Law Super 100 Important Quest

CA Final – Corporate and Economic Laws
(Important Questions for May 2023 Exams)
Chapter 1 - Appointment and Qualification of Directors
Q.1 KMR Limited, a listed public company, has 15 directors on its Board. The Articles of
Association of the said company provide for the maximum number of Directors in the company
to be 15. Due to diversification and expansion of activities, the Board of Directors of the
said company desire to increase the number of Directors to 18. Decide with reference to
the applicable provisions of the Companies Act, 2013:
(i) Whether the Board of Directors can do so?
(ii) Will your answer differ if the said Company would have been a Government Company?
(4 Marks)
Ans.: Increase in number of Directors:

• Sec. 149(1) of the Companies Act, 2013 provides that every company shall have a Board
of Directors consisting of individuals as directors and shall have a minimum number of
3 directors in case of a public company, 2 directors in case of a private company, and
one director in case of a One-Person Company. The maximum number of directors shall
be 15.
• However, a company may appoint more than 15 directors after passing a special
resolution.
• Limit of Maximum directors and their increase is not applicable to Government
Companies and Sec. 8 Companies provided these companies has not committed a default
in filing of their financial statements u/s 137 or annual return u/s 92 with the Registrar.
• In the present case, the number of directors is proposed to be increased to 16, company
will be required to comply with the followings:
(i) Alter the Articles of Association u/s 14, so as to increase the number of directors
in the Articles from 15 to 18;
(ii) A special resolution is to be passed at a duly convened general meeting of the
company to increase the number of directors to 18.
Conclusion: Applying the provisions of Sec. 149(1) and exemptions available, following
conclusions may be drawn:
(i) BOD can increase the number of directors after altering AOA u/s 14 and by passing a
Special resolution u/s 149(1).
(ii) In case of Govt. companies, limit of maximum directors not applicable, hence, BOD can
increase the number.
Compiled by: CA. Pankaj Garg 1 |P a g e

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Q.2 Considering the regulatory provisions of the companies Act, 2013 and the rules thereof
regarding the appointment directors on a company’s Board, state whether Z Limited, a listed
public company is required to appoint Independent Directors. Also, state whether
appointment of Independent Director is required in the following cases:
(i) The public company has a paid-up share capital of ₹ 10 crores
(ii) What shall be your answer in case the company’s paid-up share capital is only ₹ 2
crores.
(iii) Whether a person who holds the position of a Key managerial personnel in the same
company can be appointed as an Independent Director?
(iv) In relation to mandatory women directors as required under the Companies Act, 2013
should such directors also be Independent Directors? (6 Marks)
Ans.: Requirement of Independent Director:
• As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least
one-third of the total number of directors as independent directors.
• As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014,
the following class or classes of companies shall have at least 2 directors as independent
directors:
(a) the Public Companies having paid-up share capital of ₹ 10 crore or more; or
(b) the Public Companies having turnover of ₹ 100 crore or more; or
(c) the Public Companies which have, in aggregate, outstanding loans, debentures and
deposits, exceeding ₹ 50 crore.
Conclusion: Z Ltd., being a listed company is required to have 1/3rd of total number of
directors as independent directors.
Requirement of Independent Directors in other cases:
(i) Assuming that company is an unlisted company, it shall have atleast 2 independent
directors as per requirements of Rule 4 as discussed above.
(ii) Assuming that company is an unlisted company, it does not require to have independent
director as paid-up capital is less than₹ 10 Cr.
(iii) As per provisions of Sec. 149(6) of Companies Act, 2013, a person who holds the position
of a Key managerial personnel in the same company, cannot be appointed as independent
director.
(iv) It is not mandatory that women directors should be Independent Directors.
Q.3 ABC Ltd. is incorporated in December, 2010 under the Companies Act, 1956. For the year
ended on 31st March, 2021 and 31st March, 2022, the financial and other relevant
information of the company were as under:

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(₹ in Crores)
Particulars 31.03.2021 31.03.2022
(a) Paid-up capital 8 18#
(b) Reserves 16 6
(c) Turnover 75 98
(d) Borrowings from Banks/FIs (sanctioned limit is ₹ 60 50 45

crores)
(e) No. of directors 10 10

#
Part amount of the Reserves was capitalised, by issue of Bonus shares during the FY
2021-22
The Company Secretary apprised the Board, of requirement of appointment of Independent

Director (ID). Few candidates were shortlisted, out of which 2 candidates were nominated
and got approval of the shareholders in the General Meeting. The appointment of both the
IDs were approved for a tenure of one year only.
Enumerate in the given situation, the following issues in the light of the Companies Act,
2013:
(A) Whether ABC Ltd. was required to appoint Independent Director (ID) based on the
information as on 31st March, 2021.
(B) In the given case, the tenure of the appointment of both the IDs is for one year only.
Comment upon the validity of the term of appointment of the Independent Directors.
(4 Marks)
Ans.: (A)Requirement of Independent Director:

Sec. 149(4) read with the Rule 4 of the Companies (Appointment and Qualifications of
Directors) Rules, 2014, provides that the following companies shall have at least 2
independent directors:
(i) the Public Companies having paid-up share capital of ₹ 10 crores or more; or
(ii) the Public Companies having turnover of ₹ 100 crores or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and
deposits, exceeding ₹ 50 crores.
These provisions are applicable if the outstanding loans exceeds ₹ 50 crores. In the
given case, outstanding bank borrowings is only ₹ 50 crores and not exceeding ₹ 50
crores.
Conclusion: Company is not required to appoint independent directors.
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(B) Tenure of Independent Directors:

• As per Sec. 149(10) of the Companies Act, 2013, an independent director shall hold
office for a term up to 5 consecutive years on the Board of a company, and shall be
eligible for reappointment on passing of a special resolution by the company and
disclosure of such appointment in the Board's report.
• MCA, vide its Circular has clarified that Sec. 149(10) of the Act provides for a term
of “up to 5 consecutive years” for an ID. As such while appointment of an ID 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 u/s 149(10).
Conclusion: Tenure of the appointment of both the IDs for one year only, will be
considered as valid.
Q.4 XYZ Ltd. is a newly incorporated listed company formed on 01.01.2022. At present there
are 10 directors & 1500 shareholders. Turnover as on 31.03.2022 is ₹ 320 crores. 150
Small shareholders of the company gave the notice to appoint a director representing them.
Can they appoint Mr. A who is already a small shareholders director in 2 other companies.
However, those other companies are not in conflict with the business of XYZ Ltd. Would
your answer be different if Mr. A has no other directorship? (4 Marks)
Ans.: Eligibility to be appointed as a Small Shareholder Director (SSD):

• As per Sec. 151 of the Companies Act, 2013, a listed company may have one director
appointed by the small shareholders. Rule 7 of the Companies (Appointment and
Qualification of Directors) Rules, 2014 prescribes requirements with respect to the
appointment of small shareholder director through serving upon notice of not less than
1,000 small shareholders or 1/10th of the total number of such shareholders, whichever
is lower.
• It is provided further that no person shall hold the position of small shareholder’s
director in more than 2 companies at the same time. Also, the second company is which he
is appointed should not be in a business which is conflicting or competing in nature.
• In the given case, number of shareholders who served the notice for appointment of SSD,
is 150 (1/10th of 1500). The fact that other businesses are not in conflict or competing
in nature is irrelevant as the limit of directorship in two companies have already exceeded.
Conclusion: Mr. A is not eligible. If Mr. A was not a small shareholder’s director in any other
company, then Mr. A is eligible to become small shareholder’s director in XYZ Limited.
Q.5 Mahagun Furniture Limited is the big fame name in the manufacturing of designer office
furniture. The shares of company is listed in the stock exchange. Total there are 7250
registered shareholder out of which 900 shareholders are such a holder who hold 180 or
less number of preference shares each with face value of 100 per share, having market
value 115 per share.

786 shareholders out such 900, issue a notice to company to appoint Mr. Mani, as small
shareholder director for term of 5 years, who is already small shareholder director in
Skylark Furniture Limited competing in same market segment. Mr. Mani himself hold the 540
equity shares of Mahagun Furniture Limited, face value of share is 10 while market value is
24 per shares.
You are required to examine in the provided conditions, the legal position of Mr. Mani
whether he will be appointed as a Small Shareholder’s Director in Mahagun Furniture Limited.
Following are the conditions:
(i) Notice moved by preference shareholder, not by equity shareholder
(ii) Notice moved by less than 1000 shareholders
(iii) Value of shares held by some of such 786 shareholders who moved notice may be above
the threshold limit of INRs 20,000.
(iv) Mr. Mani is Small Shareholder’s Director at Skylark Furniture (8 Marks)
Ans.: Section 151 of the Companies Act, 2013 read with rule 7 of Companies (Appointment and
Qualification of Directors) Rules, 2014.
Condition I: Section 151, states a listed company may have one director elected by such small
shareholders in such manner and with such terms and conditions as may be prescribed under
rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014.
Further explanation provides “small shareholders” means a shareholder holding shares of
nominal value of not more than twenty thousand rupees or such other sum as may be
prescribed. Nominal value of shares held by all the 786 shareholders are less than 20000/-
because share held by them are either 180 or less than 180 (at face value of INRs 100 each).
As per the given condition I, in compliance with above provision, it can be any shareholder
either equity or preference shareholder holding shares of nominal value of not more than
twenty thousand rupees.
Condition II: Rule 7(1) of the Companies (Appointment and Qualification of Directors)Rules,
2014, states that 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 shareholders’ director elected by the small shareholders. 786 is above 725 i.e.
10% of 7250, hence notice is valid.
Condition III: Rule 7(2) of the Companies (Appointment and Qualification of Directors)
Rules, 2014 provides for disclosure of shareholding, not prohibiting the small shareholder’s
director from holding the shares. Value of shares held by such 786 shareholders who moved
notice, are holding less than 20,000/- because share held by them are either 180 or less
than 180 (at face value of INRs 100 each).
Condition IV: Further Rule 7(8) stated that no person shall hold the position of small
shareholders’ director in more than two companies at the same time: Provided that the
second company in which he has been appointed shall not be in a business which is competing

or is in conflict with the business of the first company. Skylark Furniture is in conflicting
interest (As competing in same segment) with Mahagun Furniture, whereat Mr. Mani is
already a small shareholder director.
Accordingly in the given instance, conditions I, II, & III will not be effecting on his
appointment as small share director, as these conditions are in line with the requirement of
law. However, on the basis of condition IV, Mr. Mani will not be eligible for being appointed
as small shareholder’s director in Mahagun Furniture Ltd.
Q.6 A and B were appointed as first directors on 4th April, 2022 in Sun Glass Ltd. Thereafter,
C, D and E were appointed as directors on 6th July 2022 and F, G and H were also appointed
as directors on 7th August 2022 in the company. In the AGM of the company held after
the above appointments, A and B were proposed to be retired by rotation and reappointed
as directors.
At the AGM, resolution for A’s retirement and reappointment was passed. However, before
the resolution for ‘B’ could be taken up for consideration, the meeting was adjourned. In
the adjourned meeting also, the said resolution could not be taken up and the meeting was
ended without passing the resolution for B’s retirement and reappointment.
In the light of above and with reference to relevant provision of the Companies Act, 2013,
answer the following:
(i) Whether proposals for retirement by rotation and reappointment of A and B only were
sufficient?
(ii) What will be the status of B as a director in the company? (6 Marks)
Ans.: Rotational Directors and Retirement of Directors:

• Sec. 152(6) of the Companies Act, 2013 provides that unless the Articles provide for
retirement of all the directors at every general meeting, not less than 2/3rd of the total
number of directors of a public company, shall be persons whose period of office is liable
to determination by retirement of directors by rotation.
• At the first AGM of a public company held next after the date of the general meeting
at which the first directors are appointed and at every subsequent AGM, 1/3rd of such
of the directors for the time being as are liable to retire by rotation, or if their number
is neither 3 nor a multiple of 3, then, the number nearest to 1/3rd, shall retire from
office.
• Sec. 152(7) provides that if the vacancy of the director retiring by rotation, is not so
filled-up and the meeting has not expressly resolved not to fill the vacancy, the meeting
shall 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 day which is not a holiday, at the
same time and place.

It further provides that if at the adjourned meeting also, the vacancy of the retiring
director is not filled up and that meeting also has not expressly resolved not to fill the
vacancy, the retiring director shall be deemed to have been reappointed at the adjourned
meeting, unless:
(a) at that meeting or at the previous meeting a resolution for the reappointment of
such director has been put to the meeting and lost;
(b) the retiring director has, by a notice in writing addressed to the company or its
Board of directors, expressed his unwillingness to be so reappointed; or
(c) he is not qualified or is disqualified for appointment.
• In the given case there are total 8 directors, out of which A and B were appointed as
first directors of Sun Glass Ltd. The number of directors liable to retire by rotation at
the next AGM are 2 [1/3 of (2/3 of 8)]. In this case Mr. A and B have been longest in
office since their last appointment are liable to retire.
• At the AGM, resolution for A’s retirement and reappointment was passed. However,
before the resolution for ‘B’ could be taken up for consideration, the meeting was
adjourned. In the adjourned meeting also, the said resolution could not be taken up and
the meeting was ended without passing the resolution for B’s retirement and
reappointment.
Conclusion:
(i) Proposals for retirement by rotation and reappointment of A and B only were sufficient.
(ii) Mr. B will be deemed to be reappointed.
Q.7 As on 31.03.2022, Mr. K. Muthusamy is holding directorship in 4 listed Companies, 4 unlisted

Public Companies and 4 Private Limited Companies. He has obtained two Director
Identification Number (DINs) allotted to him inadvertently. Out of the 12 directorships, he
holds 10 with the DIN allotted to him first and the rest with the DIN allotted to him later.
He wants to surrender one of his DINs, but to keep all his 12 Directorships. In the light of
the relevant provisions of the Companies Act, 2013, examine the following:
(i) Which DIN sourced by Mr. K. Muthusamy be surrendered?
(ii) What procedure he needs to follow and what actions will be done by the Central
Government in this regard?
(iii) In what way can he keep all his 12 Directorships with one DIN? (4 Marks)
Ans.: Provisions related with DIN:

Provisions related with Director’s Identification Number are covered under Sections 153 to
159 of Companies Act, 2013 read with Rules 9 to 12B of Companies (Appointment and
Qualification of Directors) Rules, 2014.
(i) Surrender of DIN:
As per Sec. 155, no individual, who has already been allotted a DIN under section 154,
shall apply for, obtain or possess another DIN.

In respect of an individual who is in possession of Multiple DINs, he can retain the Oldest
DIN only. DINs obtained later have to be surrendered.
(ii) Procedure to be followed for surrender of DIN (Rule 11):
1. The holder of multiple/duplicate DIN shall make an application for its Surrender to
the Concerned Regional Director (RD).
2. The application shall be filed in Form DIR-5.
Action to be taken by C.G./Regional Director:
Regional Director may, upon being satisfied on verification of particulars or documentary
proof attached with the application received 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.
(iii) Keeping all directorship under one DIN:
As stated above, in case of two DINs, individual has to surrender the Second DIN. In
such a situation, following shall be done to keep all the directorship:
• Individual has to surrender Second DIN Only.
• RD shall migrate directorship of Second DIN on First DIN.
• After migration second DIN shall be surrendered.
Q.8 The Board of Directors of Tours Ltd., in terms of the Articles of the Company, filled up
the casual vacancy caused by the resignation of Mr. Philip (who was appointed in a duly held
general meeting) by appointing Mr. Max as a director on 1st May, 2022. Unfortunately, Mr.
Max expired on 15th May after working for a period of about 10 days as a director. The
Board now intends to fill up the casual vacancy by appointing Mrs. Nini (Wife of late Mr.
Max) in the forthcoming meeting of the Board. Referring to and analysing the provisions of
the Companies Act, 2013, Advise the Board whether it can do so. (4 Marks)
Ans.: Filling of Casual vacancy in the Office of Director:

• Sec. 161(4) of the Companies Act, 2013 provides 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.
• 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.
• In the present case, Mr. Max was appointed in place of the Mr. Philip who resigned.
However, Max expired on 15th May, 2022 and again a vacancy has arisen in the office of
director which the Board is willing to fill by appointing Mrs. Nini.

Conclusion: Board of Directors cannot fill the vacancy arises on death of Mr. Max u/s 161(4)
as Mr. max was not appointed in general meeting. However, Board may appoint Mrs. Nini as
an additional director u/s 161(1) of the Companies Act, 2013 provided the articles authorises
the board to do so, in which case Mrs. Nini will hold the office up to the date of the next
AGM or the last date on which the annual general meeting should have been held, whichever
is earlier.
Q.9 Mr. Yashpal and Mr. Dugal are proposed to be appointed as directors of Light Tubes Limited
at the AGM to be held on 2nd May, 2022. Following additional information about these
persons are provided:
• Mr. Yashpal had subscribed for 20,000 fully paid Equity shares of ₹ 10 each of Light
Tubes Limited. The last date for payment of the second call amount was 20th June, 2021
and he has not paid the call money, till the time of submitting his consent to be appointed
as director of the Company.
• Mr. Dugal is also a director of Heavy Tubes Limited, a subsidiary Company of Light Tubes
Limited, which has full time director in charge of Finance & Accounts to ensure compliance
with provisions of the Companies Act, 2013. One aggrieved depositor of Heavy Tubes
Limited has represented to the Holding Company that he has neither received refund of
his deposit matured on 31st October, 2020 nor interest thereon.
As statutory auditor of the Holding Company, providing Secretarial Service, advise the
company about the eligibility of Mr. Yashpal and Mr. Dugal to be appointed as director’s
u/s 164 of the Companies Act, 2013. (4 Marks)
Ans.: Eligibility to be appointed as directors:

• Sec. 164(1) of the Companies Act, 2013 provides that a person shall not be appointed as a
director if he has not paid any calls in respect of any shares of the Company held by him
and 6 months have elapsed from the last day fixed for the payment of the call.
• Further, Sec. 164(2) states that no person who is or has been a director of a Company
which 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 continues for one year or more, shall be eligible to be
reappointed as a director of that Company or appointed in other Company for a period of
5 years from the date on which the said company fails to do so.
Conclusion: Based on the provisions stated above and facts of the question, following
(i) Mr. Yashpal cannot be appointed as director in Light Tubes Limited, since he has not paid
the amount of second call amount on 20,000 fully paid shares and 6 months have elapsed
from the last day fixed for the payment of the call (the call amount is due since 20th
June, 2021 and he is to be appointed director in 2022).

(ii) Mr. Dugal is a director in Heavy Tubes Limited which has defaulted in the repayment of
deposits accepted by it and payment of interest thereon, since October 2020 (i.e. the
default has continued for more than one year- 31st October 2020 to 2nd May 2022).
Hence, he will not be eligible to be appointed as director in Light Tubes Limited.
Q.10 The Promoters of M/s Frontline Limited a listed public company propose to have the strength
of the Board of Directors as 11. They also propose to make the Managing Director and
whole-time directors as directors not liable to retire by rotation. Advise on the following
matters as per the provisions of the Companies Act, 2013:
(i) Maximum number of persons, who can be appointed as directors not liable to retire by
rotation.
(ii) How many of the remaining directors will have to retire by rotation every year at the
Annual General Meeting (AGM)?
(iii) For the purpose of increasing the strength, certain nominations were received to
nominate candidates for contesting elections. One of the nominations was rejected by
the directors as it was received after sending the notice of AGM and that too after
the working hours of the last day on which nomination should have been received.
(iv) Can the Board of Directors increase the strength of companies’ directors to 18 from
11 by appointing additional directors through passing single resolution? (4 Marks)
Ans.: Provisions as to appointment, rotation etc. of directors:
(i) As per Sec. 152(6) of Companies Act, 2013, unless the articles provide for the
retirement of all directors at every AGM, not less than 2/3rd of the total number of
directors of a public company shall be persons whose period of office is liable to
determination by retirement of directors by rotation. Accordingly, out of 11 directors,
8 directors should be directors whose period is liable to determination by rotation.
Hence, remaining 3 directors can be appointed as directors not liable to retire by
rotation.
(ii) It is provided that 1/3rd of such of the directors for the time being as are liable to
retire by rotation, or if their number is neither 3 nor a multiple of 3, then, the number
nearest to 1/3rd, shall retire from office. Accordingly, 1/3rd of 8 directors, i.e. 2.67
considered as 3 shall be liable to retire by rotation.
(iii) As per section 160, any member of company or person proposing himself for candidature
of director should give notice of 14 days to company before general meeting. It shall be
signed and deposited at registered office.
Section 160 does not prescribe any hour as time limit on a particular date. Therefore,
directors of company cannot reject nomination received for reason that it is received
after office hours of company.
(iv) Company shall alter its Articles of Association as per Sec. 14 and increase maximum
number of directors in Articles to 18. As per section 149, company can appoint more
than 15 directors by passing special resolution. Accordingly, company shall call general
meeting and pass special resolution. More than one director may be appointed by single
resolution provided the requirement as stated in Sec. 162 is complied with.

Chapter 2 - Meetings of the Board and its Powers
Q.11 Wonderland Ltd. convened a meeting of the Board of Directors on 1st September, 2022 to
approve the financial statements of the Company as on 31st March, 2022. The Board has
strength of 5 directors and the quorum as per Articles of Association is 3 directors physically
present. While 3 directors participated in the meeting physically, the fourth and the fifth
directors participated through video conferencing. Examine the validity of the approval of
financial statements in the above said Board meeting. (4 Marks)
Ans.: Participation in Board Meeting through electronic mode:

• As per Sec. 173(2) of the Companies Act, 2013 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.
• First Proviso to Sec. 173 provides that C.G. may, by notification, specify such matters
which shall not be dealt with in a meeting through video conferencing or other audio-
visual means. Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014,
specifies the matters not to be dealt with in a meeting through video conferencing or
other audio-visual means. However, Rule 4 has been omitted by the Companies (Meetings
of the Board and its Powers) Amendment Rules, 2021 w.e.f. 15.06.2021.
• Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides that a
director participating in a meeting through video conferencing or other audio-visual
means shall be counted for the purpose of quorum unless he is to be excluded for any
items of business under any provisions of the Act or the rules.
Conclusion: As valid quorum is present in the meeting, it can be concluded that the financial
statements are approved validly.
Q.12 Clause 36 of the Articles of Association of Swasth Medical Pharmacy Limited (SMPL) states
the dates on which the Board Meetings shall be held every year and therefore, if Board
Meetings are held as scheduled, there is no need to send notice of such meeting to every
director. The notice of the meeting shall be sent to every director only if a particular Board
Meeting is held on a date which is otherwise than that mentioned in Clause 36. Raghav, one
of the directors of the company, feels that it is mandatory to send notice of every Board
Meeting to all the directors otherwise it shall be violative of the relevant provisions of the
Companies Act, 2013. Analyse the contention of Raghav with reference to the applicable
provisions of the Companies Act, 2013. (4 Marks)
Ans.: Requirements of Notice of Board Meetings:

• As per Sec. 173(3) of the Companies Act, 2013, a meeting of the Board shall be called
by giving not less than 7 days’ notice in writing to every director at his address
registered with the company and such notice shall be sent by hand delivery or by post or
by electronic means:

Provided that 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:
Provided further that 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.
• Sec. 173(4) prescribes that every officer of the company whose duty is to give notice
u/s 173 and who fails to do so shall be liable to a penalty of ₹ 25,000.
Conclusion: Based on the above mentioned provisions, contention of Raghav that the notice
of every Board Meeting is to be mandatorily sent to all the directors of the company is valid.
If the Board Meeting is held on a date prescribed by Clause 36 of the Articles of Association
and no notice is sent to the directors of the company, it shall be violative of Sec. 173(3) of
the Companies Act, 2013.
Q.13 Atlantic Garments Ltd., is a company engaged in the business of manufacturing of garments
for all seasons. The company have in all 14 directors.
The first meeting of the Board was held on 15th February, 2021. Thereafter, the
subsequent meetings of the Board were held on 29th February, 2021, 25th March, 2021,
30th August, 2021 and 25th December, 2021.
In these meetings, the full strength of the Board was present except in the meeting of
25th March, 2021. In this meeting only 4 persons were present.
Decide whether the Board meeting held on 25th March, 2021 is valid in compliance with the
legal requirements under the Companies Act, 2013. What shall be date of the meeting in
case where if meeting could not be held because of quorum. (4 Marks)
Ans.: Requirements as to quorum of a Board Meeting:

• As per Sec. 174(1) of the Companies Act, 2013 the quorum for a meeting of the Board
of Directors of a company shall be 1/3rd of its total strength or 2 directors, whichever
is higher, and the participation of the directors by video conferencing or by other audio-
visual means shall also be counted for the purposes of quorum.
• Sec. 174(4) provides that where a meeting of the Board could not be held for want of
quorum, then, unless the articles of the company otherwise provide, the meeting shall
automatically stand adjourned to the same day at the same time and place in the next
week or if that day is a national holiday, till the next succeeding day, which is not a
national holiday, at the same time and place. For this purpose, any fraction of a number
shall be rounded off as one and “total strength” shall not include directors whose places
are vacant.
Total Strength of directors =14
One-third of 14 = 4.67 Rounded off to = 5 (Five)

• As in the meeting scheduled on 25th March, 2021, only 4 persons were present, hence
due to want of required minimum quorum, the meeting shall have to be adjourned to the
same day at the same time and place in the next week or if that day is a national holiday,
till the next succeeding day, which is not a national holiday, at the same time and place.
Conclusion: Meeting of the Board held on 25th March, 2021 was not valid as the required
quorum was not present in the meeting. In this case, the adjourned meeting was to be held
on 1st April, 2021.
Q.14 There are 7 directors in BUI Limited. A resolution (relating to opening of a branch office
of the company in a place outside the state where the registered office is situated) in draft
together with necessary papers were circulated among the directors seeking their approval
by circulation. Four directors from among total seven directors approved the proposal. Three
directors, who did not approve the proposal, opposed the validity of the proposal on the
following grounds:
(i) That the resolution was circulated by e-mail and not by hand delivery or post or courier
as per the provisions of sub-section (1) of Section 175 of the Companies Act, 2013;
and
(ii) Secondly, that more than 1/3rd of the number of directors now require that the
resolution must be decided at a meeting of the Board of Directors and not by circulation.
Referring to and analysing the relevant provisions of the Companies Act, 2013 and Rules
made thereunder, decide, whether the contention of the three directors is tenable.
(4 Marks)
Ans.: Passing of resolution by Circulation:

• As per Sec. 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, together with the necessary papers, if any, to all the
directors, or members of the committee, as the case may be, at their addresses
registered with the company in India by hand delivery or by post or by courier, or
through such electronic means as may be prescribed and has been approved by a
majority of the directors or members, who are entitled to vote on the resolution:
Provided that not less than 1/3rd 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 of the Board.
• Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014, provides that
a resolution in draft form may be circulated to the directors together with the
necessary papers for seeking their approval, by electronic means which may include e-
mail or fax.

Conclusion: Based on the provisions as stated above, following are answers to the proposals
on the basis of given ground-
(i) Contention of three directors with respect to opposing of resolution passed by email,
is not valid in terms of stated Rule 5.
(ii) Contention of three directors with respect to that resolution must be decided at a
meeting of Board of Directors and not by circulation is not valid as per proviso to Sec.
175(1). The claim to decide the matter in the board meeting after it has been approved
is not valid. The proviso stated above requires that they should have insisted before
the resolution has been passed that the resolution should be decided at a meeting of
the board.
Q.15 Referring to the provisions of the Companies Act, 2013, examine the following: XYZ Limited,
a listed company has constituted an audit committee consisting of 5 members out of whom
2 are independent directors. Subsequently, the company increased the composition of audit
committee to six members with three independent directors. (2 Marks)
Ans.: Composition of Audit Committee:

• As per Section 177(2) of the Companies Act, 2013, the audit committee shall consist of
a minimum of 3 directors with independent directors forming a majority.
• In the given instance, XYZ Ltd. a listed company constituted an Audit committee
consisting of 5 members out of which 2 are independent directors. Subsequently company
increased the composition of audit committee to 6 members with 3 Independent
directors.
Conclusion: Composition of audit committee is not in accordance with the provisions of Sec.
177(2) as independent directors do not have majority.
Q.16 M/s. Dream Works Limited (an unlisted company) without any public deposits as per the
audited financial statements of the company as at March 31st, 2022 given you the following
information:
Paid up Share Capital ₹ 20 Crores
Gross Turnover ₹ 500 Crores
Bank Borrowings ₹ 40 Crores (from a Nationalized Bank)
Other Borrowings ₹ 40 Crores (from a Public Financial Institution)
Mr. Gupta, a Chartered Accountant employed in the finance and audit department of the
company wants to form a Vigil Mechanism for directors and employees of the company.
(1) Advise whether it is mandatory for M/s Dream Works Limited to formulate a Vigil
Mechanism under the provisions of the Companies Act, 2013 and rules framed there
under.
(2) Are there any penalties that could be imposed on the company for not formulating the
Vigil Mechanism? (4 Marks)

Ans.: Vigil mechanism:
(a) As per Sec. 177(9) of the Companies Act, 2013, every listed company and such class of
companies as may be prescribed shall establish a Vigil mechanism for their directors
and employees.
Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 has prescribed
the following class or classes of companies that shall constitute Vigil mechanism:
(1) the Companies which accept deposits from the public;
(2) the Companies which have borrowed money from banks and public financial
institutions in excess of ₹ 50 crores.
In the present case, Dream Works Limited does not have any public deposits. They have
borrowings from banks and public financial institutions of ₹ 80 crores which is in excess
of ₹ 50 crores.
Conclusion: Company is mandatorily required to form a Vigil Mechanism for directors
and employees of the company as it falls within the criteria specified under Rule 7.
(b) Penalty: As per Section 178(8), in case of contravention of provisions of Section 177
and Sec. 178, the company shall be liable to a penalty of ₹ 5 lakh, and every officer of
the company who is in default shall be liable to a penalty of ₹1 lakh.
Q.17 Dharma Ltd. in the light of prospective developments in the infrastructure of company
decided to have borrowing on long term basis from financial Institutions. In the Board
Meeting held on 15th September, 2022, following proposal of borrowing 2,00,00,000 from
financial institutions on long-term basis was also presented for consideration. As per the
given information, in the light of relevant provisions of the Companies Act, 2013, examine
the eligibility of the amount up to which the Board can borrow from financial institution and
the state on the validity of the said proposal. Following were the Balance Sheets of last
three years of Dharma Ltd., containing following facts and figure of financial information:
As at As at As at
Particulars 31.03.2020 31.03.2021 31.03.2022
(₹) (₹) (₹)
Paid-up capital 60,00,000 60,00,000 85,00,000
General Reserve 50,00,000 52,50,000 60,00,000
Credit Balance in Profit & Loss Account 6,00,000 8,50,000 20,00,000
Securities Premium 3,00,000 3,00,000 3,00,000
Secured Loans 20,00,000 25,00,000 40,00,000
Ans.: Borrowing from Financial Institutions:

• As per Sec. 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, can borrow money
including moneys already borrowed up to an amount which does not exceed the aggregate
of paid-up capital of the company, free reserves and securities premium.

• Such borrowing shall not include temporary loans obtained from the company’s bankers in
the ordinary course of business. Here, free reserves do not include the reserves set apart
for specific purpose.
• Since the decision to borrow is taken in a meeting held on 15th Sep., 2022, the figures
relevant for this purpose are the figures as per the Balance Sheet as at 31.03.2022.
According to the above provisions, the eligibility of Board of Directors of Dharma Ltd. to
borrow up to an amount is calculated as follows:
Particulars ₹
Paid-up Capital 85,00,000
General Reserve (being free reserve) 60,00,000
Credit Balance in Profit & Loss Account (to be treated as free reserve) 20,00,000
Securities Premium 3,00,000
Aggregate of paid-up capital, free reserves and securities premium 1,68,00,000
Total borrowing power of the Board of the company, i.e., 100% of the 1,68,00,000
aggregate of paid-up capital, free reserves and securities premium
Less: Amount already borrowed as secured loans 40,00,000
Amount up to which the Board of Directors can further borrow 1,28,00,000
Conclusion: Dharma Ltd. is entitled to borrow ₹ 1,28,00,000 through board of directors. As

in the given case proposal of borrowing was ₹ 2,00,00,000 which is more than eligibility to
borrow, therefore, Dharma Ltd, have to seek approval of shareholders in general meeting.
As the proposal of borrowing ₹ 2,00,00,000 from financial institutions on long-term basis was
presented for consideration in Board Meeting without approval of shareholders in general
meeting, therefore said proposal is invalid.
Q.18 State with reference to the provisions of the Companies Act, 2013 whether the following
companies can make donations to political parties and if so the conditions to be complied with
in this regard.
(i) ABCD Ltd., a government company registered in 1991, wants to donate a sum of ₹ 10
lakhs.
(ii) EFG Ltd., a public company registered in 2017, wishes to contribute a sum of ₹ 5 lakhs.
(iii) RST Ltd., a company incorporated in the year 2018, decides to contribute a sum of ₹
3 lakhs.
(iv) Rama Ltd., wants to make political contribution of ₹ 2,000 in cash. (4 Marks)
Ans.: Contribution to Political Parties:

• As per Sec. 182 of Companies Act, 2013, a government company or any other company
which has been in existence for less than 3 financial years cannot contribute any amount
directly or indirectly to any political party.

• In other cases, contribution in any financial year can be made if a resolution authorising
the making of such contribution is passed at a Board Meeting and such resolution shall,
subject to the other provisions of this section, be deemed to be justification in law for
the making of the contribution authorised by it.
• Every company shall disclose in its profit and loss account the total amount contributed
by it under this section during the financial year to which the account relates.
• Contribution 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 or
through any instrument under a notified scheme.
Conclusion: Considering the provisions of Sec. 182 as stated above, following conclusions may
be drawn:
(i) ABCD Ltd., is not allowed to make donations to political parties as it is a government
company.
(ii) EFG Ltd., can contribute sum of ₹ 5 lakhs subject to compliance of conditions as stated
in Sec. 182.
(iii) RST Ltd., can contribute sum of ₹ 3 lakhs subject to compliance of conditions as stated
in Sec. 182. (It is assumed that contribution is being made in financial year 2022-23)
(iv) Rama Ltd., cannot make political contribution in cash.
Q.19 Soft and Secure Lenders Limited, has convened a Board Meeting on 25th October, 2022.
One of the items of the agenda is to approve the grant of loan of ₹ 20 crore to Easy Going
Industries Limited, for expansion of its business activities. At the Board Meeting, out of
the total of 6 Directors of the lending company, 5 directors were present and except 1
director, the remaining 4 directors approved the grant of loan of ₹ 20 crores to Easy Going
Industries Limited. The borrowing company has taken loans from a public financial institution
and also deposits from public. Examine the loan proposal with reference to the provisions of
the Companies Act, 2013. (4 Marks)
Ans.: Loan by company:

Sec. 186 of Companies Act, 2013 provides the provisions relating to giving loans and making
investment in other companies. Accordingly,
• As per Sec. 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.

• As per Sec. 186(5), 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 is obtained.
• In the instant case, Soft and Secure Lenders Limited convened a board meeting and to
approve grant of loan of ₹ 20 Crore to Easy Going Industries Limited. However, at the
Board meeting, out of the total of 6 directors, 5 directors were present and except 1
director, the remaining 4 directors approved the grant of loan.
Conclusion: Since the approval for the grant of loan has not been sanctioned by passing of
unanimous resolution at board meeting, loan proposal is not in compliance with the Companies
Act, 2013.
Q.20 The Board of Directors of M/s ABC Motors Ltd. made the following appointments at its
meeting held on 1st January, 2022:
(i) Mr. X, a director of its subsidiary company, namely, M/s ABC Forgings Ltd., was
appointed as purchase manager on a consolidated salary of ₹ 1,00,000 per month with
effect from 1st January, 2022.
(ii) Mr. Y was appointed as the sales manager on a consolidated salary of ₹ 1,50,000 per
month with effect from 1st January, 2022.
Answer the following, explaining the relevant provisions of the Companies Act:
(i) Does the appointment of Mr. X require the approval of the members in a general meeting
of the company?
(ii) Mr. P, a relative of Mr. Y was appointed as a Director of M/s ABC Motors Ltd. on 1st
August, 2022. Does it affect the continuation of Mr. Y as the Sales Manager?
(4 Marks)
Ans.: Validity of Appointment in related party transactions:

Legal provisions of Sec. 188:
• As per Sec. 188(1) of Companies Act, 2013, 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 may be prescribed, no company shall enter into any contract or arrangement with a
related party with respect to such related party's appointment to any office or place of
profit in the company, its subsidiary company or associate company.
• Proviso to Sec. 188(1) provides that no contract or arrangement, in the case of a company
having a paid-up share capital of not less than such amount, or transactions not exceeding
such sums, as may be prescribed, shall be entered into except with the prior approval of
the company by a resolution.
• Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 prescribes the
limits and conditions subject to which a company may entered into related party
transactions. Accordingly:

 Agenda of the Board meeting at which the resolution is proposed to be moved shall
disclose the complete particulars of the proposed transaction.
 Where any director is interested in any contract or arrangement with a related
party, such director shall not be present at the meeting during discussions on the
subject matter of the resolution relating to such contract or arrangement.
 Prior approval of company by a resolution will be required, where transaction to be
entered into is for appointment to any office or place of profit in the company, its
subsidiary company or associate company at a monthly remuneration exceeding ₹ 2.50
Lacs.
Conclusion: Considering the provisions of Sec. 188 and Rule 15 of the Companies (Meetings
of Board and its Powers) Rules, 2014, following conclusions may be drawn:
(i) Appointment of Mr. X, a director of ABC Ltd. as Purchase Manager of ABC Motor Ltd.
does not fall under the provisions of Sec. 188 as appointment is made in the holding
company. Hence, appointment of Mr. X does not require the approval of members in
general meeting.
(ii) Appointment of Mr. Y as Sales Manager of ABC Motors Ltd. does not fall under the
provisions of Sec. 188 as at the time of appointment as Mr. Y is not related to any
directors of the company. However, continuation of Mr. Y as a sales manager will lead to
conflict of interest and will affect the continuation unless ratified by the Board.
Chapter – 3 Appointment & Remuneration of Managerial Personnel
Q.21 Dr. Kishore Krishnan has opted to join as Independent Director in Rosemary Pharmaceuticals
Limited which manufactures various kinds of medicines under the brand name “ROSE”. As an
Independent Director, Dr. Krishnan is of the view that he needs to be paid amount ten
thousand more than the sitting fees which is being paid to other directors for attending
board meetings. You are required to comment on the viability of the proposal as per the
Companies Act, 2013. (4 Marks)
Ans.: Payment of Sitting Fees:

• As per Sec. 197(5) of the Companies Act, 2013 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:
Provided that the amount of such fees shall not exceed the amount as may be prescribed.
• 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 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 ₹ 1 lakh per meeting of the Board or committee thereof:
Provided that for Independent Directors and Women Directors, the sitting fee shall not
be less than the sitting fee payable to other directors.”

• In view of the above provisions, Dr. Kishore Krishnan may be paid ₹ 10,000 more than the
sitting fees which is being paid to other directors for attending board meetings but in no
case the maximum payment shall exceed ₹ 1 lakh per meeting of the Board or committee
thereof. Thus, if other directors are being paid ₹ 1 lakh per meeting, Dr. Krishnan, as
Independent Director, will also be paid ₹ 1 lakh only and not ₹. 1.10 lakh.
Q.22 Mr. Srinath, Ms. Smriti and Mr. Irfan are directors of Protease Sports Limited (PSL),
which is renowned brand of sports items. Mr. Rahul is a Managing Director there. Mr. Irfan
is Whole time director whose 4 years of tenure is still there. The annual average
remuneration of Mr. Rahul, Mr. Srinath, Ms. Smriti and Mr. Irfan are ₹ 84 lacs, ₹ 21
lacs, ₹ 18 lacs, and ₹ 48 lacs respectively.
PSL acquired by Rockman Sports. Mr. Srinath, Ms. Smriti and Mr. Irfan lost their office
of director. Mr. Rahul also lost his office but he is appointed as the Managing director of
the body corporate resulting from the restructuring. All of them demanding the compensation
for loss of office.
Enumerate and analyze as per the given situation in the light of the provisions of Companies
Act, 2013 whether they are eligible to get compensation? If yes, then what will be amount
of compensation for the same? (4 Marks)
Ans.: Compensation to Directors:

• Section 202 of the Companies Act 2013, deals with the compensation for loss of office
of managing or whole-time director or manager.
• As per Sec. 202(1) a company may make payment to a managing or whole-time director
or manager, but not to any other director, by way of compensation for loss of office, or
as consideration for retirement from office or in connection with such loss or
retirement.
Hence, Mr. Srinath and Ms. Smriti are not eligible for any compensation for loss of the
office.
• As per Sec. 202(2) in certain cases wherein no payment shall be made as compensation,
the clause (a) of sub-section 2 states, where the director resigns from his office as a
result of the reconstruction of the company, or of its amalgamation with any other body
corporate or bodies corporate, and is appointed as the managing or whole-time director,
manager or other officer of the reconstructed company or of the body corporate
resulting from the amalgamation,
Hence Mr. Rahul is not eligible for any compensation for loss of the office of MD at
PSL.
Conclusion: Mr. Irfan will get the compensation for loss of office (Whole Time Director).
As per Sec. 202(3) any payment made to a managing or whole-time director or manager in
pursuance of Sec. 202(1) shall not exceed the remuneration which he would have earned if
he had been in office for the remainder of his term or for 3 years, whichever is shorter,

calculated on the basis of the average remuneration actually earned by him during a period
of 3 years immediately preceding the date on which he ceased to hold office, or where he
held the office for a lesser period than three years, during such period. So, the maximum
amount of compensation that can be paid to Mr. Irfan is ₹ 1.44 crore (₹ 48 lacs* 3 i.e.
Unexpired period subject maximum of 3 year).
Q.23 Excel limited is a listed company with a turnover of ₹ 60 crores in the FY 2021-22. The
company appoints Ms. R as the women director on 1st March 2022. Ms. R is chartered
accountant in practice.
Further, also, Ms. R, is a director in Supreme Ltd. where he is acting in a professional
capacity. Since lots of proposal for the holding of directorship in various companies are lined
up before the Ms. R, so in order to retain him, Remuneration and nomination committee
proposed to enhance the remuneration of Ms. R from 4 Lakh per month to 6 Lakh per month.
However, Supreme Limited was running in losses for last 2 years.
Analysis the proposition of enhancement of the remuneration of Ms. R in Supreme Ltd.
(2 Marks)
Ans.: Managerial Remuneration in case of company running in losses:

• Sec. 197(3) of Companies Act, 2013 provides that if in any financial year, a company has
no profits or its profits are inadequate, the company shall not pay to its directors,
including managing or whole-time director or manager or any other non-executive
director, including an independent director, any remuneration exclusive of any fees
payable to directors except in accordance with the provisions of Schedule V.
• Item B of Section II of Part II of Schedule V provides that in case of a managerial
person or other director who is functioning in a professional capacity, remuneration as
per item (A) may be paid, if such managerial person, possesses graduate level qualification
with expertise and specialised knowledge in the field in which the company operates.
• As per Item (A) of Section II of Part II of Schedule V, where in any financial year during
the currency of tenure of a managerial person or other director, a company has no profits
or its profits are inadequate, it may, pay remuneration on the basis of effective capital.
• Limits specified under items (A) and (B) shall apply if payment of remuneration is
approved by a resolution passed by the Board and, in the case of a company covered u/s
178(1) also by the Nomination and Remuneration Committee.
Conclusion: As Ms. R is working in professional capacity and the remuneration has been
proposed by the remuneration Committee, remuneration based on effective capital may be
paid.
If effective capital of the company is negative or less than ₹ 5 Crore, remuneration upto ₹
60 Lakh can be paid by ordinary resolution; for remuneration in excess of ₹ 60 lakh, special
resolution will be required. However, if effective capital is ₹ 5 Cr. or above but less than ₹
100 Crores, remuneration upto ₹ 84 lakh can be paid by ordinary resolution.

Q.24 Mr. X, a Director of MJV Ltd., was appointed on 1st April, 2021, one of the terms of
appointment was that in the absence of adequacy of profits or if the company had no profits
in a particular year, he will be paid remuneration in accordance with Schedule V. For the
financial year ended 31st March, 2022, the company suffered heavy losses. The company
was not in a position to pay any remuneration but he was paid ₹ 50 lakh for the year, as
paid to other directors. The effective capital of the company is ₹ 150 crores. Referring to
the provisions of Companies Act, 2013, as contained in Schedule V, examine the validity of
the above payment of remuneration to Mr. X. (4 Marks)
Ans.: Managerial Remuneration in case of company running in losses:

• Sec. 197(3) of Companies Act, 2013 provides that if in any financial year, a company has
no profits or its profits are inadequate, the company shall not pay to its directors,
including managing or whole-time director or manager or any other non-executive director
including an independent director, any remuneration exclusive of any fees payable to
directors except in accordance with the provisions of Schedule V.
• Section II of Part II of schedule V provides that where in any financial year during the
currency of tenure of a managerial person, a company has no profits or its profits are
inadequate, it may, pay remuneration to the managerial person not exceeding ₹ 120 Lakhs
for the year if the effective capital of the company is ₹ 100 crores and above but less
than ₹ 250 crores.
• Remuneration in excess of above limit may be paid if approved by the members by special
resolution and further if the appointment is for a part of the financial year the
remuneration will be prorated.
• In the instant case, company is running in losses and paid ₹ 50 lakh to the director for
the year.
Conclusion: Remuneration paid is within the prescribed limits.
Note: It is assumed that Mr. X is a managerial person.

Chapter 4 - Inspection, Inquiry and Investigation
Q.25 The shareholders of SKM Limited are not satisfied with the performance of the company.
Some of the activities carried on by the company are not in the interest of the company
and its members. The total number of shareholders as per the Register of Members as on
31.3.2022 was 2,000 and 450 members holding 16% of the paid-up value of the shares
have made an application jointly to the Central Government to appoint an Inspector to carry
out the investigation and find out the true picture. With reference to the provisions of the
Companies Act, 2013, mention whether the application will be accepted? Elaborate. After
the filing of the application about 100 members holding about 7% of the paid-up capital had
withdrawn. Decide whether the application is maintainable or not. (4 Marks)
Ans.: Circumstances when Investigation may be ordered by C.G.

• Sec. 210(1) of the Companies Act, 2013 provides that where the C.G. is of the opinion,
that it is necessary to investigate into the affairs of a company,
 on the receipt of a report of the Registrar or Inspector u/s 208;
 on intimation of a special resolution passed by a company that the affairs of the
company ought to be investigated; or
 in public interest,
it may order an investigation into the affairs of the company.
• In the present case, Shareholders of SKM Ltd. are not satisfied about performance of
the company. It is suspected that some activities carried on by the company are not in
the interest of the company and its members. 450 out of total 2000 members of the
company have made an application to the C.G. to appoint an inspector to carry out
investigation and find out the true picture.
Conclusion: Considering the provisions of Sec. 210(1), application will not be accepted as
special resolution not passed. Alternatively, in public interest, C.G. has discretion to order
for the investigation.
Subsequent withdrawal of applicant from the application has no consequences, as application
was not maintainable from the very beginning as special resolution not passed.
Q.26 Some creditors of NTY Limited approached you to guide them to apply to the Tribunal for
seeking an order for conducting an investigation into the affairs of the company due to the
fact that the business of the company is being conducted with intention to defraud its
creditors. Referring to the provisions of the Companies Act, 2013, guide them regarding
the circumstances under which and how a person, not being a member of the company can
apply to the Tribunal to seek an order for conducting an investigation into the affairs of a
company. (4 Marks)
Ans.: Circumstances in which Tribunal may pass order

Clause (b) of Sec. 213 of Companies Act, 2013 provides that Tribunal on filing of an
application by person (not being a member of the company) or otherwise if it is satisfied
that there are circumstances suggesting that-

(i) 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;
(ii) persons concerned in the formation of the company or the management of its affairs
have in connection therewith been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members; or
(iii) the members of the company have not been given all the information with respect to
its affairs which they might reasonably expect, including information relating to the
calculation of the commission payable to a managing or other director, or the manager,
of the company,
may pass order order, after giving a reasonable opportunity of being heard to the parties
concerned, that the affairs of the company ought to be investigated by an inspector or
inspectors appointed by the Central Government and where such an order is passed, the
Central Government shall appoint one or more competent persons as inspectors to
investigate into the affairs of the company in respect of such matters and to report
thereupon to it in such manner as the Central Government may direct.
Conclusion: The creditors of NTY Ltd. should be guided in terms of the provisions stated
above.
Q.27 In connection with on-going investigation of Anurudh Ltd., the inspector on duty, Mr.
Samrudh Dave required books and papers of a debtor of the company namely, M/s Arthyati
Garments for examining them and so, he obtained the same from the said firm. After
obtaining necessary information that he required, he returned them within 90 days. Examine
whether Mr. Samrudh was having the rights to obtain such books and papers and retain
them for such period, and also examine the consequences in case if the firm had refused
producing the same. (8 Marks)
Ans.: Inspector’s Powers during investigation:

• As per Sec. 217(2) of the Companies Act, 2013, the inspector may require any body
corporate, other than a body corporate under investigation, to furnish such information
to, or produce such books and papers before him or any person authorized by him in this
behalf as he may consider necessary, if the furnishing of such information or the
production of such books and papers is relevant or necessary for the purposes of his
investigation.
• As per Sec. 217(3) of the Companies Act, 2013, the inspector shall not keep in his
custody any books and papers produced as aforesaid, for more than 180 days and return
the same to the company, body corporate, firm or individual by whom or on whose behalf
the books and papers were produced.
However, the books and papers may be called for by the inspector if they are needed
again for a further period of 180 days by an order in writing.

• Further, as per Sec. 217(8), if any person fails without reasonable cause or refuses to
produce to an inspector or any person authorised by him in this behalf any book or paper
which is his duty, to produce, he shall be punishable with imprisonment for a term which
may extend to 6 months and with fine which shall not be less than ₹ 25,000 but which
may extend to ₹ 1 lakh, and also with a further fine which may extend to ₹ 2,000 for
every day after the first during which the failure or refusal continues.
• Hence, in the given case, the inspector, Mr. Samrudh Dave was having adequate rights
to obtain required books and papers from a debtor of the company, M/s Arthyati
Garments which he considered relevant or necessary for the purposes of his
investigation. Further, it was his duty to return them within the prescribed period.In
the given case, Mr. Samrudh has adhered to the same by returning the said books and
papers within 90 days i.e. within the prescribed time-limit.
• In case, if the said firm had refused producing the same which is its duty, then it would
have been liable for punishment as mentioned in the provisions.
Q.28 M/s Genesis Paper Ltd. has been incurring business losses for past couple of years. The
company, therefore, passed a special resolution for voluntary winding up. Meanwhile,
complaints were made to the Tribunal and to the Central Government about foul play of the
directors of the company, which adversely affected the interests of shareholders of the
company as well as the public. In this situation advise whether investigation may be initiated
against the company under the provisions of the Companies Act, 2013. (4 Marks)
Ans.: Voluntary winding up of company, etc., not to stop investigation proceedings

• Sec. 226 of Companies Act, 2013 provides that an investigation may be initiated
notwithstanding, and no such investigation shall be stopped or suspended by reason only
of, the fact that:
(a) an application has been made u/s 241 (claiming relief from oppression and
mismanagement);
(b) the company has passed a special resolution for voluntary winding up; or
(c) any other proceeding for the winding up of the company is pending before the
Tribunal.
• In the present case, M/s Genesis Paper Ltd. has been incurring business losses for past
couple of years. The company, therefore, passed a special resolution for voluntary
winding up. Meanwhile, complaints were made to the Tribunal and to the C.G. about foul
play of the directors of the company, which adversely affected the interests of
shareholders of the company as well as the public.
Conclusion: Considering the provisions of Sec. 226, investigation may be initiated. It will
not be stopped or suspended by the reason of the fact that the company has passed a
special resolution for voluntary winding up.

Chapter 5 - Compromises, Arrangements & Amalgamations
Q.29 Genuine Spares and Accessories Limited has got a good reputation in the market and has
loyal customers. Due to the local competition and from unbranded spares, its turnover has
gone down over the years and it had ended in red with a loss of ₹ 2.00 crore for the year
ended 31.3.2022 and the same trend is expected to continue for the year ended 31.3.2023.
It has got a large amount of unpaid trade creditors of ₹ 1,25,00,000 and unpaid dividends
for the year ended 31.3.2018 – ₹ 1,50,000 and 31.3.2019 – ₹ 80,000.
Even during the difficult periods of business environment, the company continued the
business. One of the directors has suggested in the meeting of the Board of Directors that
the company can compromise or make arrangements with creditors. Mr. Magesh is the Chief
Accounts Officer of the company for the last two decades. He has been entrusted with the
task of finding out the possibility of making compromise with the creditors. Enumerate the
formalities to be observed by the company with regard to (i) filing of compromise application
and (ii) disclosures to be made in the application by the company. (4 Marks)
Ans.: Scheme of Compromise with Creditors:

(i) Filing of Compromises application:
As per Sec. 230(1), where a compromise or arrangement is proposed between (a) a
company and its creditors or any class of them; or (b) a company and its members or any
class of them, the Tribunal may, on the application of the company or any creditor or
member of the company, or in the case of a company which is being wound up, of the
liquidator (whether appointed under this Act or under the Insolvency and Bankruptcy
Code, 2016), order a meeting of the creditors or class of creditors, or of the members
or class of members, as the case may be, to be called, held and conducted in such manner
as the Tribunal directs.
(ii) Disclosures to be made along with application:
As per Sec. 230(2) of the Companies Act, 2013, the company or any other person, by
whom an application is made u/s 230(1), shall disclose to the Tribunal by affidavit:
(a) all material facts relating to the company, such as
• the latest financial position of the company,
• the latest auditor’s report on the accounts of the company, and
• the pendency of any investigation or proceedings against the company;
(b) reduction of share capital of the company, if any, included in the compromise or
arrangement;
(c) any scheme of corporate debt restructuring consented to by not less than 75% of
the secured creditors in value, including:
(i) a creditor’s responsibility statement in the prescribed form;
(ii) safeguards for the protection of other secured and unsecured creditors;

(iii) report by the auditor that the fund requirements of the company after the
corporate debt restructuring as approved shall conform to the liquidity test
based upon the estimates provided to them by the Board;
(iv) where the company proposes to adopt the corporate debt restructuring
guidelines specified by the RBI, a statement to that effect; and
(v) a valuation report in respect of the shares and the property and all assets,
tangible and intangible, movable and immovable, of the company by a registered
valuer.
Q.30 The shareholders and creditors of Fume Limited, in a meeting convened for approval of a
scheme of reconstruction of the company, passed the necessary resolutions. The Tribunal
makes an order sanctioning a scheme of reconstruction of the company. After a few days
the Tribunal decided to modify the scheme of reconstruction of the company. After
modifications of the scheme based on the order of the Tribunal, the company could not
implement the scheme satisfactorily and the Tribunal decided to go for winding-up of the
company. The directors of the company objected to the above acts of the Tribunal. Comment
with reference to the provisions of the Companies Act, 2013, whether the objection raised
by the directors is right on the decision of the Tribunal modifying the scheme and winding-
up of the company. (4 Marks)
Ans.: Power of Tribunal to enforce Compromise or Arrangement (Sec. 231):
• As per Sec. 231 of the Companies Act, 2013, where the Tribunal makes an order u/s 230
sanctioning a compromise or an arrangement in respect of a company, it:
(a) shall have power to supervise the implementation of the compromise or arrangement;
and
(b) may, at the time of making such order or at any time thereafter, give such directions
in regard to any matter
or
make such modifications in the compromise or arrangement as it may consider
necessary for the proper implementation of the compromise or arrangement.
• If the Tribunal is satisfied that:
 the compromise or arrangement sanctioned u/s 230 cannot be implemented
satisfactorily with or without modifications,
and
 the company is unable to pay its debts as per the scheme,
it may make an order for winding up the company and such an order shall be deemed to
be an order made u/s 273.
Conclusion: Based on the provisions of Sec. 231 as stated above, objections raised by the
directors are not right on the decision of the Tribunal modifying the scheme and winding-up
of the company.

Q.31 A scheme of amalgamation under fast-track mode had been entered between Darvak (P)
Ltd., a start-up company and Sopan (P) Ltd., a small company, for which objections where
received from the Official Liquidator by the Central Government within the prescribed time
period of thirty days but the Central Government did not file any application with respect
to the same with the Tribunal. Examine whether companies were eligible for amalgamation
and also examine the situations in following scenarios:
(i) Where Central Government did not file any application with respect to objections received
with the Tribunal.
(ii) Where the Central Government filed an application with the Tribunal. (8 Marks)
Ans.: Merger of Certain Companies:

According to section 233 of the 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 class or classes of companies i.e., between two
or more start-up companies or one or more start-up company with one or more small
company.
If the Central Government after receiving the objections or suggestions or for any reason
is of the opinion that such a scheme is not in public interest or in the interest of the
creditors, it may file an application before the Tribunal within a period of sixty days of the
receipt of the scheme, stating its objections and requesting that the Tribunal may consider
the scheme under section 232.
On receipt of an application from the Central Government or from any person, if the
Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be
considered as per the procedure laid down in section 232, the Tribunal may direct
accordingly or it may confirm the scheme by passing such order as it deems fit.
However, if the Central Government does not have any objection to the scheme or it does
not file any application under this section before the Tribunal, it shall be deemed that it
has no objection to the scheme.
Accordingly, Darvak Ltd. and Sopan Ltd., in nature of start-up company and small company
are eligible for amalgamation under section 233 of the Companies Act, 2013.
Q.32 M/s. Unicorn Rubber Sheets Limited was incorporated and registered in the United Kingdom.
M/s. Artha Rubber Sheets Manufacturing and Trading Limited is an Indian Company
incorporated and registered under the provisions of the Companies Act, 2013. A scheme of
compromise between the above two companies provided for an amalgamation of the English
Company with the Indian company. The CFO of the Indian Company is of the opinion that
the companies being amalgamated must be companies registered in India and therefore an
amalgamation with a company registered outside India is not possible. Explaining the relevant
provisions of the Companies Act, 2013, examine the correctness or otherwise of the following
with reference to a scheme of amalgamation of Companies:

(i) Whether the contention of the CFO is correct that the companies being amalgamated
must be Companies registered in India?
(ii) What is the majority required for approving the scheme of amalgamation in a meeting
of members of a company called as per the directions of the Tribunal? (4 Marks)
Ans.: (i) Merger or Amalgamation of Company with Foreign Company:

• Section 234 of the Companies Act, 2013 provides the provisions related to merger of
an Indian company with a foreign company.
• Accordingly, a foreign company, may with the prior approval of the RBI, 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 Depository Receipts, or partly
in cash and partly in Depository Receipts, as the case may be, as per the scheme to be
drawn up for the purpose.
Conclusion: Considering the provisions of Sec. 234, it may be concluded that contention
of CFO that the companies being amalgamated must be Companies registered in India is
not correct.
(ii) Majority required for approving the scheme of amalgamation:
As per Sec. 230(6) of the Companies Act, 2013 majority required for approving the
scheme of amalgamation is simple majority (in number) representing 3/4th 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.
Chapter 6 - Prevention of Oppression & Mismanagement
Q.33 The issued and paid-up capital of MNC Limited is ₹5 crores consisting of 5,00,000 equity
shares of ₹ 100 each. The said company has 500 members. A petition was submitted before
the Tribunal signed by 80 members holding 10,000 equity shares of the company for the
purpose of relief against oppression and mismanagement by the majority shareholders.
Examining the provisions of the Companies Act, 2013, decide whether the said petition is
maintainable.
Also explain the impact on the maintainability of the above petition, if subsequently 40
members, who had signed the petition, withdrew their consent. (4 Marks)
Ans.: Validity of Petition filed for relief against oppression and mismanagement:
• As per Sec. 244 of Companies Act, 2013, in the case of a company having a share capital,
not less than 100 members of the company or not less than 1/10th of the total number of
its members, whichever is less, or 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, shall have
the right to apply u/s 241.

• In the present case, petition was signed by 80 members out of 500 members. Group of
Applicant hold 10,000 shares out of 5,00,000 shares.
Conclusion: Petition made by 80 members meets the eligibility criteria specified u/s 244 of
the Companies Act, 2013 as group of applicants consist of 80 members which is more than
1/10th of total 500 members. Therefore, the petition is maintainable.
Impact of subsequent withdrawal of consent: It has been held by the Supreme Court in
Rajmundhry Electric Corporation vs. V. Nageswar Rao, that if some of the consenting
members have subsequent to the presentation of the petition withdraw their consent, it
would not affect the right of the applicant to proceed with the petition. Hence petition
remains maintainable.
Q.34 M/s DJ Limited, a listed company, as per the audited financial statements as at March 31,
2022 is having issued and paid-up equity share capital comprising of 10 lakhs share of ₹ 10
each and issued and paid-up preference share capital of 5 lakhs share of ₹ 10 each
respectively. The members of the company after complying with the provisions of Sec. 169
of the companies Act, 2013 removed one Mr. Satish from the directorship of the company
on 1st August 2022 before the completion of his term of office. Mr. Satish is also one of
the members of the company holding 110000 fully paid-up equity shares. Mr. Satish has
alleged oppression on his removal and has moved the jurisdictional Honourable National
Company Law Tribunal (NCLT) u/s 241 read with Section 244 of the Companies Act, 2013.
The Board of Directors of the company is of the opinion that the application is not
maintainable as per the provisions of Section 244 of the Companies Act, 2013 Decide.
Also, state if any other recourse that is available with Mr. Satish under the provisions of
the Companies Act, 2013. (4 Marks)
Ans.: Validity of Petition filed for relief against oppression and mismanagement:
• As per Sec. 244 of Companies Act, 2013, in the case of a company having a share capital,
not less than 100 members of the company or not less than 1/10th of the total number of
its members, whichever is less, or 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, shall have
the right to apply u/s 241.
• However, the Tribunal may, on an application made to it in this behalf, waive all or any of
the requirements specified above so as to enable the members to apply under section 241.
• In the instant case, total issued share capital consists of 15 lakhs shares. The members
of the company after complying with the provisions of Sec. 169 of the companies Act,
2013 removed one Mr. Satish from the directorship of the company on 1st August 2022
before the completion of his term of office. Mr. Satish is also one of the members of the
company holding 110000 fully paid-up equity shares. Mr. Satish has alleged oppression on

his removal and has moved the jurisdictional Honourable NCLT u/s 241 read with Section
244 of the Companies Act, 2013.
• Share capital of Mr. Satish (1.1 Lakh Shares) is less than 1/10th of total issued share
capital (15 Lakh Shares).
Conclusion: Petition is not maintainable as shares held by Mr. Satish is less than 1/10th of
issued share capital of the company. However, as per proviso to section 244(1), Mr. Satish
may make an application to the Tribunal in this behalf for the waiver of the above condition
so that he may apply u/s 241.
Q.35 Modern Furniture Limited (MFL) is dealing in designer office and household furniture, MFL
was incorporated in 2014, until 2018 MFL made huge profits and declares the dividend at
extremely high rate nearly 400% i.e. (four time to the paid-up face value).
In 2019 MFL came-up with public issue of equity, therefore share capital was increased 3
times from 12 crores to 36 crores. The number of total registered member increased to
7680. The company drastically reduced the rate of dividend payment and paid only at average
rate of 25% during 2019 to 2022.
Handful of the shareholders raised this issue and their concerns related to it, in all 4 annual
general meetings (from 2019 to 2022), but they were not supported by large chunk of
shareholders. They reached to chairman with their concern that they made investment after
considering the rate of dividend which MFL was offering between 2014 and 2018. The
chairman reverted back that MFL is aspired to open furniture showroom in 40+ cities in
upcoming two years, in line of board’s recommendations, hence declare the dividend at rate
recommended by board.
The share capital of MFL consists of equity shares only.
Such minor chunk of shareholder (members), which are 84 in numbers and holding around 6%
of the issued share capital (fully called and duly paid-up); approached you (a legal consultant)
for advice on;
(a) Can minor chunk of shareholders object to lower dividend? Does lower rate of dividend
amounts to oppression on minority?
(b) Is there any forum whereat this minor chuck can register their grievance? Are they
eligible to file petition? (4 Marks)
Ans.: (A) Prevention of Oppression and Mismanagement:

• Dividend is undoubtedly declared at AGM every year, but it is declared based upon
the recommendation made by Board of Directors in this regard. Members
(Shareholders) neither declare for dividend at higher rate than recommend by
Board of Directors nor can they pressurize Board to recommend dividend at some
higher rate, although they may declare dividend at some lower rate.
Hence, minor chuck of shareholder can’t object to lower dividend.

• Further, the lower rate of dividend shall not considered as oppression on the
minority. However, if it can be proved that minorities are being deprived of genuine
benefits, then can be amounts to oppression. Even failure to declare dividend
doesn’t amount to oppression. (Thomas Veddon V.J. v. Kuttanad Robber Co. Ltd).
• If issue document of public issue of shares by MFL contains any commitment
regarding high rate of dividend than actions for misstatement in prospectus can be
taken, even if no one (investor) subscribe the share considering that commitment.
(Actual loss to investor is not necessary for make any person liable for
misstatement made by him in prospectus).
(b) Minority chunk of shareholders can seek redressal by advancing a petition to NCLT
under section 241 of the Companies Act, 2013. In case of listed companies’ minorities
may register their grievances for resolution in Investor Relations committee of the
Board or file petition in NCLT.
Further under section 244 of the Companies Act, 2013, it is provided that in the case
of a company having share capital, the following member(s) have the right to apply to
the Tribunal under section 241;
(i) Not less than 100 members of the company or not less than one-tenth of the total
number of members, whichever is less; or
(ii) Any member or members holding not less than one-tenth of the issued share capital
of the company provided the applicant(s) have paid all the calls and other sums due
on the shares.
But in given the case, there are only 84 members i.e. 1.09% of total of 7680 members,
and holding nearly 3% of issued share capital, hence petition can’t be advanced to NCLT.
Q.36 M/s Sunshine Oils Limited, a listed company as at 31st March, 2022 as per the audited
financial statements is having 200 depositors with ₹ 50 Crores of deposit in the company.
Out of the total 200 depositors, 20 depositors of the company have formed a group and
have appointed Mr. Ram (a practicing advocate who is not one of the depositors) as their
representative to file an application in the National Company Law Tribunal (NCLT) to bring
a Class Action suit against the management and conduct of affairs of the company are being
conducted in a manner which is prejudicial to the interest of the depositors being oppressive.
Will the application of Mr. Ram be admitted by the Honourable Tribunal. Discuss with
reference to the provisions of the Companies Act, 2013? (4 Marks)
Ans.: Validity of Application to bring a class action suit:

• Sec. 245(3) of the Companies Act, 2013 prescribes the required number of members or
depositors to apply for class action suit. Accordingly, the requisite number of depositors
to file an application shall not be less than 100 depositors or not less than such percentage
of the total number of depositors as may be prescribed, whichever is less.

• The requisite number of depositor or depositors to file an application u/s 245(1) shall be:
(a) 5% of the total number of depositors of the company; or 100 depositors of the
company, whichever is less; or
(b) depositor or depositors to whom the company owes 5% of total deposits of the
company.
• As per Sec. 432, a party to any proceeding or appeal before the Tribunal or Appellate
Tribunal as the case may be, may appear in person or authorize one or more Chartered
Accountant or Company Secretaries or Cost Accountants or legal practioners or any other
person to present his case before the Tribunal or Appellate Tribunal as the case may be.
• Sec. 245(10) states that subject to the compliance of this section, an application may be
filed or any other action may be taken under this section by any person, group of persons
or any association of persons representing the persons affected by any act or omission.
• In the instant case, 20 depositors out of 200 depositors have formed a group and have
appointed Mr. Ram (a practising Advocate who is not one of the depositors) as their
representative to bring a class action suit against the management of the Company.
Conclusion: Application need to be admitted by the Tribunal as it satisfies the eligibility
criteria. Mr. Ram can file application on behalf of depositors.
Chapter 7 - Winding Up
Q.37 Clarks Limited, has made default in filing financial statements and annual returns for a
continuous period of 4 financial years ending on 31st March, 2022. The Registrar of
Companies having jurisdiction approached the Central Government to accord sanction to
present a petition to Tribunal (NCLT) for the winding up of the company as per the above
ground under section 272 of the Companies Act, 2013.
Examine the validity of the ROC move, explaining the relevant provisions of the Companies
Act, 2013. State the time limit for passing an order by the Tribunal under section 273 of
the Companies Act, 2013? (4 Marks)
Ans.: Examination of Validity of ROC move to present a petition for winding up:
• Sec. 271(1)(d) of Companies Act, 2013 provides that a company may, on a petition u/s
272, be wound up by the Tribunal, if the company has made a default in filing with the
Registrar its financial statements or annual returns for immediately preceding five
consecutive financial years.
• In the present case, the Registrar of Companies having jurisdiction over the company
approached the Central Government to accord sanction to present a petition to Tribunal
(NCLT) for the winding up of the company on the ground that company has made default
in filing financial statements and annual returns for a continuous period of 4 financial
years ending on 31st March, 2022.
Conclusion: ROC move is not valid as at present default in filing the financial statements and
annual returns subsists for four years as of now.

Time Limit for passing order by Tribunal u/s 273:

As per proviso to Sec. 273(1) of Companies Act, 2013, an order by the Tribunal is to be
passed within 90 days from the date of presentation of the petition.
Q.38 Info-tech Overtrading Ltd. was ordered to be wound up compulsory on a petition filed on
10th March, 2022 before the Tribunal. The official liquidator who has taken control for the
assets and other records of the company has noticed the following:
The Managing Director of the company has sold certain properties belonging to the company
to a private company in which his son was interested causing loss to the company to the
extent of INR 50 lakhs. The sale took place on 15th October, 2021.
Examine what action the official liquidator can take in this matter, having regard to the
provisions of the Companies Act, 2013. (4 Marks)
Ans.: Transactions to be treated as Fraudulent preference:
• Sec. 328 of the Companies Act, 2013 provides that if the Tribunal is satisfied that there
is a preference transfer of property, movable or immovable, or any delivery of goods,
payment, execution made, taken or done by or against a company within 6 months before
making winding up application, the Tribunal may order as it may think fit and may declare
such transaction invalid and restore the position.
• In the present case, Managing Director of the company has sold certain properties
belonging to the company to a private company in which his son was interested causing
loss to the company to the extent of ₹ 50 lakhs. The sale took place on 15th October,
2021. Petition for winding up filed on 10th March, 2022 before the Tribunal. Transaction
of sale of properties has taken within 6 months before making winding up application.
Conclusion: Official Liquidator may apply to Tribunal to treat the sale of properties as a
transaction for fraudulent preference and restoring the position.
Q.39 PQR Limited has purchased machinery from the vendor under hire purchase agreement.
Subsequently, before payment of last instalment due on 01.08.2022 the Company went into
liquidation in the month of July 2022 under the order of the Tribunal. Due to Liquidity
problem PQR Limited defaulted the payment of the last instalment due under hire purchase
agreement for the machinery and consequently the Vendor seized the machinery from the
custody of PQR Limited on the next day of the default and sold it to the new buyer without
leave of the Tribunal. Examine the effect of the transaction of seizing and transferring
the machinery by the vendor to the new buyer in the light of the provisions of sections 334
and 335 of the Companies Act, 2013 dealing with the winding up of the Company.
(3 Marks)
Ans.: Effect of transfer etc. after commencement of winding up:

• As per Sec. 334 of the Companies Act, 2013, in the case of a winding up by the Tribunal,
any disposition of the property including actionable claims, of the Company and any
transfer of shares in the Company or alteration in the status of its members, made after
the commencement of the winding up shall, unless the Tribunal otherwise orders, be void.
• Sec. 335 provides that, where any Company is being wound up by the Tribunal:
(a) any attachment, distress or execution put in force, without leave of the Tribunal
against the estate or effects of the company, after the commencement of the
winding up; or
(b) any sale held, without leave of the Tribunal of any of the properties or effects of
the company, after such commencement,
shall be void.
Conclusion: based on the provisions as stated above, the transaction of seizing and
transferring the machinery by the vendor to the new buyer is void.
Q.40 Sigor Limited was in the process of liquidation. It had some correspondence with its auditor,
which was in the company's letter head. The auditor observed that the letter head was not
in compliance with Section 344, as it did not mention the fact that the company was being
wound up. He immediately called up one of the directors and advised him about the provisions
of Section 344 and the consequences of non-compliance.
State, the provisions and consequences regarding which the auditor would have advised.
(4 Marks)
Ans.: Statement that Company is in Liquidation (Sec. 344 of the Companies Act, 2013)
(i) Statement of winding up: Where a Company is being wound up, whether by
• the Tribunal or
• voluntarily,
every invoice, order for goods or business letter issued-
• by or on behalf of the Company or

• by a Company Liquidator of the Company, or
• by a receiver or
• by the manager of the property of the Company,
being a document on or in which the name of the Company appears, shall contain a
statement that the Company is being wound up.
(ii) Penalty: If a company contravenes the above provisions, the company and every officer
of the Company, the Company Liquidator and any receiver or manager, who wilfully
authorises or permits the non-compliance, shall be punishable with fine which shall not
be less than ₹ 50,000 but which may extend to ₹ 3 lakh.
In the instant case, the Auditor would have advised accordingly.

Chapter 8 - Companies Incorporated Outside India
Q.41 Trans Asia Limited is registered as a public company u/s 4(7) of the erstwhile Companies
Act, 1956 which is a subsidiary of Galileo Limited, a foreign company. Trans Asia Limited
carries in business in India describing itself as a foreign company. Can it do so? State the
actions that can be taken against the company for improper use or description as foreign
company under the provisions of the Companies Act, 2013. (4 Marks)
Ans.: Action for Improper Use or Description as Foreign Company:
• As per Sec. 2(42) of Companies Act, 2013, foreign company means any company or body
corporate incorporated outside India which:
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.
• In instant case, Trans Asia Limited is registered as a public company u/s 4(7) of the
erstwhile Companies Act, 1956 which is a subsidiary of Galileo Limited, a foreign
company.
Conclusion: As Trans Asia Limited is registered in India, hence it cannot describe itself as a
foreign company merely on the basis that it is a subsidiary of a foreign company.
As per Rule 12 of Companies (Registration of Foreign Companies) Rules, 2014, if any person
trade or carry on business in any manner under any name or title or description as a foreign
company registered under the Act or the rules made thereunder, that person shall, unless
duly registered as foreign company under the Act and rules made thereunder, shall be liable
for investigation u/s 210 of the Act and action consequent upon that investigation shall be
taken against that person.
Q.42 Kids Toys Limited, a company incorporated in Japan, has established its branch office in
Mumbai for business to be conducted in India. The structure of paid-up share capital of
Kids Toys Limited as at 31.03.2022 is as below:
Preference share capital held by Jiyalal, an Indian citizen: 10%
Equity share capital held by Ramlal, an Indian Citizen: 20%
Equity share capital held by Smart Toys Limited,
Indian National company: 20%
You are being a Chartered Accountant is requested to explain with reference to the provisions
of the Companies Act, 2013 whether Kids Toys Limited shall be deemed to be a foreign
Company or an Indian Company for the business carried on by it in India and for such
business will it be required to comply with the relevant provisions of the Companies Act,
2013 as if it is an Indian Company. (4 Marks)
Ans.: Determination of Status of Foreign Company:
As per Sec. 2(42) of the Companies Act, 2013, a “foreign company” means any company or a
body corporate incorporated outside India which has a place of business in India whether by
itself or through an agent physically or through electronic mode and conducts any business
activity in India in any other manner.

In the given question, Kids Toys Limited, a Japanese Company has established a place of
business in India (branch office in Mumbai) and also carries on the business in India.
Conclusion: Kids Toys Limited shall be deemed to be a Foreign Company.
Application of provisions of the Companies Act, 2013 on foreign company:
As per Sec. 379(2) of the Companies Act, 2013, where not less than 50% of the paid-up
share capital, whether equity or preference or partly equity and partly preference, of a
foreign company is held by:
(i) one or more citizens of India; or
(ii) by one or more companies or bodies corporate incorporated in India; or
(iii) by one or more citizens of India and one or more companies or bodies corporate
incorporated in India,
whether singly or in the aggregate, such Company shall comply with the provisions of Chapter
XXII (dealing with the legal provisions for ‘Companies incorporated outside India’) and such
other provisions of this Act as may be prescribed with regard to the business carried on by
it in India as if it were a Company incorporated in India.
In the given question, preference share capital held by Jiyalal and equity share capital held
by Ramlal, both being Indian citizens, besides equity share capital held by Smart Toys
Limited, an Indian Company, in Kids Toys Limited (Company incorporated in Japan) are 10%,
20% and 20% respectively. In aggregate, Jiyalal, Ramlal and Smart Toys Limited are holding
50% of the paid-up share capital of a foreign Company.
Conclusion: Kids Toys Limited, shall comply with the provisions of Chapter XXII and such
other provisions of this Act as may be prescribed with regard to the business carried on by
it in India as if it were a company incorporated in India.
Q.43 A company incorporated in France, with limited liability, established an office in Baroda, and
started conducting business activity from its place of business. In compliance of Sec. 382
of the Companies Act, 2013, it conspicuously exhibited a name board outside its office, with
the name of the company in English in big block letters. In three days, the company received
a notice from the Registrar stating that it had not properly complied with the requirements
of Section 382 of the Companies Act, 2013.
Mention the areas of lapses of the foreign company, which would be mentioned in the notice.
(4 Marks)
Ans.: Display of name, etc., of foreign company - Sec. 382

• Sec. 382 of the Companies Act, 2013, deals with the provisions relating to Display of
name, etc., of foreign company. Accordingly:
• Every foreign company shall conspicuously exhibit on the outside of every office or place
where it carries on business in India, the name of the company and the country in which
it is incorporated, in letters easily legible in English characters, and also in the characters
of the language or one of the languages in general use in the locality in which the office
or place is situate.

• If the liability of the members of the company is limited, cause notice of that fact:
(i) to be stated in every such prospectus issued and in all business letters, billheads,
letter paper, notices, advertisements and other official publications of the company,
in legible English characters; and
(ii) to be conspicuously exhibited on the outside of every office or place where it carries
on business in India, in legible English characters and also in legible characters of the
language or one of the languages in general use in the locality in which the office or
place is situated.
Conclusion: Based on the provisions of Sec. 382 of the Companies Act, 2013, as stated above,
following are the lapses by the company:
(i) The company has exhibited the name of the company in English but it has not displayed
the name of the Country where it was incorporated. Further, it has not displayed both
the facts in the local language or one of the languages in general use in the locality in
which the office or place is situated i.e. Baroda.
(ii) Further the company is one where the liability of members is limited. The fact that the
members liability is limited has not been conspicuously exhibited on the outside of every
office or place i.e. in Baroda, in legible English characters and also in legible characters
of the language or one of the languages in general use in the locality i.e. Baroda.
The above lapses would have given rise to the notice from the Registrar.
Q.44 Chang Limited, a company incorporated in Singapore proposes to issue prospectus offering
its securities in India. The Company has no established place of business in India.
The officer in charge of the issue of the prospectus in India seeks your opinion regarding
the provisions relating to registration of the prospectus under the Companies Act, 2013.
List out the documents required to be enclosed with the prospectus. (4 Marks)
Ans.: Documents required to be enclosed with the prospectus:
• As per Sec. 389 of the Companies Act, 2013, no person shall issue, circulate or distribute
in India any prospectus offering for subscription in securities of a company incorporated
or to be incorporated outside India, whether the company has or has not established, or
when formed will or will not establish, a place of business in India, unless before the issue,
circulation or distribution of the prospectus in India,
(a) a copy thereof certified by the chairperson of the company and two other directors
of the company as having been approved by resolution of the managing body has been
delivered for registration to the Registrar and
(b) the prospectus states on the face of it that a copy has been so delivered, and
(c) there is endorsed on or attached to the copy, any consent to the issue of the
prospectus required by Section 388 and such documents as may be prescribed.
• As per Rule 11 of the Companies (Registration of Foreign Companies) Rules, 2014, the
following documents shall be annexed to the prospectus, namely:

(a) any consent to the issue of the prospectus required from any person as an expert;
(b) a copy of contracts for appointment of managing director or Manager and in case of
a contract not reduced into writing, a memorandum giving full particulars thereof;
(c) a copy of any other material contracts, not entered in the ordinary course of
business, but entered within preceding 2 years;
(d) a copy of underwriting agreement; and
(e) a copy of power of attorney, if prospectus is signed through duly authorized agent
of directors.
Chapter 9 - Miscellaneous Provisions
Q.45 The Board of Directors of M/s APCO Limited a listed company, for carrying out the valuation
of the immovable properties standing in the name of the company as required under the
provisions of the Companies Act, 2013 proposes to appoint Mr. Mehta, an individual as the
valuer. Referring to the provisions of the companies Act, 2013 read with The Companies
(Registered Valuers and Valuation) Rules, 2017, the Audit Committee is of the opinion that
the Board of Directors does not have right to appoint the valuer. Decide. (4 Marks)
Ans.: Appointment of Valuer:

Sec. 247 of Companies Act, 2013, deals with the provisions relating to registered valuers.
Accordingly,
• Where a valuation is required to be made in respect of
 any property, stocks, shares, debentures, securities or goodwill or any other assets
(herein referred to as the assets) or
 net worth of a company or
 its liabilities under the provision of this Act,
it shall be valued by a person having prescribed qualifications and experience and
registered as a valuer and is a member of a recognised organization.
• Valuation shall be done in such manner and on such terms and conditions as may be
prescribed.
• Valuer will be appointed by the audit committee or in its absence by the Board of
Directors of that company.
Conclusion: Opinion of audit committee is correct as appointment of valuer is to be made by
audit committee. Board of Directors can appoint valuer only in absence of Audit Committee.
Q.46 Buina Limited has discontinued its business since 2018 and has not been filing annual returns.
The Register of companies issued a notice for striking off the company. Since no reply was
received within the time specified in the notice, the name of the company was struck off
from the register of companies. There were tax arrears and a notice was sent to the
company by the tax recovery officer. The Directors contended that since the company’s
name has been struck off, the company does not exist and not liable to pay the tax.
Referring to and analysing the relevant provisions of the Companies Act, 2013 examine the
validity of the Company’s claim. (4 Marks)

Ans.: Consequences of Removal of Name from register of companies:

• Proviso to Sec. 248(6) of Companies Act, 2013 provides that in case name of the company
was struck off from the register of companies, assets of the company shall be made
available for the payment or discharge of all its liabilities and obligations even after the
date of the order removing the name of the company from the register of companies.
• In the present case, company has discontinued its business since 2015 and has not been
filing annual returns. The ROC issued a notice for striking off the company and in the
absence of any reply, the name of the company was struck off from the register of
companies. There were tax arrears and a notice was sent to the company by the tax
recovery officer. The Directors contended that since the company’s name has been struck
off, the company does not exist and not liable to pay the tax.
Conclusion: Company claim is not valid considering the provisions of proviso to Sec. 248(6)
as stated above.
Q.47 Fine Electric Scooter Pvt. Ltd. incorporated in November, 2020 has not commenced or
carried on any business since its inception. Promoters of the Company being two subscribers
have decided to dissolve the Company and get the name of the Company strike off from the
Registrar of Companies under the Fast Track Exit Mode. The promoters' Directors seek
your advice for dissolving the Company. Advise. (4 Marks)
Ans.: Removal of Name on Application by company through Fast Track Exit Mode:
• Sec. 248(2) of Companies Act, 2013 deals with the provisions related to removal of name
of company on application of company under the Fast Track Exit Mode. Accordingly, a
company may, after extinguishing all its liabilities, by
(a) a special resolution or
(b) consent of 75% members in terms of paid-up share capital,
file an application in the prescribed manner to the Registrar for removing the name of
the company from the register of companies on all or any of the grounds:
(a) company has failed to commence its business within 1 year of its incorporation;
(b) company is not carrying on any business or operation for a period of 2 immediately
preceding financial years and has not made any application within such period for
obtaining the status of a dormant company u/s 455.
• Company shall file an application in the prescribed manner to the Registrar for removing
the name of the company from the register of companies after satisfying all conditions.
• Registrar shall, on receipt of such application, cause a public notice to be issued in the
prescribed manner.
• Notice issued u/s 248(2) shall be published in the prescribed manner and also in the
Official Gazette for the information of the general public.

• At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the
contrary is shown by the company, strike off its name from the register of companies,
and shall publish notice thereof in the Official Gazette, and on the publication in the
Official Gazette of this notice, the company shall stand dissolved.
Q.48 Prudential Life Insurance Limited incorporated on 01.04.2021 could not commence its
business till 01.04.2022. The Company filed an application to the Registrar of Companies
with a special resolution to remove its name from the register of the companies maintained
by the Registrar and give effect to the dissolution of the Company. Rejecting the application
on the ground that the application has not been supported by approval of the regulatory
authority the Registrar asked the Company to re-submit it after marking necessary
compliances. Examine the validity of rejection of the application of Prudential Life Insurance
Limited by explaining the procedure to be followed for removal of the name of the Company
and get it dissolved under the provisions of the Companies Act, 2013 (the Act) without
taking a recourse to the regular winding-up procedure provided under Chapter XX of the
Act. (4 Marks)
Ans.: Removal of Name of the company:

• Sec. 248 of the Companies Act, 2013 deals with the provisions relating to removal of
name of company from the Register of Companies. Procedure to be followed for removal
of name u/s 248 is as follows:
(i) A Company may, after extinguishing all its liabilities, by a special resolution, or
consent of 75% of members in terms of paid-up share capital, file an application to
the Registrar for removing the name of the Company from the Register of Companies
on the ground that the said Company has failed to commence its business within one
year of its incorporation and the Registrar shall, on receipt of such application, cause
a public notice to be issued.
(ii) A notice issued shall be published in the prescribed manner and also in the Official
Gazette for the information of the general public.
(iii) At the expiry of the time mentioned in the notice, the Registrar may, unless contrary
is shown by the Company, strike off its name from the Register of Companies, and
shall publish notice thereof in the Official Gazette, and on the publication in the
Official Gazette of this notice, the Company shall stand dissolved.
• In the given question, Prudential Life Insurance Ltd. is a company regulated under a
Special Act, the Insurance Act, 1938. It shall obtain approval of the regulatory body,
“Insurance Regulatory and Development Authority” (IRDA) constituted or established
under that Act and such approval shall be enclosed with the application.
Conclusion: No approval of the regulatory body i.e., IRDA was obtained, and therefore, the
rejection of application of Prudential Life Insurance Limited, is valid. Prudential Life
Insurance Limited with approval of the IRDA, shall re-submit the application in compliance
with stated procedure and can get its name struck off from Register of Companies and get
it dissolved without taking recourse to the regular winding up procedure under the
Companies Act, 2013.

Q.49 Ariana Credit and Thrift (Nidhi) Ltd., was incorporated in December 2019 and want it to
operate as a Nidhi Company. The company has established its registered office in Jaipur,
Rajasthan.
The company started its operations from the April, 2020.
The company’s main function was to collect deposits from its members on monthly basis and
to lend the members in case of need. The company pays interest @10% p.a. on quarterly
basis on the deposits and charge interest @12%. p.a. on monthly basis. The loan to its
members is granted for the working capital of the business only and for which the member
borrower has to give guarantee of two members, against whom no loan is outstanding.
For the financial year ended on 31st March, 2021, the company’s paid-up equity share
capital was ₹ 15 lakh and for the year ended on 31st March, 2022, the capital remained as
₹ 15 lakh and reserves were ₹ 5 lakh.
Based on the captioned facts, answer the following questions:
(i) What are the criteria for declaration of any company as Nidhi Company by the Central
Government?
(ii) For the year ended on 31st March, 2022, company’s capital was ₹ 15 lakh and reserves
were ₹ 5 lakhs. How much deposit the company can accept from its member in the FY
2022-23? (4 Marks)
Ans.: (i) Criteria for declaration of any company as Nidhi Company

Criteria for declaration of a company as Nidhi Company is covered under the Nidhi Rules,
2014.
Rule 3B - Declaration of Nidhis
• A public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within
a period of 120 days of its incorporation for declaration as Nidhi, if it fulfils the
following conditions, namely:
(i) it has not less than 200 members; and
(ii) it has Net Owned Funds of ₹ 20 lakh or more.
• The company shall also attach, along with Form NDH-4, the declaration with regard to
fulfilment of fit and proper person criteria by all the promoters and directors of the
company.
• The C.G. shall examine the application filed in Form NDH-4 and convey its decision
within a period of 45 days to the company:
Provided that in case a decision on an application filed in form NDH-4 is not taken by
the C.G. within the aforesaid period of receipt of such application, the same shall be
deemed as approved.
• On being satisfied that the company meets the requirements as stated above, the C.G.,
shall notify in the Official Gazette, declaring it as a Nidhi or Mutual Benefit Society,
as the case may be.

Rule 4: Incorporation and incidental matters
A Nidhi shall be a public company and shall have a minimum paid up equity share capital of
₹ 10 lakh.
No Nidhi shall issue preference shares. If preference shares had been issued by a Nidhi
before the commencement of this Act, such preference shares shall be redeemed in
accordance with the terms of issue of such shares.
No Nidhi shall have any object in its Memorandum of Association other than the object
of cultivating the habit of thrift and savings amongst its members, receiving deposits
from, and lending to, its members only, for their mutual benefit.
Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.
(ii) Acceptance of Deposits:
Rule 11 of the Nidhi Rules, 2014 deals with the acceptance of deposits by Nidhi’s.
Accordingly, a Nidhi shall not accept deposits exceeding 20 times of its Net Owned Funds
(NOF) as per its last audited financial statements.
The total NOF of the company is ₹ 20 lakhs. The company can accept deposits from its
members not exceeding 20 times of the NOF i.e., up to ₹ 400 lakhs.
Q.50 Vikas Nidhi Ltd was incorporated as a Nidhi Company in the year 2018. It has 500 members
with a Net Owned Funds (NOF) of 10 crore rupees and deposits of 190 crores as of
31.03.2022.
For the FY 2022-23 the company targets-
(i) To raise deposits by 20%.
(ii) To invite the public to deposit with the company.
(iii) To issue lockers to the depositors.
(iv) To grant loan against Gold Jewellery to any person.
Examine each of the above points, whether the Nidhi company is permitted to do so?
(4 Marks)
Ans.: Provisions related with Nidhi Companies:
(i) To raise deposits by 20%: As per Rule 5(1)(d) of the Nidhi Rules, 2014, the ratio of
NOF to deposits should not be more than 1:20. As on 31.03.2022 the NOF was 10 crore
rupees and deposits was 190 crores. If target of deposit is achieved then the deposit will
be 228 crore rupees, which exceed the ratio of 1:20. Thus, either the NOF shall be
increased or deposits be restricted up to 200 crores.
(ii) To invite the public to deposit with the company: In terms of Rule 6(f) of the Nidhi
Rules, 2014, no Nidhi company can accept deposits from or lend to any person, other that
its members.

(iii) To issue lockers to the depositors: In terms of proviso attached to Rule 6(e) of the
Nidhi Rules, 2014, the Nidhi Companies which adhered to all the provisions of these rules
may provide locker facilities on rent to its members subject to the rental income from
such facilities not exceeding 20% of the gross income of the Nidhi at any point of time
during a financial year.
(iv) To grant loan against Gold Jewellery to any person: In terms of Rule 6(f) of the Nidhi
Rules, 2014, no Nidhi company can accept deposits from or lend to any person, other that
its members. Hence the gold loan to any person, other than the members is prohibited.
Q.51 Jackpot Limited, a public limited company, with 7 Directors in the Board, had not filed
annual returns and financial statements for 2 consecutive financial years. The Register after
required formalities, entered the name of the company in the register maintained for
dormant companies.
One of the directors suggested that since, the company was now registered as a dormant
company, the company need not have 7 directors and having one or maximum two directors
would suffice. Following his advice, 5 directors resigned, and the company was left with only
2 directors. The existing two directors did not file any statement with the Registrar,
regarding change of directors.
Advise stating the provisions of Section 455, of the Companies Act, 2013, whether the
reduction in the number of directors and not filing a statement with Registrar regarding
change of Directors, is appropriate. (4 Marks)
Ans.: Provisions as to Dormant Company:

• A dormant Company shall have such minimum number of directors, file such documents
and pay such annual fee as may be prescribed to the Registrar to retain its dormant status
in the Register and may become an active company on an application made in this behalf
accompanied by such documents and fee as may be prescribed.
• As per Rule 6 of the Companies (Miscellaneous) Rules, 2014, a dormant company shall have
a minimum number of 3 directors in case of a public company, 2 directors in case of a
private company and 1 director in case of a One Person Company.
• As per Rule 7 of the Companies (Miscellaneous) Rules, 2014, a dormant company shall also
continue to file the return/returns and change in directors in the manner and within the
time specified in the Act, or whenever the company allots any security to any person or
whenever there is any change in the directors of the company.
Conclusion: Reduction in the number of directors to 2 and not filing a statement with
Registrar regarding change of Directors by Jackpot Limited is not appropriate.
Q.52 Flora and Fauna Herbal Awareness Development Company Limited is a Public Limited company
incorporated in July, 2018 and one of the main objects of the company is to promote a new
line of life saving products to improve the health conditions of the village people at a lower
cost. However, it is a new project and requires the environmental clearance from the National

Green Tribunal and the local administration. The company had not filed any financial
statements and annual returns during the last two financial years. The company is not having
any significant accounting transactions and business activities at present. Explain the term
"Significant Accounting Transaction". The Board of Directors decides to obtain the status
of a Dormant Company from the Registrar of Companies. Advise the company regarding the
procedure to be followed in this regard. (4 Marks)
Ans.: Dormant company:
Sec. 455(1) of the Companies Act, 2013 states that where a company is formed and
registered under this Act for a future project or to hold an asset or intellectual property
and has no significant accounting transaction, such 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.
Significant accounting transaction: Explanation attached to Sec. 455(1) defines the term
significant accounting transaction so as to mean any transaction other than:
(1) payment of fees by a company to the Registrar;
(2) payments made by it to fulfil the requirements of this Act or any other law;
(3) allotment of shares to fulfil the requirements of this Act; and
(4) payments for maintenance of its office and records.
Status of a Dormant company: Where a company is formed and registered under the
Companies Act, 2013, for a future project or to hold an asset or intellectual property and
has no significant accounting transaction, such company or an inactive company may make an
application to the Registrar in such manner as may be prescribed for the status or a dormant
company.
Flora and Fauna Herbal Awareness Development Company Limited was registered in 2018 and
it did not file the financial statements and the annual returns for the last two financial years
to make it eligible to apply for the status Dormant company with the registrar of companies.
Explanation: For the purposes, 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 2 financial years, or has not filed financial statements and annual returns
during the last 2 financial years
Procedure to obtain the status of a Dormant company from the Registrar of companies:
As per Rule 3 of the Companies (Miscellaneous) Rules, 2014, a company may make an
application in Form MSC-1 along with such fee as provided in the Companies (Registration
Offices and Fees) Rules, 2014 to the Registrar for obtaining the status of a Dormant
Company in accordance with the provisions of Sec. 455 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).

Chapter 10 - Adjudication and Special Courts
Q.53 Excel Ltd. committed an offence under the Companies Act, 2013. The offences fall within
the jurisdiction of a special court of Bundi district of Rajasthan in which the registered
office of Excel Ltd. was situated. However, in that district, there were two special courts
one in X place and other in Y place. Identify the jurisdiction of the special court for trial
of an offence committed by Excel Ltd. (4 Marks)
Ans.: Competent Court for trial of an offence:

• As per Sec. 436(1) of Companies Act, 2013, all offences which are punishable in this Act
with imprisonment of 2 years or more, shall be triable only by the special court
established for the area in which the registered office of the company in relation to
which the offence is committed.
• In case there are more than one special courts for such area, offences shall be triable
by such one of them as may be specified in this behalf by the high court concerned.
• In the instant case, there are more than one special court in such area where registered
office of Excel Ltd. is situated.
Conclusion: The jurisdiction for trail in special court will be specified by High Court of the
State (i.e. Rajasthan).
Q.54 In the AGM of XYZ Ltd., while discussing on the matter of retirement and reappointment
of director Mr. X, allegations of fraud and financial irregularities were levelled against him
by some members. This resulted into chaos in the meeting. The situation was normal only
after the Chairman declared about initiating an inquiry against the director Mr. X, however,
could not be reappointed in the meeting. The matter was published in the newspapers next
day.
On the basis of such news, whether the court can take cognizance of the matter and take
action against the director on its own?
Justify your answer with reference to the provisions of the Companies Act, 2013.
(4 Marks)
Ans.: Suo motu cognizance by Court:

• As per Sec. 439(1), every offence under the Companies Act, 2013 except the offences
referred to in Sec. 212(6) shall be deemed to be non-cognizable within the meaning of
the Code of Criminal Procedure.
• As per Sec. 439(2), no court shall take cognizance of any offence under this Act which is
alleged to have been committed by any company or any officer thereof, except on the
written complaint of
 the Registrar,
 a shareholder of the company, or
 a person authorised by the Central Government in that behalf.

• However, court may take cognizance of offences relating to
 issue and transfer of securities and
 non-payment of dividend
on a complaint in writing, by a person authorised by the SEBI.
Conclusion: Considering the provisions of Sec. 439, the court cannot initiate any suo moto
action against the director without receiving any complaint in writing of the Registrar of
Companies, a shareholder of the company or of a person authorized by the Central
Government in this behalf.
Q.55 What are the powers of the Central Government under the Companies Act, 2013 regarding:
(i) To appoint company prosecutors
(ii) To Appeal against acquittal. (2 Marks)
Ans.: Power of Central Government

(i) To appoint company prosecutors:
Sec. 443 of Companies Act, 2013 lays down the provisions relating to powers of C.G. to
appoint company prosecutors. Accordingly:
• The Central Government may appoint (generally, or for any case, or in any case, or
for any specified class of cases in any local area) one or more persons, as company
prosecutors for the conduct of prosecutions arising out of this Act; and
• The persons so appointed as company prosecutors shall have all the powers and
privileges conferred on Public Prosecutors appointed under section 24 of the Cr. PC.
(ii) Appeal against acquittal:
• As per Sec. 444, the Central Government may, in any case arising under this Act,
direct any company prosecutor, or authorise any other person either by name or by
virtue of his office, to present an appeal from an order of acquittal passed by any
court, other than a High Court.
• Appeal presented by such prosecutor or other person shall be deemed to have been
validly presented to the Appellate Court.
Q.56 The Central Government wants to appoint Mr. Honest as company Prosecutor. Can it do so?
Mention the provisions regarding the power of Central Government to appoint company
prosecutors along with their powers and privileges under the Companies Act, 2013.
(4 Marks)
Ans.: Power of C.G. to appoint Company Prosecutors:

Sec. 443 of the Companies Act, 2013 deals with the powers of Central Government to appoint
company prosecutors. Accordingly,
• Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the C.G. may
appoint generally, or for any case, or in any case, or for any specified class of cases in any
local area, one or more persons, as company prosecutors for the conduct of prosecutions
arising out of this Act.

• The persons so appointed as company prosecutors shall have all the powers and privileges
conferred by the Code on Public Prosecutors appointed u/s 24 of the Code.
Conclusion: C.G. may appoint Mr. Honest as Company Prosecutor.
Chapter 11 - National Company Law Tribunal and Appellate Tribunal
Q.57 Aggrieved by an order of Hon’ble NCLT, dated 3rd April, 2021, passed without the consent
of parties, Solan Minerals Limited decided to file an appeal before, Hon’ble NCLAT. The
order was received by the company on 4th April, 2021. The employees and officers went on
a strike for a period of 10 days from 22nd May, 2022 demanding higher bonus and pay. In
view of this, the management of the company was forced to a grinding halt during the strike
period. Thereafter, the appeal was filed on 6th June, 2022 before the Hon’ble NCLAT and
the company prayed for condonation of delay. Referring to and analysing the applicable
provisions of the Companies Act, 2013, decide the following:
(i) Whether the proposed appeal would be admitted by the Hon’ble NCLAT.
(ii) What is the maximum period allowed by the NCLAT for condonation of delay?
(4 Marks)
Ans.: Provisions as to appeal from Orders of NCLT:

Section 421 of the Companies Act, 2013 deals with the provisions relating to appeal against
the orders of Tribunal. Accordingly,
(1) Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate
Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with
the consent of parties.
(3) Every appeal shall be filed within a period of 45 days from the date on which a copy of
the order of the Tribunal is made available to the person aggrieved:
Provided that the Appellate Tribunal may entertain an appeal after the expiry of the
said period of 45 days from the date aforesaid, but within a further period not
exceeding 45 days, if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within that period.
In the present case, Order was received by the company on 4th April 2022 and the appeal
was to be filed by 19 May 2022, i.e. within 45 days from the date of receipt of appeal.
Employees go on strike from 22nd May 2022. As the strike starts after expiry of last date
of filing appeal, there does not appear any reason that appellant was prevented by sufficient
cause from filing the appeal within 45 days.
Conclusion: Based on the provisions as stated above, following conclusions may be drawn:
(i) Proposed appeal would not be admitted by the Hon’ble NCLAT.
(ii) Appellate Tribunal may entertain an appeal after the expiry of the stipulated period of
45 days, but within a further period not exceeding 45 days.

Q.58 A petitioner presented an application before the tribunal in July, 2021 and order was passed
and made available to parties in September, 2021. Aggrieved party filed an appeal before
NCLAT in November, 2021. The appeal was pending before NCLAT for 6 months.
Examine in the light of the Companies Act, 2013, the following issues:
(i) Whether the filling of an appeal before the NCLAT is in order.
(ii) Time period latest by which the NCLAT should dispose off the said appeal. (4 Marks)
Ans.: Filling of Appeal before the NCLAT:

• As per Sec. 421 of the Companies Act, 2013, any person aggrieved by an order of the
Tribunal may prefer an appeal to the Appellate Tribunal within a period of 45 days from
the date on which a copy of the order of the Tribunal is made available to the person.
However, the Appellate Tribunal may entertain an appeal after the expiry of the said
period of 45 days from the date aforesaid, but within a further period not exceeding 45
days, if it is satisfied that the appellant was prevented by sufficient cause from filing
the appeal within that period.
• As per Sec. 422 of the Companies Act, 2013, every application or petition presented
before the Tribunal and every appeal filed before the Appellate Tribunal shall be dealt
with and disposed of by it as expeditiously as possible and every endeavour shall be made
by the Tribunal or the Appellate Tribunal, as the case may be, for the disposal of such
application or petition or appeal within 3 months from the date of its presentation before
the Tribunal or the filing of the appeal before the Appellate Tribunal.
Where any application or petition or appeal is not disposed of within the period specified
above, the Tribunal or, as the case may be, the Appellate Tribunal, shall record the
reasons for not disposing of the application or petition or the appeal, as the case may be,
within the period so specified; and the President or the Chairperson, as the case may be,
may, after taking into account the reasons so recorded, extend the period referred to
above, by such period not exceeding 90 days as he may consider necessary.
Conclusion: Based on the provisions of Secs. 421 & 422 as discussed above, following
(i) Appeal is in order if made within 45 days from the date on which a copy of the order is
made available to the person.
(ii) Appeal should be disposed off by May 2022.
Q.59 ABC Limited aggrieved by the order of Appellate Tribunal on the question of inadmissibility
of the evidences placed before it and ignoring the doctrine of res judicata on certain matter
intends to file an appeal before the Supreme Court. The order of Appellate Tribunal dated
15.12.2021 was delivered to ABC Limited on 01.01.2022. Examine under the provisions of
the Companies Act, 2013 whether ABC Limited is entitled to prefer an appeal and if yes
what is the time limit to file an appeal before the Supreme Court against the order of the
Appellate Tribunal. (3 Marks)

Ans.: Appeal to Supreme Court:

• As per Sec. 423 of the Companies Act, 2013, any person aggrieved by any order of the
Appellate Tribunal may file an appeal to the Supreme Court within 60 days from the date
of receipt of the order of the Appellate Tribunal to him on any question of law arising out
of such order.
• However, the Supreme Court may, if it is satisfied that the Appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a
further period not exceeding 60 days.
Conclusion: ABC Limited may, file an appeal not on the question of admissibility of evidences
placed before it, being question of facts, but on the question of ignoring the doctrine of
res judicata, being a question of law.
ABC Limited received the order of Appellate Tribunal on 1.1.2022 and hence, can file an
appeal to the Supreme Court within 60 days i.e. by 1st March, 2022. However, if it is
satisfied that the Appellant was prevented by sufficient cause from filing the appeal within
first 60 days, it may file and appeal within a further period of 60 days.
Q.60 Dissatisfied with the decision of the NCLT, Rana had filed an appeal before the Appellate
Tribunal, which was also turned down. Advise him on further course of action to be taken.
(4 Marks)
Ans.: Appeal to Supreme Court

• As per Sec. 423 of the Companies Act, 2013, any person aggrieved by any order of the
Appellate Tribunal may file an appeal to the Supreme Court within 60 days from the date
of receipt of the order of the Appellate Tribunal to him on any question of law arising out
of such order.
• The Supreme Court may, if it is satisfied that the appellant was prevented by sufficient
cause from filing the appeal within the said period, allow it to be filed within a further
period not exceeding 60 days.
• It is to be noted that it is solely at the discretion of the Supreme Court whether to
provide an extension or not by such number of days which shall however not exceed 60
days.
• Hence, Rana can follow the above procedure when his appeal has turned down by Appellate
Tribunal.

Chapter 14 - Securities and Exchange Board of India Act, 1992
& SEBI (LODR) Regulations, 2015
Q.61 The Board of SEBI is managed by its members. The Chairman Mr. A aged 65, has just
completed his three year term of office and his office has become vacant. The Union
Government is of the opinion that Mr. A is a person with specialized knowledge in the areas
of law, finance, economics and appoints him as Chairman for another period of 3 years.
(i) Discuss the validity of the above appointment under section 5 of SEBI Act, 1992.
(ii) The Board of SEBl at its meeting, passed a resolution altering the bye laws of one of
the member stock exchange. The stock exchange refused to accept the alteration on
the ground that the appointment of one of the directors in the Board, was defective.
Explain whether the contention of the stock exchange is right. (6 Marks)
Ans.: (i) Term of Office:

As per Sec. 5 of the SEBI Act, 1992 and the Rules framed thereunder, the Chairman
may hold office for a period of 5 years subject to the maximum age limit of 65 years
and can be re-appointed by the Central Government.
In the instant case, the appointment of Mr. A as the Chairman to the Board of SEBI by
Union Government is not valid as Mr. A is of 65 years.
(ii) Vacancies, etc., not to invalidate proceedings of the Board
As per Sec. 8 of the SEBI Act, 1992, the following reasons shall not invalidate any act
or proceeding of the Board:
(a) any defect in the constitution of the Board
(b) in the appointment of any person or member of the Board
(c) any irregularity in the procedure of the Board not affecting the merits of the case.
In accordance with these provisions, the passing of the resolution altering the byelaws
of the Stock Exchange by SEBI is valid, even though, the appointment of one of the
directors of the Board is invalid.
Conclusion: Contention of stock exchange regarding refusal to accept the alteration on the
ground that the appointment of one of the directors in Board was defective is not right.
Q.62 Securities and Exchange Board of India (SEBI) has undertaken inspection of books of
accounts and records of LR Ltd., a listed public company. Specify the measures which may
be taken by SEBI under the SEBI Act, 1992 to protect the interest of investors and
securities market, on completion of such inquiry. (4 Marks)
Ans.: Measures to be taken by SEBI to protect the interest of investors:

As per Sec. 11(4) of the SEBI Act, 1992, the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or securities market, take any of the
following measures, either pending investigation or inquiry or on completion of such
investigation or inquiry, namely:

(a) suspend the trading of any security in a recognised stock exchange;

(b) restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities;
(c) suspend any office-bearer of any stock exchange or self-regulatory organization from
holding such position;
(d) impound and retain the proceeds or securities in respect of any transaction which is
under investigation;
(e) attach, for a period not exceeding 90 days, bank accounts or other property of any
intermediary or any person associated with the securities market in any manner involved
in violation of any of the provisions of this Act, or the rules or the regulations made
thereunder:
Provided that the Board shall, within 90 days of the said attachment, obtain
confirmation of the said attachment from the Special Court, established u/s 26A,
having jurisdiction and on such confirmation, such attachment shall continue during the
pendency of the aforesaid proceedings and on conclusion of the said proceedings, the
provisions of Sec. 28A shall apply:
Provided further that only property, bank account or accounts or any transaction
entered therein, so far as it relates to the proceeds actually involved in violation of any
of the provisions of this Act, or the rules or the regulations made thereunder shall be
allowed to be attached.
(f) direct any intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of any transaction which is
under investigation.
Before or after passing such orders, SEBI must give an opportunity of hearing to such
intermediaries or persons concerned.
Q.63 On the complaint of Mr. Kamlesh Gupta, after enquiry SEBI finds that Mr. P. Mehta a
Chief Executive Officer of the Company, on the basis of unpublished price sensitive
information, has indulged in the trading of the securities of that company. Explain, on the
basis of the said finding, what action SEBI can take against Mr. P. Mehta under the
Securities and Exchange Board of India Act, 1992. (4 Marks)
Ans.: Penalty for Insider Trading:

Sec. 15G of the SEBI Act, 1992 deals with penalty for Insider Trading. Accordingly, if any
insider who
(a) either on his own behalf or on behalf of any other person, deals in securities of a body
corporate on any stock exchange on the basis of any unpublished price sensitive
information; or

(b) communicates any unpublished price sensitive information to any person, with or without
his request for such information except as required in the ordinary cause of business
or under any law, or
(c) counsels or procures for, any other person to deal in any securities of any body
corporate on the basis of unpublished price sensitive information,
he shall be liable to a penalty which shall not be less than ₹ 10 lakh but which may extend to
₹ 25 crore or 3 times the amount of profits made out of insider trading, whichever is higher.
Q.64 Mr. Robert, aged 64 years as on 31.01.2018, was appointed ‘Presiding Officer’ of Securities
Appellate Tribunal (SAT) on 01.02.2018 for a term of 5 Years. He served to the Central
Government the notice of resignation from the office of ‘Presiding Officer’ on 01.10.2022.
The Central Government issued an order appointing his successor which shall take effect on
01.12.2022. Explaining the provisions of the Securities and Exchange Board of India Act,
1992, (the SEBI Act) determine the date on which Mr. Robert shall vacate his office.
(3 Marks)
Ans.: Tenure of office of Presiding officer:

• As per Sec. 15N of the SEBI Act, 1992, the Presiding Officer or every Judicial or
Technical Member of the Securities Appellate Tribunal shall hold office for a term of 5
years from the date on which he enters upon his office, and shall be eligible for
reappointment for another term of maximum five years:
Provided that no Presiding Officer or the Judicial or Technical Member shall hold office
after he has attained the age of 75 years.
• As per Sec. 15Q, the Presiding Officer or any other Member of a Securities Appellate
Tribunal may, by notice in writing under his hand addressed to the C.G., resign his office:
Provided that the Presiding Officer or any other Member shall, unless he is permitted by
the Central Government to relinquish his office sooner, continue to hold office-
 until the expiry of three months from the date of receipt of such notice or
 until a person duly appointed as his successor enters upon his office or
 until the expiry of his term of office,
whichever is earlier.
• In the given question, Mr. Robert was appointed as presiding officer of SAT on 1.2.2018
(when he was 64 years of age). Thus, he can hold office till 31.01.2023. However, he
resigns on 1.10.2022 i.e. before the expiry of his term. The Central Government issued an
order appointing has successor which shall take effect on 1.12.2022. Hence, Mr. Robert
has to continue in office earlier of the following:
(i) 31.12.2022 – expiry of three months from the date of receipt of such notice, or
(ii) 1.12.2022- until a person duly appointed as his successor enters upon his office, or
(iii) 31.01.2023- until the expiry of his term of office.
Conclusion: Mr. Robert shall vacate his office by 1.12.2022.

Q.65 Superb manufacturing Ltd. was incorporated in January, 2022. In the month of May 2022,
it came out with its first IPO. The company’s shares were listed on the two recognised stock
exchange after successful completion of the IPO and allotment of equity shares made to the
investors.
There are 14 directors in the BOD, out of which one is woman director, whereas the
Chairperson is a non-executive director.
Based on the stated facts in the light of the relevant law, evaluate the given situations:
(i) After listing of the shares, the total number of directors on the Board are 14 including
a woman director. What shall be the required number of independent directors in the
company?
(ii) If the Board of directors do not have regular non-executive director, then what shall
be the required number of independent directors in the Board? (4 Marks)
Ans.: Composition of Board of Directors:

(i) As per Regulation 17 of the SEBI (LODR) Regulations, 2015, the composition of board
of directors of the listed entity shall be as follows:
(a) Board of Directors shall have an optimum combination of executive and non-
executive directors with at least one woman director and not less than 50% of the
board of directors shall comprise of non-executive directors;
(b) where the chairperson of the Board of Directors is a non-executive director, at
least 1/3rd of the Board of Directors shall comprise of independent directors and
where the listed entity does not have a regular non-executive chairperson, at least
half of the board of directors shall comprise of independent directors. Any
fraction in number, shall be rounded off to the nearest number.
Conclusion: In the given case, company has 14 directors, 1/3rd of 14 comes to 4.66,
rounded off to 5. So at least 5 independent directors should be there.
(ii) If the Board of directors do not have regular non-executive director, then at least half
of the board of directors shall comprise of independent directors. One-half of 14 comes
to 7. So at least 7 independent directors should be there.
Q.66 The composition of Audit Committee of M/s MKBTC Limited, unlisted Public Company, as on
31-3-2022 comprised of 7 Directors including 4 Independent Directors. The majority of
the members of the Audit Committee has the ability to read and understand the financial
statements but none of them has accounting or related financial management expertise. The
Company listed its Securities in a recognized Stock Exchange in the month of August 2020.
Referring to the regulations of Securities and Exchange Board of India [Listing Obligations
and Disclosure Requirements] Regulations 2015, decide whether the existing Audit Committee
can continue after listing of its Securities? (4 Marks)

Ans.: Features of Qualified and Independent Audit Committee:
Regulation 18 of Regulation 18 of SEBI (LODR) Regulations, 2015 deals with the requirements
of audit committee in case of a listed entity. With respect of composition of audit
committee, following requirements exist:
(a) The audit committee shall have minimum 3 directors as members. 2/3rd of the members
of audit committee shall be independent directors. In case of a listed entity having
outstanding superior rights (SR) equity shares, the audit committee shall comprise of
only independent directors.
(b) All members of audit committee shall be financially literate and at least one member
shall have accounting or related financial management expertise.
(c) The Chairperson of the Audit Committee shall be an independent director.
In the present case, audit committee comprises of 7 Directors including 4 Independent
Directors. The majority of the members of the Audit Committee has the ability to read and
understand the financial statements but none of them has accounting or related financial
management expertise.
Conclusion: Existing Audit Committee is not qualified under the provisions of regulation 18
of SEBI (LODR) Regulations, 2015 due to following:
(a) 2/3rd of members (i.e. 5) need to be independent directors.
(b) All members of audit committee shall be financially literate.
(c) At least one member shall have accounting or related financial management expertise.
Q.67 Charming Limited, a Listed Company, has constituted Nomination and Remuneration Committee
(NRC) which was consisting of 5 members. The Chairman of the Committee is an independent
director and 3 other independent directors are the members. Besides, the Chairman of the
company, who is a whole-time director, has also been adopted as a member of the committee.
Based on the given information and referring to the provisions of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, examine the following:
(i) Compliance requirement of the composition of NRC.
(ii) Quorum for the meeting of NRC. (4 Marks)
Ans.: Nomination and Remuneration Committee:

As per Regulation 19 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015, the Board of Directors shall constitute the Nomination and Remuneration
Committee (NRC) as follows:
(i) Compliance requirement of the composition of NRC:
(a) The Committee shall comprise of at least 3 directors
(b) All directors of the Committee shall be Non-Executive Directors; and
(c) At least 2/3rd of the directors shall be independent directors.

The Chairperson of the listed entity, whether executive or non-executive, may be

appointed as a member of the NRC and shall not chair such Committee. The NRC of
Charming Limited meets all these requirements and hence the composition requirement
of the NRC is in compliance with Regulation 19 of SEBI (LODR) Regulations, 2015.
(ii) Quorum for the meeting of NRC:
The quorum for a meeting of NRC 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.
Q.68 Ava is holding the post of directorship in 7 listed entities as on January 2022. She received
an offer of directorship from another listed entity in April 2022. Ava is holding the position
of Whole Time Director in a listed entity. Besides this, she is also getting offer of
independent directorship in 6 listed entities. In one of the listed entities, Ava asked for
allotment of the stock option.
Ava, as an independent director has to devote much time in reading and understanding the
agency items put forwarded to her before the Board meeting. She expects to be rewarded
with suitable compensation for the same. Ava is a Chartered Accountant. In one of the
listed entities, she was offered to hold the position of chairperson in the meeting of the
audit committee.
Based on the information and profile of Ava, answer the following questions as per the
requirement of SEBI (LODR) Regulations, 2015:
(i) Whether Ava can join the 8th listed entity as a director with effect from April, 2022?
(ii) Ava is holding the position of WTD in a listed entity. In how many more companies she
can be an independent director?
(iii) Whether Ava can be Chairperson in Audit Committee of Boards in a listed entity?
(4 Marks)
Ans.: Requirements of SEBI (LODR) Regulations, 2015:

(i) Regulation 17A(1) of the SEBI (LODR) Regulations, 2015 provides that a person shall
not be a director in more than seven listed entities.
Therefore, Ava cannot join the listed entity beyond 7, as a director.
(ii) Regulation 17A(2) of the SEBI (LODR) Regulations, 2015 provides that any person who
is serving as a WTD/MD in any listed entity shall serve as an independent director in
not more than 3 listed entities.
Hence Ava, besides holding the position of WTD, can serve as an Independent Director
maximum up to 3 listed companies only.
(iii) Regulation 18(1)(d) of the SEBI (LODR) Regulations, 2015 provides that the chairperson
of the audit committee shall be an independent director and he/she shall be present at
AGM to answer shareholder queries.
Since, Ava is an independent director with a CA qualification (i.e., financially literate), hence
she can be the Chairperson of Audit Committee of Board.

Chapter 15 - The Foreign Exchange Management Act, 1999
Q.69 Molly had resided in India for 182 days in the financial year 2020-21. She went to UK on
1st April, 2021 and returned to India on 1st July, 2022 on an employment contract in India
for a year. She completed her contract and immediately left India.
Under section 2(v) of FEMA 1999, determine the residential status of Molly for the financial
years:
(i) 2021-22
(ii) 2022-23. (4 Marks)
Ans.: Determination of residential Status:

• As per Sec. 2(v) of the FEMA, 1999, “Person Resident in India” means a person residing
in India for more than 182 days during the course of the preceding financial year but
does not include:
(A) a person who has gone out of India or who stays outside India:
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than:
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay in India for an uncertain period;
• In accordance with the above definition, Residential status of Molly for the financial
years will be as follows:
(i) For FY 2021-22: As in the preceding year 2020-21, Molly resided for 182 days which
is not in compliance with the requirement of number of days of her stay (for more
than 182 days). Here, residential status of Molly is Person resident outside India.
(ii) For FY 2022-23: In the preceding year 2021-22, Molly has not resided in India as
she went to UK on 1st April 2021 and returned on 1st July, 2022. In this case also,
the residential status of Molly is a person resident outside India.
Q.70 Mr. Ashok, a citizen of India, has been working in a company in Chicago, USA, since last 8
years and had been settled there with his family.
However, the said company opened its branch in India last year and Mr. Ashok has been
deputed there for a duration of 26 months from 25th April, 2020.
He remitted an amount of $ 2,80,000 on 20th December, 2021 to his family in USA. The
details of salary earned by him from 25th April, 2020 to 30th November, 2021 are as
follows:

Particulars $*
Gross Salary 3,50,000
Contribution to Provident Fund 40,000
TDS as per Income Tax Act, 1961 40,000
*Amount is converted to USD from INR.

You being an expert in Foreign Exchange Matters, kindly advise, how much excess amount,
if any, has been remitted by Mr. Ashok to his family in USA? (4 Marks)
Ans.: Remittance of foreign exchange:

• As per Sec. 2(v) of the FEMA, 1999, ‘Person resident in India’ means a person residing in
India for more than 182 days during the course of preceding financial year but does not
include a person who has come to or stays in India, for or on taking up employment in
India.
• As per Schedule III to the FEM (Current Account Transactions) Rules, 2000, for a person
who is resident but not permanently resident in India and
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company
or subsidiary or joint venture in India of such foreign company,
may make remittance up to his net salary (after deduction of taxes, contribution to
provident fund and other deductions).
Explanation: For the purpose of this item, a person resident in India on account of his
employment or deputation of a specified duration (irrespective of length thereof) or for
a specific job or assignments, the duration of which does not exceed three years, is a
resident but not permanently resident.
• Mr. Ashok is a citizen of India working in a company in USA and has been deputed to its
branch in India for a duration of 26 months i.e. for not more than 3 years and Mr. Ashok’s
stay in F.Y. 2020-21 was more than 182 days in India, so, he would be considered as a
resident but not permanently resident in India.
Conclusion: Mr. Ashok was allowed to remit an amount upto his net salary i.e. $ 270,000 ($
350,000 - $ 40,000 - $ 40,000) while he has remitted an amount of $ 280,000 to his family
in USA. Thus, the excess amount remitted by him is $ 10,000 ($ 280,000 - $ 270,000).
Q.71 ABC Limited is a Start-up recognized by the Central Government. The company is intending
to raise External Commercial Borrowing under automatic route of US$ 5 million for 2 years
in the form of partially convertible preference shares.
You are required to advise the company on the Maturity, Forms and Amount of External
Commercial Borrowing permitted as per guidelines contained in the master circular issued by
Reserve Bank of India. (3 Marks)

Ans.: Maturity, Forms and Amount of External Commercial Borrowing permitted:
As per Master Circular issued by the RBI on External Commercial Borrowing (ECB) guidelines,
AD Category-I banks are permitted to allow Startups to raise ECB under the automatic route
with:
(a) Minimum average maturity period of 3 years,
(b) In the ‘form’ of loans or non-convertible, optionally convertible or partially convertible
preference shares,
(c) Amount limited to USD 3 million or equivalent per financial year either in INR or any
convertible foreign currency or a combination of both.
Accordingly, in order to raise the ECB under automatic route by ABC Limited (a startup), is
required to comply with the above requirements.
Q.72 Hill Limited, a Public Limited company in India, obtained an External Commercial Borrowing
('ECB') of USD 50,000 dated 30th June, 2021, from a foreign lender. On 2nd July, 2022,
based on mutual consent of the parties, ECB is fully converted into equity. The shares were
issued to foreign lender at the par value and not at fair value. You are required to provide
the correct legal position regarding the valuation of shares and state the reporting
requirements by Hill Limited at the time of conversion of ECB into equity in the light of the
provisions of the Foreign Exchange Management Act, 1999 and the Rules made thereunder.
(3 Marks)
Ans.: Valuation of shares for the purpose of conversion of ECB into equity:
As per Master Circular issued by the RBI on External Commercial Borrowing (ECB) guidelines,
price per share at which the ECB is converted into equity shares in the Indian Company shall
not be less than fair value of the shares.
For this purpose, the exchange rate prevailing on the date of the agreement between the
parties concerned for such conversion or any lesser rate can be applied with a mutual
agreement with the ECB lender. It may be noted that the fair value of the equity shares to
be issued shall be worked out with reference to the date of conversion only.
In view of the above, Hill Limited cannot convert ECB into shares at par value. It has to issue
shares to the borrower at fair value at the conversion date (i.e. based on applicable pricing
guidelines prevailing on the date of conversion).
Reporting requirements at the time of conversion:
In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank
will be as under:
(a) For partial conversion, the converted portion is to be reported in Form FC-GPR
prescribed for reporting of FDI flows, while monthly reporting to DSIM in Form ECB 2
Return will be with suitable remarks, viz., "ECB partially converted to equity".

(b) For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting
to DSIM in Form ECB 2 Return should be done with remarks “ECB fully converted to
equity”. Subsequent filing of Form ECB 2 Return is not required.
(c) For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form
ECB 2 Return will also be in phases.
Q.73 Sunita Garments Limited is engaged in the business of exporting leather garments. The
company is neither located in a Special Economic Zone, nor has availed any special status
like Status Holder Exporter, Export Oriented Unit or a unit under Bio – Technology Park.
The company seeks your advice regarding the time limit within which the company is required
to realise and import into India the foreign exchange arising out of export of goods by them.
Referring to the provisions of the Foreign Exchange Management Act, 1999 advise the
company. (4 Marks)
Ans.: Period within which export value of goods/software to be realised (Regulation 9):
As per Regulation 9 of Foreign Exchange Management (Export of Goods and Services)
Regulations, 2015, the amount representing the full export value of goods/software/services
exported shall be realised and repatriated to India within 9 months or within such period as
may be specified by the RBI, in consultation with the Government, from time to time, from
the date of export, provided
(a) that where the goods are exported to a warehouse established outside India with the
permission of the RBI, the amount representing the full export value of goods exported
shall be paid to the authorised dealer as soon as it is realised and in any case within 15
months or within such period as may be specified by the Reserve Bank, in consultation
with the Government, from time to time, from the date of shipment of goods;
(b) further that the RBI, or subject to the directions issued by that Bank in this behalf,
the authorised dealer may, for a sufficient and reasonable cause shown, extend the said
period.
Q.74 Mr. D has been arrested at the Chennai Airport in connection with certain offences under
the Foreign Exchange Management Act, 1999. The Adjudicating Authority (AA) imposed a
fine of ₹ 5 lakhs on him. In order to secure the penalty, AA directs the officials to
confiscate the deposit of ₹ 10 lakhs lying in the account of D maintained at a nationalized
Bank in New Delhi. Comment upon the validity of the confiscation proposal of the
Adjudicating Authority for the levy of penalty under the relevant provisions of FEMA, 1999.
(3 Marks)
Ans.: Confiscation of currency, security, or property
• As per Sec. 13(2) of FEMA, 199, any Adjudicating Authority adjudging any contravention
u/s 13, may, if he thinks fit in addition to any penalty which he may impose for such
contravention direct that any currency, security or any other money or property in
respect of which the contravention has taken place shall be confiscated to the C.G.

• For this purpose, “property” in respect of which the contravention takes place shall
include:
(a) Deposits in a Bank where the said property is converted into such deposits
(b) Indian currency where the said property is converted into such deposits
(c) Any other property which has resulted out of the conversion of that property
• In the present case, Mr. D has been arrested at the Chennai Airport in connection with
certain offences under the Foreign Exchange Management Act, 1999. The Adjudicating
Authority (AA) imposed a fine of ₹ 5 lakhs on him. In order to secure the penalty, AA
directs the officials to confiscate the deposit of ₹ 10 lakhs lying in the account of D
maintained at a nationalized Bank in New Delhi.
Conclusion: Adjudicating Authority can direct confiscation of any currency, security or any
other money or property.
Chapter 17 - The Prevention of Money Laundering Act, 2002
Q.75 Explain the meaning of the term “Money Laundering”. Z, a known smuggler was caught in
transfer of funds illegally exporting narcotic drugs from India to some countries in Africa.
State the maximum punishment that can be awarded to him under Prevention of Money
Laundering Act, 2002. (3 Marks)
Ans.: Meaning of Money Laundering:

As per Sec. 3 of the Prevention of Money Laundering Act, 2002, money laundering has been
defined as “any process or activity connected with proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming it as untainted
property”.
Punishment for Money laundering:
• Sec. 4 of the Prevention of Money Laundering Act, 2002 provides for the punishment for
Money-Laundering. In accordance with the provisions of Sec. 4, whoever commits the
offence of money-laundering shall be punishable with rigorous imprisonment for a term
which shall not be less than 3 years but which may extend to 7 years and shall also be
liable to fine.
• But where the proceeds of crime involved in money-laundering relate to any offence
specified under paragraph 2 of Part A of the Schedule, the maximum punishment may
extend to 10 years instead of 7 years.
• Paragraph 2 of Part A of the Schedule to the Prevention of Money Laundering Act, 2002,
covers Offences under the Narcotic Drugs and Psychotropic Substances Act, 1985.
Q.76 Mr. D was given an offer by the Company vendor, Mr. TR that if he discloses him confidential
data of the Company HNI Ltd. in which he was working as an Accounts Executive, Mr. TR
will pay him a huge sum of money. Mr. D accessed the computer of his Executive Director
and passed on the confidential information of Company to Mr. TR in return of huge sum of
money. Examine and analyse the situation and conclude whether Mr. D will be held liable
under the Prevention of Money Laundering Act, 2002? (3 Marks)

Ans.: Punishment for Money laundering:

• As per Sec. 4 of the PMLA, 2002, whoever commits the offence of money-laundering shall
be punishable with rigorous imprisonment for a term which shall not be less than 3 years
but which may extend to 7 years and shall also be liable to fine.
• In the instant case, Mr. D, the Accounts Executive of HNI Ltd. accessed the computer
of his Executive Director and passed on the confidential information of the company to
Mr. TR in return of huge sum of money which is an offence as per Sec. 3 of the PMLA,
2002.
• This is a Schedule Offence covered under Part A.
Conclusion: Mr. D shall be punishable with rigorous imprisonment for a term which shall not
be less than 3 years but which may extend to 7 years and shall also be liable to fine.
Q.77 Mr. 'B' purchased a flat out of the proceeds earned by Drug Trafficking. The flat was
attached by the Director, Director of Enforcement after complying the procedures under
Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA, 2002). Mr. 'B' got a
stay from the High Court for any proceedings under the said Act. The stay was subsequently
vacated.
State the relevant provisions of the PMLA, 2002 for computing the period of provisional
attachment including extension, if any.
Whether Mr. 'C', son of Mr. 'B' can occupy the flat during the period of provisional
attachment? (6 Marks)
Ans.: Attachment of property involved in money laundering:

• Sec. 5 of PMLA, 2002 deals with the provisions related to attachment of property
involved in money laundering. Accordingly, where the Director or any other officer not
below the rank of Deputy Director authorised by the Director, has reason to believe (to
be recorded in writing), that:
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any
manner which may result in frustrating any proceedings relating to confiscation of
such proceeds of crime,
he may, by order in writing, provisionally attach such property for a period not exceeding
180 days from the date of the order, in prescribed manner.
• For the purposes of computing the period of 180 days, the period during which the
proceedings under this section is stayed by the High Court, shall be excluded and a
further period not exceeding 30 days from the date of order of vacation of such stay
order shall be counted.
Rights of persons interested in the property:
• As per Sec. 5(4) of PMLA, 2002, this section shall not prevent the person interested in
the enjoyment of the immovable property attached under this section, from such
enjoyment.

• Person Interested, in relation to any immovable property, includes all persons claiming or
entitled to claim any interest in the property.
Conclusion: Mr. 'C', son of Mr. 'B' can occupy the flat during the period of provisional
attachment.
Q.78 Mr. X was found to be guilty of offence of money-laundering by being involved in an activity
connected with proceeds of crime. Adjudicating Authority (AA) as per findings confirmed
the attachment of the property and ordered for the investigation. The investigation was
initiated by the AA on 1st February, 2021. The attachment of the property of Mr. X was
still to be continued by 31st January 2022. Enumerate in the given situation the validity of
the attachment period. (6 Marks)
Ans.: Order for attachment/retention of property etc.:
As per Sec. 8(3) of the PMLA, 2002, where the Adjudicating Authority decides that any
property is involved in money-laundering, he shall, by an order in writing, confirm the
attachment of the property or retention of property or record seized or frozen u/s 17 or
18 and record a finding to that effect.
Period for attachment, retention, or freezing of the seized or frozen property or

record:
Whereupon such attachment, retention, or freezing of the seized or frozen property or
record, AA shall-
(a) continue during investigation, for a period not exceeding 365 days or the pendency of
the proceedings relating to any offence under this Act before a court or under the
corresponding law of any other country, before the competent court of criminal
jurisdiction outside India, as the case may be; and
(b) become final after an order of confiscation is passed.
For the purposes of computing the period of 365 days, the period during which the
investigation is stayed by any court under any law for the time being in force shall be
excluded.
Conclusion: The attachment of the property of Mr. X to be continued by 31st January 2022
is valid as it is within 365 days from the date of order of the investigation by the
Adjudicating Authority.
Q.79 The Adjudicating Authority appointed under the Prevention of Money Laundering Act, 2002,
issued an order attaching certain properties of Green Resorts Limited alleged to be involved
in money laundering for a specified period. Referring to the provisions of Prevention of
Money Laundering Act, 2002, advise the Company about the remedy that is available under
the Act. Also state further relief available to the company to recover the attached property
in case it failed in the first instance. (6 Marks)

Ans.: Appeal to Appellate Tribunal:

• Sec. 26 of the Prevention of Money Laundering Act, 2002 deals with the rights of a
person to make an appeal to the Appellate Tribunal. Accordingly, any person aggrieved by
an order made by the Adjudicating Authority may prefer an appeal to the Appellate
Tribunal within a period of 45 days from the date on which a copy of the order is received
by him.
• The appeal shall be in such form and be accompanied by such fee as may be prescribed.
The Appellate Tribunal may extend the period if it is satisfied that there was sufficient
cause for not filing it within the period of 45 days.
• The Appellate Tribunal may after giving the parties to the appeal an opportunity of being
heard, pass such order as it thinks fit, confirming, modifying or setting aside the order
appealed against.
Appeal to High Court:
As per Sec. 42 any person aggrieved by any decision or order of the Appellate Tribunal may
file an appeal to the High Court within 60 days from the date of communication of the order
of the Appellate Tribunal.
Conclusion: Company may prefer an appeal to Appellate Tribunal in the first instance.
Q.80 Rajan had filed an appeal before the Appellate Tribunal regarding unlawful attachment of
one of his properties. The Bench, which was handling the appeal, consisted of 2 members,
and both the members were divided in their opinion, on the decision. The matter was referred
to a third member of the Appellate Tribunal who gave his opinion. Between the three, the
majority decision was that the attachment of Rajan's property was lawful and enforceable.
Rajan contended that when the Bench was divided in its opinion, the matter should be decided
by the Chairman, with his casting vote and not by any other member of the Appellate
Tribunal, and so the decision was not tenable. State with the reasons whether Rajan's
contention is right, under the provisions of Section 38 of the Prevention of Money Laundering
Act, 2002. (3 Marks)
Ans.: Decision to be by majority (Sec. 38):

• As per Sec. 38 of the PMLA, 2002, if the Members of a Bench consisting of two Members
differ in opinion on any point, they shall state the point or points on which they differ,
and make a reference to the Chairman who shall either hear the point or points himself
or refer the case for hearing on such point or points by third Member of the Appellate
Tribunal and such point or points shall be decided according to the opinion of the majority
of the Members of the Appellate Tribunal who have heard the case, including those who
first heard it.
• In the given question, the decision regarding attachment of Rajan’s property was taken
by a majority decision (total 3 members: two original members + the third member to
whom the matter was referred).
Conclusion: The contention of Rajan that since the original bench was divided in its opinion,
the matter ought to be decided by the Chairman, is invalid.

Q.81 The Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (the Act)
made an order under Section 8(3), confirming the provisional attachment of property made
under Section 5(1) of the said Act. Mr. Rana, owner of the attached property, aggrieved
by the order, wanted to make an appeal to the Appellate Tribunal. However, before making
an appeal Mr. Rana is adjudicated as an insolvent. Explain, with reference to the relevant
provisions of the said Act, whether appeal could be made to Appellate Tribunal in the
present case? (3 Marks)
Ans.: Continuation of proceedings in the event of death or insolvency [Section 72]:

Sec. 72 of Prevention of Money Laundering Act, 2002 provides that where:
(a) any property of a person has been attached under section 8 and no appeal against the
order attaching such property has been preferred; or
(b) any appeal has been preferred to the Appellate Tribunal, and-
(i) in a case referred to in clause (a), such person dies or is adjudicated an insolvent
before preferring an appeal to the Appellate Tribunal; or
(ii) in a case referred to in clause (b), such person dies or is adjudicated an insolvent
during the pendency of the appeal,
then, it shall be lawful for the legal representatives of such person or the official assignee
or the official receiver, as the case may be, to prefer an appeal to the Appellate Tribunal or
as the case may be, to continue the appeal before the Appellate Tribunal, in place of such
person and the provisions of section 26 shall, so far as may be, apply, or continue to apply,
to such appeal.
Conclusion: Appeal can be made to the Appellate Tribunal by the official assignee or the
official receiver of Mr. Rana.
Q.82 Mr. Ram with mala fide intention, to take revenge with his rival competitor, gives false
information as regards to conduct of his business in illegal manner. So, search warrant was
issued by the concerned authority against him. Examine the legal position of Mr. Ram with
respect to the act committed by him in the given situation in the light of Prevention of
Money Laundering Act, 2002. (3 Marks)
Ans.: Punishment for false information or failure to give information, etc.
• As per Sec. 63 of the Prevention of Money Laundering Act, 2002, any person wilfully and
maliciously giving false information and so causing an arrest or a search to be made under
this Act, shall on conviction be liable for imprisonment for a term which may extend to 2
years or with fine which may extend to ₹ 50,000 or both.
• Accordingly, Mr. Ram, here in the said instance, wilfully and maliciously gives false
information in order to take revenge, shall be liable for imprisonment for a term which
may extend to 2 years or with fine extending to ₹ 50,000 or both.

Chapter 18 - The Foreign Contribution (Regulation) Act, 2010
Q.83 An Association registered under the Foreign Contribution (Regulation) Act, 2010 (the act)
received donation from a club registered in Singapore. The Association proposes:
(i) To transfer 10% of the donation to “Home for Aged Society”, an unregistered person
and 15% to “Welfare Club” a registered person under the Act,
(ii) To invest portion of the donation in Chits promising high returns.
In the light of provisions of the Foreign Contribution (Regulation) Act, 2010 decide
whether the association can carryout the above proposals and if so, state the procedures
to be followed under the said Act? (6 Marks)
Ans.: Transfer of Foreign Contribution to Others:

• As per Sec. 7 of FCRA, 2010 (as amended by FCR (Amendment) Act, 2020 w.e.f.
29.09.2020), no person who is registered and granted a certificate or has obtained prior
permission under this Act; and receives any foreign contribution, shall transfer such
foreign contribution to any other person.
• As per Sec. 8 of FCRA, 2010, any foreign contribution or any income arising out of it shall
not be used for speculative business. As per Rule 4 of Foreign Contribution (Regulations)
Rules, 2011, participation in any scheme that promises high returns like investment in
chits or land or similar assets not directly linked to the declared aims and objectives of
the organization or association is considered as speculative activity.
Conclusion:
(i) Transfer of 10% of the donation to “Home for Aged Society”, an unregistered person
cannot be made after obtaining approval of Central Government as per Rule 24.
(ii) Transfer of 15% to “Welfare Club” a registered person under the Act, cannot be made.
(iii) Investment of the donation in Chits promising high returns is not allowed.
Q.84 Mr. Vijay, Sanjay and Ajay are sons of Mr. Kulbushan Yadav. Mr. Sanjay who is professor
reside in India, rest both the brothers settled in abroad.
Mr. Sanjay Yadav on his 25th wedding anniversary received a gift from his elder brother
who is American national currently. Gift includes i-phone and an old chain of their father,
with which emotional memories of Mr. Sanjay attached, he immediately wear that chain.
Iphone in Indian rupee worth ₹ 1,10,000, while chain worth ₹ 80 thousand.
While younger brother of Mr. Sanjay who is British national and investment banker by
profession, present him securities worth ₹ 2 lacs.
Regarding the intimation of foreign contribution received by Mr. Sanjay, you are required
to give the legal position of Mr. Yadav in the light of the FCRA . (4 Marks)
Ans.: Gifts from Relatives:

• As per Rule 6 of Foreign Contribution (Regulation) Rules, 2011, any person receiving
foreign contribution in excess of ₹ 10 lakh or equivalent thereto in a financial year from

any of his relatives (as defined in section 2(1)(r) of the Foreign Contribution (Regulation)
Act, 2010) shall inform the Central Government regarding the details of the foreign
contribution received by him in electronic form in Form FC-1 within 3 months from the
date of receipt of such contribution.
• Further Rule 6A provides when any article gifted to a person for his personal use whose
market value in India on the date of such gift does not exceed ₹ 1 lakh shall not be a
foreign contribution.
• I-phone (even for personal use, but value more than 1 lac; hence foreign contribution) and
Shares together amounts to only 3,10,000, which less than threshold of ₹ 10 lacs; hence
no intimation is required by Mr. Sanjay in given case.
• However with respect to chain having worth of ₹ 80,000 is not foreign contribution at all.
Q.85 (i) Mr. Rohit, a relative of Mr. Suman, who is residing in France remitted foreign
contribution of ₹ 2 lakhs to her for arrangement of religious programme for the believers
of Gurudev. Whether foreign remittances received from a relative are to be treated
as foreign contribution as per FCRA, 2010?
(ii) Can capital assets purchased with the help of foreign contributions be acquired in the
name of the Mr Ram, an office bearer of the association? (6 Marks)
Ans.: (i) No. As per Section 4(e) of FCRA, 2010 and Rule 6 of FCRR, 2011, even the persons
prohibited under section 3, i.e., persons not permitted to accept foreign contribution,
are allowed to accept foreign contribution from their relatives. However, in terms of
Rule 6 of FCRR, 2011, any person receiving foreign contribution in excess of ₹ 10 lakh
or equivalent thereto in a financial year from any of his relatives shall inform the
Central Government regarding the details of the foreign contribution received by him
in electronic form in Form FC-1 within three months from the date of receipt of such
contribution.
Here in the given situation, since the amount remitted by Mr. Rohit is less than ₹ 10
lakh, so Ms. Suman is not required to inform the Central Government.
(ii) No. Every asset purchased with foreign contribution should be acquired and possessed
in the name of the association since an association has a separate legal entity distinct
from its members.
Q.86 Bharat Ltd. is a subsidiary of Global Ltd., which is a MNC registered in Hongkong. The
Bharat Ltd. had obtained the permission to receive foreign contribution in a designated
account in the SBI. Later it was discovered that the obtained foreign contribution were
deposited in other account for its functioning. Advise on the given situation as to depositing
of the amount of foreign contribution from designated account to any other account. And
state the duty of the bank on the said transactions made? (4 Marks)

Ans.: Foreign contribution through scheduled bank:

Sec. 17 of FCRA, 2010 (as amended by FCR (Amendment) Act, 2020 w.e.f. 29.09.2020), deals
with the provisions relating to receipt of foreign contribution. Accordingly.
• Every person who has been granted certificate or prior permission u/s 12 shall receive
foreign contribution only in an account designated as "FCRA Account" by the bank, which
shall be opened by him for the purpose of remittances of foreign contribution in such
branch of the State Bank of India at New Delhi, as the C.G. may, by notification, specify
in this behalf:
• Provided that such person may also open another ''FCRA Account'' in any of the
scheduled bank of his choice for the purpose of keeping or utilising the foreign
contribution which has been received from his ''FCRA Account'' in the specified branch
of State Bank of India at New Delhi:
• Provided further that such person may also open one or more accounts in one or more
scheduled banks of his choice to which he may transfer for utilising any foreign
contribution received by him in his ''FCRA Account'' in the specified branch of the
State Bank of India at New Delhi or kept by him in another ''FCRA Account'' in a
scheduled bank of his choice:
• Provided also that no funds other than foreign contribution shall be received or
deposited in any such account.
Conclusion: The foreign contribution should be received only in an account designated as
“FCRA Account” which shall be opened in specified branch of SBI. However, for utilisation
purpose, more than one bank account may be opened.
Obligations of the Bank receiving foreign contribution of its customers:
As per Rule 16 of Foreign Contribution (Regulation) Rules, 2011, the bank shall report to the
C.G. within 48 hours any transaction in respect of receipt or utilisation of any foreign
contribution by any person whether or not such person is registered or granted prior
permission under the Act.
Chapter 19 - The Arbitration and Conciliation Act, 1996
Q.87 In 2021, Company Amar, food processor manufacturing unit entered into a joint venture
agreement with Company USHA, the largest manufacturer of Food processors for supply of
parts of mixer & grinder for manufacturing its latest model. Both the companies are
registered under the Companies Act, 2013. Agreement carries the term that all disputes
shall be arbitrated in Mumbai. State the type of arbitration agreement made between them.
What will happen if the agreement does not have any clause relating to arbitration? Disputes
arose between them concerning quality of material supplied in 2022. (4 Marks)
Ans.: Determination of Type of Arbitration Agreement:
There are two basic types of arbitration agreement are:

(a) Arbitration clause: Arbitration clause is contained within a principal contract. The
parties undertake to submit disputes in relation to or in connection with the principal
contract that may arise in future to arbitration.
(b) Submission agreement: An agreement to refer disputes that already exist to
arbitration. Such an agreement is entered into after the disputes have arisen.
If the agreement already carries the term that all disputes shall be arbitrated in Mumbai
at the time of entering into joint venture agreement, it would be an arbitration clause as it
is contained in the principal contract (JVA) and no disputes have arisen till yet. It concerns
future disputes that may arise.
However, if the agreement does not have any clause relating to arbitration and disputes arise
between the parties concerning quality of supplied goods in 2022. To resolve this dispute,
parties may entered into an agreement through Submission Agreement. Following clause may
be agreed upon: “That all disputes including quality of goods supplied by Company USHA to
Company Amar shall be submitted to arbitration. The parties hereby agree to abide by the
decision of the arbitrator.”
Q.88 Ms. Rajkumari launches her boutique. She contacted with M/s Shyamlal merchants for supply
of dress materials. The communication between the parties were over e-mail. There was a
term of service between the parties containing that “any disputes regarding quality or
delivery shall be submitted to arbitration conducted under the guidance of Indian Clothes
Manufacturers Association. Please place your order if the above terms and conditions are
agreeable to you.” Ms. Rajkumari placed an order. Comment on the validity of the such
arbitration agreement according to the Arbitration and Conciliation Act, 1996. (3 Marks)
Ans.: Determination of Validity of Arbitration Agreement:

As per the arbitration and Conciliation Act, an agreement must be in writing There is however
no requirement for the same to be in writing in one document. There is also no particular
form or template for an arbitration agreement. The communication over e-mail of the term
of services is a proper valid agreement and the same have been stood affirmed by reason
of their conduct. This would be an arbitration agreement in writing contained in
correspondence between the parties.
Q.89 ABC Ltd. and XYZ Ltd. entered in to a Joint Venture (JV) to construct a town consisting of
500 flats nearby Pune, which will be sold to the retail home buyers. They prepared a JV
Agreement in which an arbitration clause entered. This clause specifies that in case of any
dispute, the matter shall be referred to the arbitration. After some time, a dispute was
aroused between the companies. ABC Ltd. contended that there was no separate agreement
in writing between the companies to refer the matter to the arbitration and it was just a
clause in the JV Agreement, hence the matter should be referred to the Court of law
instead of arbitration.

Based on the above facts define the meaning of the arbitration agreement and whether the
insertion of arbitration clause in the JV agreement is sufficient or it should be a separate
agreement for arbitration? (4 Marks)
Ans.: Arbitration Agreement:

Section 7 of the Arbitration and Conciliation Act, 1996 provides the following:
(1) Arbitration agreement means an agreement by the parties to submit to arbitration all
or certain disputes which have arisen or which may arise between them in respect of a
defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in
the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication
including communication through electronic means which provide a record of the
agreement; or
(c) an exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes
an arbitration agreement if the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.
Thus, as per Sec. 7 of the Act, an arbitration agreement may be in the form of an arbitration
clause in a contract.
Conclusion: Since the JV Agreement contains a clause to refer the matter to the arbitration,
in case of dispute, is sufficient the arbitration agreement was arrived at between the
companies.
Q.90 Modern Furniture Limited (MFL) of India going to sign an agreement with the Gruppo Molteni
& C. (GMC) of Italy for development of contemporary designs of furniture. In the agreement
both parties willing to insert a clause on conciliation in said agreement, because they admit
that “Conciliator provide amicable resolution to dispute (if arise any)”. While writing such
clause in said agreement, the MFL is of opinion that single conciliator will be enough, but
Italian counter-part GMC willing to have provision for two conciliators. It was decided that,
there shall be two conciliator.
You are required to answer;
(a) Can conciliators be appointed in multiple and in even number by MFL and GMC?
(b) Who shall elect the conciliator(s) in given case?
(c) How conciliator(s) make decision in given case, to reach out at amicable solution?

Ans.: Conciliation Provisions:
Section 63 and 64 of the Arbitration and Conciliation Act 1996 deals with number of
conciliators and Appointment of conciliators respectively. While section 67 highlights their
role.
(a) Sec. 63(1) states there shall be one conciliator unless the parties agree that there
shall be two or three conciliators. Therefore, MFL and GMC can have two Conciliators.
Where there is more than one conciliator. The provision provides multiple conciliators
ought to act jointly.
(b) Section 64 requires in conciliation proceedings with two conciliators, each party may
appoint one conciliator.
Section provides conditions or cautions that shall be observed by the contracting
parties, while appointing conciliator to ensure their independence.
(c) As said earlier that multiple conciliators ought to act jointly, Further the decision
making process guided by their role stated in section 67. The conciliator shall assist
the parties in an independent and impartial manner in their attempt to reach an
amicable settlement of their dispute.
Chapter 20 - Insolvency and Bankruptcy Code, 2016
Q.91 Article 14 of the Constitution of India reads as “The State shall not deny to any person
equality before the law or the equal protection of the laws within the territory of India.”
Modern Engineering Limited (MEL) enters into the Insolvency Resolution Process.
Resolution professional prepare the list of claims, wherein it place operational creditors after
financial creditors in priority order. Operational creditors was annoyed with this priority
order, hence advance a writ petition to declared the Insolvency and Bankruptcy Code, 2016
(IBC) unconstitutional on the ground, it is discriminatory and unfair to an operational creditor
as compared to the financial creditor.
Recommended in your opinion, whether IBC is constitutional or unconstitutional w.r.t Article
14 and support your answer in the light of relevant provisions of IBC. (4 Marks)
Ans.: Constitutional Validity of IBC, 2016:

• Looking at the constitutional validity of the Code as per Article 14 of the Constitution
of India, IBC is constitutional in entirety and not discriminatory and unfair to an
operational creditor as compared to the financial creditor in the light of section 3(6)
of the Code.
• According to the Code, ‘Claim’ gives rise to ‘debt’ only when it is due and ‘default’ occurs
only when debt becomes due and payable and is not paid by the debtor. Though debt
means a liability/obligation in respect of a claim which is due from any person &
includes a financial debt and operational debt. [Sections 3(11)].

• Further financial creditors are clearly different from operational creditors and
therefore, there is obviously a clear difference between the two which has a direct
relation to the objects sought to be achieved by the Code.
• The excessive power given to the Committee of Creditors (CoCs) is controlled through
approval/rejection of the plan with the large majority (rather a simple majority) and
the Adjudicating Authority, if required, can set aside the arbitrary decisions of CoCs.
• Since there is a difference in the relative importance of two types of debts when it
comes to objects sought to be achieved by the insolvency code, hence Article 14 of
the Constitution of India (equality before the law) does not get infracted.
Q.92 M/s TAS Constructions Private Limited, an operational creditor on 2nd April, 2022 being the
default date issued a demand notice through speed post to M/s Dheeraj Constructions Private
Limited, an unpaid operational/corporate debtor demanding payment of its invoice dated 19th
March, 2022 for ₹ 5,60,000 (15 days payment terms) towards supply of certain works
contract services as per the provisions of Sec. 8(1) of the IBC, 2016 and rules framed
thereunder/s.
Dheeraj Constructions Private Limited on receipt of the demand notice informed the
operational creditor, that vide their e-mail dated 30th March, 2022, addressed to the
company and all its directors, they have disputed the invoice on the quality of the services
rendered and were withholding payment till the dispute is settled but without initiating any
legal proceedings under any law for the time being in force. The operational creditor on
expiry of the period of 10 days from the date of delivery of the demand notice and non-
payment of its dues approached the Adjudicating Authority for the initiation of the CIRP
u/s 9(1) of IBC, 2016. Will the application of the operational creditor filed u/s 9(1) read
with Sec. 8(2)(a) of the IBC, 2016 be permitted? (4 Marks)
Ans.: Application for initiation of CIRP Process by Operational Creditor:

• Sec. 8 of the Insolvency and Bankruptcy Code, 2016 provides that an operational creditor
may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor
copy of an invoice demanding payment of the amount involved in the default to the
corporate debtor in such form and manner as may be prescribed. The corporate debtor
shall, within a period of 10 days of the receipt of the demand notice or copy of the
invoice bring to the notice of the operational creditor-
(a) existence of a dispute, if any, or record of the pendency of the suit or arbitration
proceedings filed before the receipt of such notice or invoice in relation to such
dispute;
(b) the payment of unpaid operational debt.
• Sec. 9 of the Insolvency and Bankruptcy Code, 2016 provides the provisions relating to
application for Corporate Insolvency Resolution Process. Accordingly, after the expiry

of the period of 10 days from the date of delivery of the notice or invoice demanding
payment, if the operational creditor does not receive payment from the corporate debtor
or notice of the dispute, the operational creditor may file an application before the
Adjudicating Authority for initiating corporate insolvency resolution process.
• In the present case, Dheeraj Constructions Private Limited on receipt of the demand
notice, informed M/s TAS Constructions Private Limited (Operational Creditor) that
through email dated 30th March, 2022, addressed the company and all its directors, of
the dispute on the invoice and withholding of the payment till the settlement of the
dispute.
Conclusion: Application filed by TAS Constructions Private Limited, operational creditor is
not maintainable due to existence of dispute.
Q.93 Halogen Limited, is facing acute shortage of funds and owes huge sums of money to its
financial and operational creditors.
(i) When will the provisions of insolvency and liquidation of corporate persons be applicable
on a corporate person?
(ii) State with reasons whether the following persons can initiate insolvency resolution
process against Halogen Limited:
• Mr. Y, a person to whom an operational creditor of Halogen Limited has assigned his
debt of ₹ 120 lakhs.
• Mr. P is a financial creditor, to whom the company owes ₹ 80 lakhs. (4 Marks)
Ans.: (i) Applicability of Provisions of insolvency and liquidation:

The provisions relating to the insolvency and liquidation of corporate debtors shall be
applicable only when the default is occurred. MCA vide notification dated 24-03-2020,
specifies ₹ 1 crore as the minimum amount of default for initiation of corporate
insolvency resolution process.
(ii) Persons can initiate insolvency resolution process:
As per Sec. 6 of the IBC, 2016, where any corporate debtor commits a default, a financial
creditor, an operational creditor or the corporate debtor itself may initiate corporate
insolvency resolution process in respect of such corporate debtor.
As per Sec. 5(20), operational creditor means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally assigned or transferred.
Conclusion: Based on the above stated provisions, following conclusions may be drawn:
(a) Mr. Y, to whom an operational creditor of Halogen Limited, has assigned his debt (of
₹ 1.2 crore) can initiate insolvency resolution process against Halogen Limited.
(b) Mr. P, financial creditor, cannot initiate insolvency resolution process against
Halogen Limited as the debt owed is less than the threshold limit.

Q.94 Oil & Gas Energy Limited (Corporate Debtor) borrowed a loan of ₹ 100 crore for its expansion
project form State Bank of India (SBI), Bank of India (BOI) and Punjab National Bank
(PNB) under the consortium arrangement in the proportion of 50%, 30% and 20%
respectively. The corporate insolvency process has begun by order of the Tribunal on an
application made by the Financial Creditor. The Interim Insolvency Resolution Professional
(IIRP) constituted a Committee of Creditor (CoC) which noted that total financial debt owed
by the Corporate Debtor is ₹ 500 crore in aggregate. You are requested to state which of
the members of the consortium shall be the member of CoC and what shall be their voting
share in the CoC as per the provisions of the Insolvency and Bankruptcy Code, 2016.
(4 Marks)
Ans.: Members of Committee of Creditors (CoC) in case of Joint Financial Creditors:

• As per Sec. 21(3) of IBC, 2016, where the corporate debtor owes financial debts to 2 or
more financial creditors as part of a consortium or agreement, each such financial
creditor shall be part of the Committee of Creditors (CoC) and their voting share shall
be determined on the basis of the financial debts owed to them.
• Voting share shall be based on the proportion of financial debt owed to such financial
creditor in relation to the financial debt owed by the corporate debtor.
• On the basis of above provision, SBI, BOI and PNB shall be the members of CoC and
their voting share in the CoC shall be in proportion of their debt (i.e. in proportion of
50%, 30% and 20% respectively) to the total debt of the Corporate Debtor (loan amount
of ₹ 100 crore under consortium arrangement).
• Voting share of SBI, BOI and PNB in the given case shall be as under:
SBI = (50% X ₹ 100 Crore) / ₹ 500 Crore = 10%
BOI = (30% X ₹ 100 Crore) / ₹ 500 Crore = 6%
PNB= (20% X ₹ 100 Crore) / ₹ 500 Crore = 4%
Q.95 Under a Corporate Insolvency Resolution Process, it was suggested for the replacement of
the Resolution professional. So, CoC in its meeting had decided to replace RP1 with another
RP2 with 100 per cent voting share. So an application was preferred under section 27 to
replace RP1.
NCLT allowed application filed by Financial Creditors for replacement of RP1. RP1 contended
that NCLT passed an invalid order without giving any opportunity of being heard to RP and
same was in violation of principles of natural justice.
Enumerate in the light of the stated facts, the validity on the compliance of the legal
requirement as to replacement of the RP as per the IBC, 2016? (4 Marks)
Ans.: Replacement of Resolution Professional:

• Sec. 27 of the IBC, 2016 states that where, at any time during the CIRP, the committee
of creditors is of the opinion that a resolution professional appointed under section 22,
is required to be replaced, it may replace him with another resolution professional in the
manner provided under this section.

• The committee of creditors may, at a meeting, by a vote of sixty-six per cent of voting
shares, resolve to replace the resolution professional with another resolution
professional, subject to a written consent from the proposed resolution professional in
the specified form.
• The committee of creditors shall forward the name of the insolvency professional
proposed by them to the Adjudicating Authority.
• The Adjudicating Authority shall forward the name of the proposed resolution
professional to the Board for its confirmation and a resolution professional shall be
appointed in the same manner as laid down in section 16.
• Where any disciplinary proceedings are pending against the proposed resolution
professional, the resolution professional so appointed, shall continue till the appointment
of another resolution professional under this section.
• Accordingly in the given question, it’s held in terms of section 27 of the Code that
replacement is complete when resolution is passed for replacement with 66 per cent voting
share of CoC, and it does not intend any opportunity of hearing to be given to RP by NCLT
before passing an order approving resolution of CoC for replacement of RP1. Since CoC
passed resolution for replacement of RP with 100% voting share, NCLT had passed such
an order in compliance though without giving any opportunity of being heard to RP1.
Q.96 The following particulars relate to Big Rammy (Private) Ltd. which has gone into Corporate
Insolvency Resolution Plan (CIRP)
Sr. Particulars Amount in ₹

No.
1 Amount realized from the sale of liquidation of assets 14,00,000
2 Secured creditor who has relinquished the security 5,00,000
3 Unsecured financial creditors 4,00,000
4 Income-tax payable within a period of 2 years preceding the 50,000

liquidation commencement date
5 Cess payable to state government within a period of one year 20,000

preceding the liquidation commencement date
6 Fees payable to resolution professional 75,000
7 Expenses incurred by the resolution professional in running the 25,000

business of the Big Rammy (Private) Ltd. on going concern
8 Workmen salary payable for a period of 30 months preceding the 3,00,000

liquidation commencement date. The workmen salary is equal p.m.
9 Equity shareholders 10,00,000

State the priority order in which the liquidator shall distribute the proceeds under the
Insolvency and Bankruptcy Code. (4 Marks)
Ans.: Distribution of Assets:

As per Sec. 53 of the IBC, 2016, the proceeds from the sale of liquidation assets shall be
distributed in the following order of priority:
S. Particulars Amount
No.
(i) Fees payable to Resolution Professional in full 75,000
(ii) Expenses incurred by the Resolution professional in running the 25,000

business on going concern.
(iii) Workmen salary outstanding for a period of 24 months (proportionate 2,40,000

to 24 months only). The balance ₹ 60,000 is considered as remaining
debts and dues and will be settled before preference
shareholder/equity shareholder.
(iv) Secured creditor who has relinquished the security 5,00,000
(v) Unsecured Financial Creditors 4,00,000
(vi) Income-tax payable with in the period 2 years 50,000
(vii) Cess to State Government payable with in a period of one year 20,000
(viii) Balance amount in workmen salary 60,000
Total distribution 13,70,000
Amount realized from the sale of liquidation of assets 14,00,000
Balance available to Equity shareholder on pro rata basis 30,000
Q.97 Four out of seven directors of Tatragat Ltd. made a declaration on 23rd June, 2022, with
respect to filing of an application for initiating pre-packaged insolvency resolution process
by 21st September, 2022.
Mr. Ashok Jawal was proposed and approved to be appointed as the resolution professional,
whose name was mentioned in the aforesaid declaration. However, Tatragat Ltd. failed to
file an application for initiating pre-packaged insolvency resolution process by 21st
September, 2022 with the Adjudicating Authority.
Examine the given situations in the light of the given facts:
(i) Whether the directors of Tatragat Ltd. can be said to have made a valid declaration?
(ii) Whether the duty of Mr. Ashok can be considered to have ceased? Would your answer
be different, if Tatragat Ltd. was able to file the application on time but was rejected
by the Adjudicating Authority? (4 Marks)

Ans.: (i)Declaration for the purposes of PPIRP:
• As per Sec. 54A(2)(f) of the IBC, 2016, with respect to filing of an application for
initiating PIRP, the majority of the directors or partners of the corporate debtor, as
the case may be, have made a declaration, in such form as may be specified, stating,
inter alia:
(a) that the corporate debtor shall file an application for initiating PIRP within a
definite time period not exceeding 90 days;
(b) that the PIRP is not being initiated to defraud any person; and
(c) the name of the insolvency professional proposed and approved to be appointed
as resolution professional.
• In the instant case 4 out of 7 directors have made a declaration on 23rd June, 2022
i.e. majority of directors have made declaration. The said declaration provides for a
definite time period not exceeding 90 days for filing of an application for initiating
PIRP i.e. by 21st September, 2022, which is exactly 90 days from date of declaration
i.e. 23rd June, 2022. Also, name of Mr. Ashok Jawal proposed and approved to be
appointed as the resolution professional had been mentioned in the said declaration,
as required.
Conclusion: It can be concluded that the directors have made a valid declaration with
respect to filing of an application for initiating PIRP assuming that the said declaration
also states that the PIRP is not being initiated to defraud any person.
(ii) Duties of resolution professional before initiation of PPIRP:
• As per Sec. 54B(2) of the IBC, 2016,the duties of the insolvency professional shall
cease, if:
(i) the corporate debtor fails to file an application for initiating PPIRP within the
time period as stated under the declaration referred to in Sec. 54A(2)(f); or
(ii) the application for initiating PIRP is admitted or rejected by the Adjudicating
Authority, as the case may be.
• In the instant case, duties of Mr. Ashok Jawal, the resolution professional, can be
considered to have ceased, as Tatragat Ltd. failed to file an application for initiating
PIRP within the time period as stated under the declaration i.e. by 21st September,
2022.
• If in case, Tatragat Ltd. was able to file the said application on time but was rejected
by the Adjudicating Authority then also the duties of Mr. Ashok Jawal, the resolution
professional, can be considered to have ceased.
Q.98 S & M Private Limited, classified as a small enterprise (a Corporate Debtor), has made an
application to the Adjudicating Authority (the Tribunal) for initiating Pre-Packaged
Insolvency Resolution Process (PPIRP). The requirement for filing an application being

satisfied the Adjudicating Authority, by an order, has admitted an application commencing

the PPIRP. Referring to the provisions of the Insolvency and Bankruptcy Code, 2016 explain
the following:
(i) An external agency of which an approval would be sought to base resolution plan prior
to making an application to the Adjudicating Authority.
(ii) Circumstances causing invitation for submission of resolution plan or plans.
(iii) Consequences of not approving the selected resolution plan by the Committee of
Creditors (CoC). (4 Marks)
Ans.: (i) Approval of External Agency to base Resolution Plan:

S & M Private Limited, the Corporate Debtor, shall seek the approval of the financial
creditors to base the Resolution Plan as required under Section 54A (4) of the IBC, 2016.
(ii) Circumstances causing invitation for submission of resolution plan or plans are as
below:
(a) Where the Committee of Creditors does not approve the base resolution plan or
(b) the base resolution plan impairs any claims owed by the corporate debtor to the
operational creditors.
(iii) Consequences of not approving the selected resolution plan by the Committee of
Creditors (CoC):
If selected resolution plan is not approved by the Committee of Creditors (CoC), the
resolution professional shall file an application for termination of the pre-packaged
insolvency resolution process and the Adjudicating Authority shall, within 30, days of the
date of such application, by an order, terminate pre-packaged insolvency resolution
process. (Section 54N of the Code).
Q.99 XYZ Limited, an unlisted company with total assets of ₹ 90 lakh as per financial statement
as on 31st March, 2022, defaulted in the payment of the financial debt against the financial
creditor Mr. A.
Mr. A filed an application for initiation of insolvency process against XYZ Limited under the
fast-track corporate insolvency resolution process by 31st May, 2022. Discuss the relevancy
for disposal through the mechanism of the fast-track corporate insolvency resolution process
and the legal position of holding of fast-track corporate insolvency resolution process by
Mr. A in terms of the IBC, 2016. Compute the time period for completion of the fast-track
process in the said situation. (4 Marks)
Ans.: Fast-track Corporate Insolvency Resolution Process:

As per Sec. 55 of Insolvency and Bankruptcy Code, 2016, an application for fast-track
corporate insolvency resolution process may be made in respect of the following corporate
debtors, namely:

(a) a corporate debtor with assets and income below a level as may be notified by the C.G.;
or
(b) a corporate debtor with such class of creditors or such amount of debt as may be
notified by the C.G.; or
(c) such other category of corporate persons as may be notified by the C.G.
Central Government notifies that an application for fast-track corporate insolvency
resolution process may be made in respect of the following corporate debtors, namely:
(i) a small company as defined u/s 2(85) of Companies Act, 2013; or
(ii) a Startup (other than the partnership firm); or
(iii) an unlisted company with total assets, as reported in the financial statement of the
immediately preceding financial year, not exceeding ₹ 1 crore.
Conclusion: Considering the above notification, the application filed by Mr. A for initiation
of insolvency process against XYZ Limited under the fast-track corporate insolvency
resolution is valid.
Computation of time period for completion of fast-track insolvency resolution process
As per Sec. 56 of the Code, the fast-track CIRP shall be completed within a period of 90
days from the insolvency commencement date. The corporate insolvency resolution process
shall commence from the date of admission of application (Sec. 10). The Adjudicating
Authority shall within a period of 14 days of receipt of application admit/ reject the
application. Accordingly, as XYZ Ltd. has filed application on 31st May 2022, the said
application can be admitted by 14th June 2022 and the fast-track insolvency resolution
process can be completed latest by 12th September 2022.
Q.100 BDLK Limited decided to go for voluntary winding up and accordingly the Board of Directors
at a meeting of the Board are about to take the necessary steps to initiate the winding up
proceedings. The Board of Directors of the company approached you for guidance in this
regard. Please list out the steps required under the Insolvency & Bankruptcy Code, 2016
before approval of such liquidation proposal with specific reference to meetings and actions
of relevant stakeholders. (4 Marks)
Ans.: Conditions for Voluntary Liquidations:

Sec. 59 of the IBC, 2016 prescribes that the voluntary liquidation proceedings of a
corporate person registered as a company shall meet the following conditions, namely:
(a) a declaration from majority of the directors of the company verified by an affidavit
stating that-
(i) they have made a full inquiry into the affairs of the company and they have formed
an opinion that either the company has no debt or that it will be able to pay its
debts in full from the proceeds of assets to be sold in the voluntary liquidation;
and

(ii) the company is not being liquidated to defraud any person;

(b) the declaration under sub-clause (a) shall be accompanied with the following documents,
namely:
(i) audited financial statements and record of business operations of the company for
the previous two years or for the period since its incorporation, whichever is later;
(ii) a report of the valuation of the assets of the company, if any prepared by a
registered valuer;
(c) within four weeks of a declaration under sub-clause (a), there shall be-
(i) a special resolution of the members of the company in a general meeting requiring
the company to be liquidated voluntarily and appointing an insolvency professional
to act as the liquidator; or
(ii) a resolution of the members of the company in a general meeting requiring the
company to be liquidated voluntarily as a result of expiry of the period of its
duration, if any, fixed by its articles or on the occurrence of any event in respect
of which the articles provide that the company shall be dissolved, as the case may
be and appointing an insolvency professional to act as the liquidator:
Provided that the company owes any debt to any person, creditors representing 2/3 rd in
value of the debt of the company shall approve the resolution passed within 7 days of such
resolution.

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CA Final – Corporate and Economic Laws

(Important Questions for May 2023 Exams)

Chapter 1 - Appointment and Qualification of Directors

Ans.: Increase in number of Directors:

Compiled by: CA. Pankaj Garg 1 |P a g e

(i) The public company has a paid-up share capital of ₹ 10 crores

Ans.: Requirement of Independent Director:

Requirement of Independent Directors in other cases:

(iv) It is not mandatory that women directors should be Independent Directors.

Compiled by: CA. Pankaj Garg 2 |P a g e

Particulars 31.03.2021 31.03.2022

(a) Paid-up capital 8 18#

(d) Borrowings from Banks/FIs (sanctioned limit is ₹ 60 50 45

(e) No. of directors 10 10

The Company Secretary apprised the Board, of requirement of appointment of Independent

Ans.: (A)Requirement of Independent Director:

Compiled by: CA. Pankaj Garg 3 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

(B) Tenure of Independent Directors:

Ans.: Eligibility to be appointed as a Small Shareholder Director (SSD):

Compiled by: CA. Pankaj Garg 4 |P a g e

Compiled by: CA. Pankaj Garg 5 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Ans.: Rotational Directors and Retirement of Directors:

Compiled by: CA. Pankaj Garg 6 |P a g e

Q.7 As on 31.03.2022, Mr. K. Muthusamy is holding directorship in 4 listed Companies, 4 unlisted

Ans.: Provisions related with DIN:

Compiled by: CA. Pankaj Garg 7 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Ans.: Filling of Casual vacancy in the Office of Director:

Compiled by: CA. Pankaj Garg 8 |P a g e

Ans.: Eligibility to be appointed as directors:

Compiled by: CA. Pankaj Garg 9 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Compiled by: CA. Pankaj Garg 10 |P a g e

Ans.: Participation in Board Meeting through electronic mode:

Ans.: Requirements of Notice of Board Meetings:

Compiled by: CA. Pankaj Garg 11 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Ans.: Requirements as to quorum of a Board Meeting:

Compiled by: CA. Pankaj Garg 12 |P a g e

Ans.: Passing of resolution by Circulation:

Compiled by: CA. Pankaj Garg 13 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Ans.: Composition of Audit Committee:

Compiled by: CA. Pankaj Garg 14 |P a g e

Paid-up capital 60,00,000 60,00,000 85,00,000

General Reserve 50,00,000 52,50,000 60,00,000

Credit Balance in Profit & Loss Account 6,00,000 8,50,000 20,00,000

Securities Premium 3,00,000 3,00,000 3,00,000

Secured Loans 20,00,000 25,00,000 40,00,000

Ans.: Borrowing from Financial Institutions:

Compiled by: CA. Pankaj Garg 15 |P a g e

Join @Mission_CA_Final Telegram Channel for Notes & MCQs

Paid-up Capital 85,00,000

General Reserve (being free reserve) 60,00,000

Securities Premium 3,00,000

Aggregate of paid-up capital, free reserves and securities premium 1,68,00,000