary the rights attached to a particular class of shares. Explain the
provisions of the Companies Act, 2013 to Growmore Limited as to obtaining consent
from the shareholders in relation to variation of rights. (5 Marks)

4. Harsh purchased 1000 shares of Singhania Ltd. From Pratik and sent those shares to the
company for transfer in his name. The Company neither transferred the shares nor sent
any notice of refusal to any party within the period stipulated in the Companies Act,
2013. What is the time frame in which the company is supposed to reply to transferee?
Does Harsh, the transferee have nay remedies against the company for not sending any
intimation in relation to transfer of shares to him? (5 Marks)

5. X Limited has an authorized capital of 10,00,000 equity shares of the face value of
Rs.100 each. Some of the shareholders expressed their opinion in the Annual General
Meeting that it is very difficult for them to trade in the shares of the Company in the
share market and requested the Company to reduce the face value of each share to Rs.10
and increase the number of shares to 1,00,00,000. Examine whether the request of the
shareholder is possible an if so, how the Company can alter its share capital as per the
provisions of the Companies Act, 2013. (5 Marks)

6. Board of Directors of PQR Limited wants to create a ‘Debenture Redemption Reserve

(DRR)’ for the redemption of debentures issued by the company under the provisions of
the Companies Act, 2013. Examine the provisions of the Companies (Share Capital and
Debentures) Rules, 2014 in this regard. (5 Marks)

7. Mr. A was having 500 equity shares of Open Sky Aircrafts Limited. Mr B acquired
these shares of the company from Mr. A but the signature of Mr. A, the transferor on the
transfer deed was forged. The Company registered the shares in the name of Mr. B by
issuing share certificate. Mr. B sold 100 equity shares to Mr. C on the basis of share
certificate issued by Open Sky Aircrafts Ltd. Mr. B and Mr. C are not having the
knowledge of forgery. State the rights of Mr. A, Mr. B and Mr. C under the Companies
Act, 2013. (5 Marks)

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