CA Final Addendum Sheet - Nov'23

Let’s Learn The Ranker’s Way
Applicable for Nov‘23 attempt!
The Ultimate Solution! – Question Bank Addendum!
Additional Questions!
Hey Guys,
Providing you ~70 additional questions to help you with your preparation even better. Happy Learning.
Best Wishes,
Shubham
Frequently asked questions:
1. What are these additional questions?
Basically – These are mainly questions of Nov’22 exam Paper, May’23 RTP and MTP.
2. Is it mandatory to refer to these questions or is it optional?

It’s mandatory. These questions are equally important as those in the main booklet.
3. Are there any other questions that you need to refer to beyond this?
Nov’23 attempt students – You just need to refer exam paper of May’23
Index and Number of Questions

SN Name of Chapters Additional Questions
1 Appointment and Qualifications of Directors 5
2 Meetings of Board and its Powers 3
3 Appointment and Remuneration of Managerial Personnel 5
4 Inspection, Inquiry, and Investigation 3
5 Compromises, Arrangements and Amalgamations 2
6 Prevention of Oppression and Mismanagement 1
7 Winding Up 4
9 Companies incorporated outside India 3
Registered Valuers, Removal of Name of Companies from ROC, Govt
10 7
Cos, NCLT/ NCLAT, Miscellaneous Provisions
- The SEBI Act and LODR 7
1 The Foreign Exchange Management Act, 1999 7
2 The Prevention of Money Laundering Act, 2002 8
3 The Foreign Contribution Regulation Act, 2010 3
4 The Arbitration and Conciliation Act, 1996 3
5 The Insolvency Bankruptcy Code, 2016 7
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The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

1
Chapter 1 Appointment and Qualifications of Directors

Question 1:
APC Limited has held four board meetings during a period of twelve months. All board meetings were held at
the registered office of the company situated in Chennai. Mr. Prakash, the non-executive, non-independent
director, has not attended any board meeting in person but attended only one meeting through audio-video
means.
Mr. Akash was appointed as independent director of the company on 31st August, 2022 and as required,
obtained the Director Identification Number (DIN) immediately on the next day and attended all board
meetings held after his appointment. Referring to the provisions of the Companies Act, 2013 examine the
following issues arising out of the above scenarios:
(i) Vacation of office of director of Mr. Prakash, if he has not attended any board meeting in person.
(ii) Validity of attending the board meetings by Mr. Akash in his capacity of a director.
[CA Final- Nov 22]
Answer:
(i) According to section 167 (1) of the Companies Act, 2013, the office of a director shall become vacant in
case he absents himself from all the meetings of the Board of Directors held during a period of 12 months
with or without seeking leave of absence of the Board.
Also, Section 173(2) of the Act allows the directors of a company to attend Board meetings either in person,
through video conferencing or other audio-visual means as prescribed under Rule 3 of the Companies
(Meetings of Board and its Powers) Rules, 2014.
In the instant case, Mr. Prakash has attended only one meeting of APC Limited through audio- video means
during a period of twelve months and has not attended any other board meeting in person.
Hence, taking into account the above provisions, the office of Mr. Prakash is not to be vacated even though
he has not attended any Board Meeting in person, as he has attended one meeting through audio- video
means.
(ii) As per section 152(3) of the Companies Act, 2013, a person shall be appointed as a director of a company
only when he has been allotted DIN under section 154.
Further, as per section 164(1), a person shall not be eligible for appointment as a director of a company, if he
has not complied with sub-section (3) of section 152.
In light of the above provisions, the appointment of Mr. Akash as an independent director is invalid as he
obtained DIN after his appointment.
Hence, attending of board meetings by Mr. Akash is not valid.
Question 2:
Mary Limited is a company listed on National Stock Exchange. The company's Articles empower the Board of
Directors to appoint additional directors. Accordingly, the Board of directors appointed Mr. Kamlesh as an
additional director. It may, however, be pointed out that earlier, the proposal to appoint Mr. Kamlesh as a
director on the company's Board was rejected by the members of the company at an Annual General Meeting.
Examining the provisions of the Companies Act, 2013, answer the following questions:
(i) Whether Mr. Kamlesh's appointment as an additional director by the Board of director is valid?
(ii) Can members exercise the power of appointing Mr. Kamlesh as an additional director at the Annual

2
General Meeting (AGM) when the proposal to appoint comes before the AGM for the first time?
(iii) In case the company's Annual General Meeting is not held within the stipulated time and adjourned to a
later date, decide whether Mr. Kamlesh, who was appointed validly by the Board as additional director for
the first time, can continue to act as a director.
[CA Final- Nov 22]
Answer:
As per section 161(1) of the Companies Act, 2013, following legal aspects are to be taken into consideration
for appointment of additional director:
(a) The articles of a company may confer on its Board of Directors the power to appoint any person as an
additional director at any time.
(b) A person, who fails to get appointed as a director in a general meeting, cannot be appointed as an
additional director.
(c) Additional director shall hold office up to the date of the next annual general meeting or the last date on
which the annual general meeting should have been held, whichever is earlier.
Taking into account the above provisions:
(i) The appointment of Mr. Kamlesh as an additional director by the Board of Directors is not valid, as earlier
the proposal to appoint Mr. Kamlesh as a director on the company’s Board was rejected by the members of
the company at an AGM.
(ii) No, the members cannot exercise the power of appointing Mr. Kamlesh as an additional director at the
AGM as section 161(1) clearly specifies that the said power can be conferred by Articles of company only on
the Board of Directors.
(iii) If company’s AGM is not held within the stipulated time and adjourned to a later date, Mr. Kamlesh
cannot continue to act as a director as he can hold the office up to the last date on which the AGM should
have been held.
Question 3:
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
[CA Final MTP- May 23]
Answer:
Section 151 of the Companies Act, 2013 read with rule 7 of Companies (Appointment and Qualification of
Directors) Rules, 2014.

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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.
Question 4:
Mr. Aarav is a partner in GARUD LLP, a consulting firm. Following table depicts the percent of gross turnover
of GARUD LLP attributable to services rendered to one of its client “VIVAAN Ltd.” during the last 3
Financial Years: -
Year % of gross turnover of GARUD LLP attributable to services
rendered to VIVAAN Ltd.
2021 4%
2022 3%
2023 6%
During the last F.Y., GARUD LLP had also rendered services to SATVIK Ltd., an associate company of
VIVAAN Ltd., amounting to 10.5% of its gross turnover. Further, Mr. Aarav had been levied a penalty under
section 271J of Income-tax Act, 1961, two years back, confirmed by Income- tax Appellate Tribunal.
Besides, Ms. Avni, sister of Mr. Aarav, is holding security in the SATVIK Ltd. of value 51 Lakh during the
current year 2023-2024.
Examine in the light of the given situations as per the requirement of the Companies Act, 2013, eligibility of

4
Mr. Aarav to be appointed as an Independent Director of VIVAAN Ltd. and also to be a Registered Valuer,
assuming satisfaction of other conditions for the same. Also analyze the situation and its impact on eligibility
of Mr. Aarav to be appointed as Independent Director, in lieu of security holding of Ms. Avni in SATVIK Ltd.
Answer:
(i) Eligibility of Mr. Aarav to be an independent director of VIVAAN Ltd.
According to section 149(6) of the Companies Act, 2013, In relation to a company, an independent director
means a director who, inter-alia, is or has been an employee or proprietor or a partner, in any of the 3
financial years immediately preceding the financial year in which he is proposed to be appointed, of any legal
or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate
company amounting to 10% or more of the gross turnover of such firm.
In the given case, Mr. Aarav is a partner in GARUD LLP, a consulting firm which had rendered services to
VIVAAN Ltd., an associate company of VIVAAN Ltd. amounting to 10.5% of its gross turnover during the last
F.Y. Accordingly, Mr. Aarav is not eligible to be appointed as an independent director of VIVAAN Ltd.
(ii) Eligibility of Mr. Aarav to be a registered valuer

As per the Companies (Registered Valuers and Valuation) Rules, 2017, a person shall be eligible to be a
registered valuer, inter-alia, if he has not been levied a penalty under section 271J of Income-tax Act, 1961
and time limit for filing appeal before Commissioner of Income- tax (Appeals) or Income-tax Appellate
Tribunal, as the case may be having expired, or such penalty has been confirmed by Income-tax Appellate
Tribunal, and 5 years have not elapsed after levy of such penalty.
Here, Mr. Aarav had been levied a penalty under section 271J of Income-tax Act, 1961, two years back,
confirmed by Income-tax Appellate Tribunal. Accordingly, Mr. Aarav is not eligible to be a registered valuer,
as only 2 years have been lapsed after levy of such penalty which had been confirmed by Income-tax
Appellate Tribunal.
(iii) In case of security holding of Ms. Avni, sister of Mr. Aarav, of value 51 lakh in SATVIK Ltd.
As per the section 149(6)(d) of the Companies Act, 2013, none of whose relatives is holding any security of or
interest in the company, its holding, subsidiary or associate company during the two immediately preceding
financial years or during the current financial year, shall be appointed as independent director in a company.
Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh
rupees or two per cent of the paid-up capital of the company, its holding, subsidiary or associate company or
such higher sum as may be prescribed.
Accordingly, due to holding of security of Ms. Avni in associate company i.e., SATVIK Ltd. of the VIVAAN
Ltd. beyond the prescribed limit, make Mr. Aarav not eligible to be appointed
Question 5:
Examine the following situations in the light of the relevant provision of the Companies Act, 2013:
The Board of Director of ABC Ltd. declared dividend for the financial year 2021-2022. However, the

5
company failed to pay the dividend to the shareholders within prescribed period. Mr. future, a director on
the board, had offer of appointment in PQR Ltd. He desires to take up the post in the PQR Ltd. Discuss.
Answer:
Section 164 talks about the disqualifications of directors under the Companies Act, 2013. In specific, sub-
section (2)(b) of the said section, no person who is or has been a director of a company which has failed to
pay any dividend declared and such failure continues for one year or more, shall not be eligible to be re-
appointed as a director of that company or appointed in other company for a period of 5 years from the date
on which the defaulted company fails to do so.
Mr. future, a director on the board of ABC Ltd., had offer of appointment in other company PQR Ltd. He
desires to take up the post in the said company. In view of above stated provision, since Mr. future was a
director in a company which failed to pay dividend even after 1 year of declaration and so was a defaulted
company. Therefore, he cannot be appointed in PQR Ltd.

6
Chapter 2 Meetings of Board and its Powers

Question 1:
TY Limited has borrowed a sum of 25,00,000 from its director Mr. Tanmay. The company fails to obtain prior
approval of Audit Committee constituted under the provisions of Section 177 of the Companies Act, 2013
(the Act). Auditors of the company expressed the view that the approval of Audit Committee was mandatory
being a related party transaction. However, the Company Secretary submitted his comment that since this
transaction is not covered under the related party transaction as per Section 188 of the Act, approval of
Audit Committee was not required and hence, the company has not committed any violation of the provisions
of the Act. Referring to the provisions of the Companies Act, 2013, examine:
(i) Whether omnibus approval of Audit Committee was needed to the borrowings, if the transaction was not a
related party transaction under Section 188 of the Act?
(ii) Can a post transaction approval of Audit Committee be obtained for related party transaction and if not
done so, what will be the effect on the transaction?
[CA Final- Nov 22]
Answer:
As per section 2(76) read with sections 177(4)(iv), 188 of the Companies Act, 2013, and Rule 6A of the
Companies (Meetings of Board and its Powers) Rules, 2014 following shall be the answers:
(i) As per Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014, all related party
transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus
approval for related party transactions proposed to be entered into by the company subject to the certain
conditions.
As per section 177(4)(iv), every Audit Committee shall act in accordance with the terms of reference
specified in writing by the Board which shall, inter alia, include approval or any subsequent modification of
transaction of the company with related parties.
Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be
entered into by the company subject to such conditions as may be prescribed.
Provided further that in case of transactions, other than transactions referred to in section 188 and where
Audit Committee does not approve the transaction, it shall make its recommendations to the Board.
In the instant case, borrowings of sum of ₹ 25,00,000 from TY Limited from its director Mr. Tanmay
reflects that they are related parties as per section 2(76) and the transaction is a related party transaction
though the transaction i.e., borrowings of 25,00,000 between them is not Related Party Transaction as per
section 188(1).
Hence, in the given case, said transaction of borrowings, was a Related Party Transaction other than the
transaction given under Section 188(1).
Note: Students may also conclude answer stating “said transaction of borrowings, was not a Related Party
Transaction as per section 188(1), so no omnibus approval of Audit Committee was needed to such the
borrowings by TY Limited from its director Mr. Tanmay.
(ii) As per Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014, all related party
transactions shall require approval of the Audit Committee. Where the need for related party transaction

7
cannot be foreseen and no information related to that are available, the audit committee may make omnibus
approval for such transactions subject to their value not exceeding ₹ 1 Crore per transaction.
In case of a transaction which does not involve an amount exceeding one crore rupees and which is entered
into by a director or officer of the company without obtaining the approval of the Audit Committee and if it
is not ratified by the Audit Committee within three months from the date of the transaction, such
transaction shall be voidable at the option of the Audit Committee.
In view of above, a post transaction approval of the Audit Committee can be obtained for related party
transaction and if not done so, such transaction shall be voidable at the option of the Audit Committee.
Further, in case such transaction is with the related party to any director, the director concerned shall
indemnify the company against any loss incurred by it.
Question 2:
Modern Limited wants to borrow from banks an amount more than its paid-up share capital, free reserves and
share premium. As per general rule of governance the companies are governed by directors, Whether the
Board of directors is authorized to do so? If not, what would be the procedure to be followed by the
company? Whether your answer would be different if total loans include temporary loans obtained from its
banker in ordinary course of business?
[CA Final- Nov 22]
Answers:
According to Section 180 (1)(c) of the Companies Act, 2013, the Board shall exercise the powers to borrow
money, where the money to be borrowed, together with the money already borrowed by the company will
exceed aggregate of its paid-up share capital, free reserves and securities premium apart from temporary
loans obtained from the company’s bankers in the ordinary course of business only with the consent of the
company by a special resolution.
‘Borrowings’ (including loans raised for meeting financial expenditure of a capital nature) are not to include
temporary loans which are obtained by the company from its bankers in the ordinary course of business.
Limit on ‘borrowings’ need to be specified: Section 180 (2) requires that every special resolution passed by
the company in general meeting in relation to the ‘borrowings’ shall specify the total amount up to which
monies may be borrowed by the Board of Directors.
Debt raised in excess of the specified limit [Section 180 (5)]: If a company incurs debt in excess of the
limit imposed i.e. more than the ‘total amount’ specified in the special resolution, it shall not be valid or
effectual from the point of view of lender unless such lender proves that he advanced the loan in good faith
and without knowledge that the limit imposed had been exceeded. Thus, lender has to be fully cautious before
extending any loan to a company. The loaned amount must not be in excess of the limit imposed otherwise it
shall not be legally enforceable against the company.
In other words, the lender must be aware in no uncertain terms the implications of Section 180 (5) and must
carefully check the financial statements as well as the special resolution, if any, passed by the company
before extending any loan facility to it.

8
In view of above, the Board is not authorised to borrow from banks an amount more than its paid-up share
capital, free reserve and share premium. Hence, in the present case the Board need to pass a special
resolution.
Exclusion of temporary loans: Since, temporary loans are obtained from its bankers in ordinary course of
business, so they are excluded from the limits computed for borrowings. So, it will not effect on the total
borrowing power of the company.
Question 3:
Pranidhi Nyaas Ltd. contributed ₹5 lakh to Ehamrug Electoral Trust and to ₹7 lakh Bhartiya Communists, a
political trust vide account payee cheques, respectively. Out of the amount received from Pranidhi Nyaas
Ltd., Ehamrug Electoral Trust contributed ₹3.5 lakh to Bhartiya Communists, a political trust. Further,
Pranidhi Nyaas Ltd. incurred ₹3 lakh expenditure for making of pamphlets for the upcoming election campaign
of Bhartiya Communists Party. Examine the disclosure requirements with respect to contributions made by
Pranidhi Nyaas Ltd. & Ehamrug Electoral Trust.
Answer:
According to section 182(2) of the Companies Act, 2013, every company shall disclose in its profit and loss
account the total amount contributed by it under Section 182 during the financial year to which the account
relates.
The MCA vide General Circular 19/ 2013 dated 10th December 2013, issued a clarification on disclosures to
be made under Section 182 (3) while making contributions to ‘Electoral Trust’. According to the Circular:
(i) Companies contributing any amount or amounts to an ‘Electoral Trust Company' for contributing to a
political party or parties are not required to make disclosures required under Section 182(3) of the
Companies Act 2013. It will suffice if the Accounts of the company disclose the amount released to an
Electoral Trust Company.
(ii) Companies contributing any amount or amounts directly to a political party or parties will be required to
make the disclosures laid down in Section 182(3) of the Companies Act, 2013.
(iii) Electoral trust companies will be required to disclose all amounts received by them from other
companies/sources in their Books of Accounts and also disclose the amount or amounts contributed by them
to a political party or parties as required by Section 182(3) of Companies Act, 2013.
Further, according to section 182(2) of the Companies Act, 2013, in addition to making any direct
contribution to a political party, following contributions, the amount of expenditure incurred, directly or
indirectly, by a company on an advertisement in any publication being in the nature of a souvenir, brochure,
tract, pamphlet or the like:
(1) where such publication is by or on behalf of a political party; and
(2) where such publication is not by or on behalf of, but for the advantage of a political party; Inter-alia are
also deemed as political contributions.
Here, in respect of the contribution of ₹5 lakh made to Ehamrug Electoral Trust by Pranidhi Nyaas Ltd. will
suffice the disclosure requirement if the accounts of the company (Pranidhi Nyaas Ltd.) disclose the amount
released to an Ehamrug Electoral Trust.

9
Further, in respect of the contribution made to Bhartiya Communists, a political trust, by Pranidhi Nyaas Ltd.,
the company will be required to make the disclosures laid down in Section 182(3) of the Companies Act, 2013.
The expenditure incurred for making of pamphlets for the election campaign of Bhartiya Communists Party
will be deemed as political contribution and will be required to make the disclosures as laid down in Section
182(3) of the Companies Act, 2013.
Whereas, Ehamrug Electoral Trust will be required to disclose amount received from Pranidhi Nyaas Ltd. in
its Books of Accounts and also disclose the amount contributed by it to Bhartiya Communists Party as
required by Section 182(3) of Companies Act, 2013.

10
Chapter 3 Appointment and Remuneration of Managerial Personnel

Question 1:
Mr. Ramesh was appointed as a whole-time director and was heading the marketing department in Sun Moon
Pharma Limited. As a cost saving measure during pandemic he was removed from the office as whole-time
director. Mr. Ramesh demanded compensation for loss of office. Explaining the relevant provisions of the
Companies Act, 2013, state whether he is entitled to compensation. If yes, how the compensation amount
will be calculated?
[CA Final- Nov 22]
Answers:
Compensation for loss of office of managing or whole-time director or manager [Section 202 of the
Companies Act, 2013]
A company may make payment to a Managing Director (MD) or Whole-time director (WTD) or Manager (but
not to any other director) by means of:
• compensation for loss of office, or
• as consideration for retirement from office, or
• in connection with such loss or retirement. Here, in the given instance Mr. Ramesh the whole-time director
was forced to be removed from office during pandemic as cost saving measure. Yes, he is entitled for
compensation.
Calculation of compensation: The compensation shall be calculated on the basis of the average
remuneration earned by him during a period of three years immediately preceding the date on which he
ceased to hold such office, or where he held the office for less than three years, then for such shorter
period.
The above compensation shall not exceed the remuneration he would have earned if he would have been in
office for the remainder of his term or three years, whichever is shorter.
Question 2:
Ms. Vishakha who is working as a Managing Director in MNO Limited has received an offer from Vishal Steel
Limited for the post of the Managing Director. Effective capitals of MNO Limited and Vishal Steel Limited
are 10 Crore and 20 Crore respectively as per the latest audited financial statements. While accepting the
offer of Vishal Steel Limited she put a condition that she will work as a managing director in both companies
simultaneously and draw remuneration from each of them. Referring to the provisions of the Companies Act,
2013 advise her about the total maximum yearly remuneration she can draw from both the companies
together, if entitled?
[CA Final- Nov 22]
Answer:
As per Schedule V Part II Section I, a company having profits in financial year may pay remuneration to a
managerial person or persons not exceeding the limits specified in section 197 of the Companies Act, 2013.
According to section 197(1), the total managerial remuneration payable by a public company, to its directors
including managing director and whole-time director, and its manager in respect of any financial year shall
not exceed eleven percent of the net profits of that company for that financial year computed in the
manner laid down in section 198 except that the remuneration of the directors shall not be deducted from
the gross profits.

11
Provided that the company in general meeting may authorize the payment of remuneration exceeding eleven
percent of the net profits of the company, subject to the provisions of Schedule V.
Provided further that, except with the approval of the company in general meeting by a special resolution,
the remuneration payable to any one managing director whole-time director or manager shall not exceed
five percent of the net profits of the company and if there is more than one such director, remuneration
shall not exceed ten percent of the net profits of the net profits to all such directors and manager taken
together.
As per Schedule V Part II Section II 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 the limits specified therein.
As per Schedule V Part II Section V, a managerial person shall draw remuneration from one or both
companies, provided that the total remuneration drawn from the companies does not exceed the higher
maximum limit admissible from any one of the companies of which he is a managerial person.
According to the given facts, Ms. Vishakha is working as a Managing Director in MNO Limited. She received
an offer from Vishal Steel Limited for the post of the Managing Director. The effective Capital of the
MNO Limited and Vishal Steel Limited are 10 Crore and 20 Crore respectively.
In view of above, if the companies are having Profits, the remuneration payable will be as per section 197(1)
of the Companies Act, 2013. Overall limit of managerial remuneration to the directors including managing
director, whole time director and manager will be 11% of the net profits of the company for that financial
year. If there is one Managing director, 5% of the net profits of the company for that financial year.
However, these limits may be increased in compliance with requirement of law.
In case the companies have no profits or its profits are inadequate the maximum remuneration under the
both companies, for which Ms. Vishakha is entitled will be Rs. 84 lakh as per Section II-–Part II- Schedule
V of the Companies Act, 2013.
The question also provides that while accepting the offer of Vishal Steel Limited, Ms. Vishakha also put a
condition that she will work as a managing director in both companies simultaneously and draw remuneration
from each of them.
In light with the given provision contained in Section V –Part II- Schedule V of the Act, Ms. Vishakha is
entitled to draw remuneration from one or both companies but the total remuneration drawn from the
companies does not exceed the higher maximum limit admissible from any one of the companies.
Question 3:
Examine the following situations in the light of the relevant provision of the Companies Act, 2013:
Mr. Talented was a director in a holding company and also in its subsidiary company. He was drawing his
managerial remuneration from both the companies in his capacity as a director. It was brought to the
attention of the company that he cannot draw remuneration from both the companies because of virtue of
relationship as a holding and subsidiary company. Discuss.

12

Answer:
Any director who is in receipt of any commission from the company and who is managing or Whole-time
director of the company shall not be disqualified from receiving any remuneration of commission from any
holding or subsidiary company of such company subject to its disclosure by the company in the Board’s
report as per section 197(14) of the Companies Act. However subject to the provisions of sections I to IV
of schedule V of the Companies Act, 2013, a managerial person shall draw remuneration from one/both
companies, provided that the total remuneration drawn from the companies does not exceed the higher
maximum limit admissible from any one of the companies of which he is managerial person.
Accordingly, Mr. Talented is advised to check that it does not exceed the higher maximum limit admissible
in any of the companies i.e., either holding or subsidiary.
Question 4:
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?
[CA Final RTP- May 23]
Answer:
Section 202 of the Companies Act 2013, deals with the compensation for loss of office of managing or
whole-time director or manager.
According to Sub-section 1, it provides that 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.
Further sub-section 2 provides that 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.
Therefore, only Mr. Irfan will get the compensation for loss of office (Whole Time Director).
Besides, Sub-section 3 impose the limit on the amount of compensation. It states that any payment made to
a managing or whole-time director or manager in pursuance of sub- section (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

13
three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by
him during a period of three 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).
Question 5:
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.
Answer:
Section 197(5) of the Companies Act, 2013, states that 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.
Further, Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
provides as under:
“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 one lakh rupees 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 Rs. ten thousand 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 one lakh rupees per meeting of the Board or committee thereof. Thus, if other
directors are being paid Rs. one lakh per meeting Dr. Krishnan, as Independent Director, will also be paid Rs.
one lakh only and not Rs. one lakh ten thousand.

14
Chapter 4 Inspection, Inquiry, and Investigation

Question 1:
Mr. Sunil is the Legal Manger in Sonata Limited. Sonata Limited is under investigation for alleged falsification
of accounts. During investigation, Mr. Sunil disclosed some confidential information to the investigating
officer. Now the company wants to suspend Mr. Sunil from his services. What is the remedy available to Mr.
Sunil? What procedure should be adopted by Sonata Limited to implement its decision to suspend Mr. Sunil?
Explain with the provisions of the Companies Act, 2013.
[CA Final- Nov 22]
Answer:
(a)The provision of section 218 of the Companies Act, 2013 states that, the company shall require to take
approval of the Tribunal before taking action against the employee during the course of any investigation of
the affairs.
The company shall require approval in the following circumstances:
•discharge or suspension of an employee; or
•punishment to an employee by dismissal, removal, reduction in rank or otherwise; or
•change in the terms of employment to the disadvantage of employee(s).
The Tribunal shall notify its objection to the action proposed in writing.
In case, the company, other body corporate or person concerned does not receive the approval of the
Tribunal within 30 days of making the application, it may proceed to take the action proposed against the
employee. That means it can be considered as a deemed approval by the Tribunal.
Thus, Sonata Limited should adopt the above-mentioned procedure to implement its decision to suspend Mr.
Sunil.
Remedy available to Mr. Sunil: Remedy to Mr. Sunil will be available only when objection has not been raised
by the Tribunal to the action proposed in writing for his suspension of his services. As per the provision of
the law, Mr. Sunil can refer an appeal to Appellate Tribunal only if an objection has not been raised by
Tribunal within 30 days.
Question 2:
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 .
Answer:
According to section 217 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 [Sub section (2)] .
The inspector shall not keep in his custody any books and papers produced as aforesaid, for more than 180

15
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. [Sub section (3)]
Further, as per sub-section (8) of the said section, 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
under sub-section (2) as aforesaid, 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 rupees but which may extend to 1 lakh
rupees, and also with a further fine which may extend to 2,000 rupees 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.
Question 3:
Necessity Limited was engaged in the manufacturing of various Household items. Two of the directors along
with the Chief Financial Officer, were engaged in a lot of malpractice and falsifying accounts. Some of the
employees who were also members of the company became suspicious that serious fraud was perpetrated by
the directors in collusion with the Chief Financial Officer. They decided to file an application with the
Central Government under Section 212 of the Companies Act, 2013 for carrying out an investigation into the
affairs of the company by Serious Fraud Investigation Office. 1600 of the 2000 members passed a
resolution for investigation by the Central Government into the affairs of the company. The Central
Government accepted their application and assigned its investigation to SFIO.
The two of the directors believed that the application was not tenable since it was not filed by 90% of the
members of the company. State the circumstances under which the Central Government can carry out an
investigation into the affairs of a company under Section 212 of the Companies Act, 2013. In the light of the
said provisions, state whether the application filed by the members is tenable.
Answer:
Circumstances when Central Government can carry an investigation:
Section 212 of the Companies Act, 2013 provides for investigation into affairs of Company by the Serious
Fraud Investigation Office (SFIO).
According to Section 212(1) of the Companies Act, 2013, where the Central Government -
(a) on receipt of a report of the Registrar or Inspector under Section 208;
(b) on intimation of a special resolution passed by a Company that its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central Government or a State Government,

16
is of the opinion that it is necessary to investigate into the affairs of a Company by the SFIO, the Central
Government may, by order, assign the investigation into the affairs of the said company to the SFIO.
Filing of an application by members:

In the instant case, 1600 of the 2000 members passed a resolution for investigation by the Central
Government into the affairs of the company. Hence, the application filed by the members is tenable as it was
passed by 80% majority and the section specifies that on intimation of a special resolution
i.e., 75% majority by company, Central Government may assign, the investigation into the affairs of the
company, to the SFIO.

17
Chapter 5 Compromises, Arrangements and Amalgamations

Question 1:
On direction of the National Company Law Tribunal a meeting is held to adopt the scheme of compromise
between DTC Limited and its 10,000 creditors representing in value of 100 crore. The Chairman of the
meeting declared the voting details, as below:
(i)Total votes casted in favor of the schemes:
In person 2,000 creditors representing in value ₹ 35 crore

By proxy 1,000 creditors representing in value ₹ 15 crore
By postal ballot 2,000 creditors representing in value ₹ 20 crore
(ii)Total votes casted against the scheme:
In person 3,000 creditors representing in value ₹ 5 crore

By proxy 1,000 creditors representing in value ₹ 15 crore
(iii) Total 1,000 creditors representing in value 10 crore did not attend the meeting
Referring to the provisions of the Companies Act, 2013 analyze, whether the scheme of compromise has
been adopted by the meeting and its binding effect on the dissenting and absent creditors.
[CA Final- Nov 22]
Answer:
As per section 230 (6) of the Companies Act, 2013 where majority of persons at a meeting held representing
3/4th in value, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and
if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on
the company, all the creditors or class of creditors or members or class of members, as the case may be.
The majority of person representing 3/4th Value shall be counted of the following:
•the creditors, or
•class of creditors or
•members or
•class of members, as the case may be,
The majority is dual, in number and in value. A simple majority of those voting is sufficient. Whereas the
‘three-fourths’ requirement relates to value. The three-fourths value is to be computed with reference to
value of creditors held by creditors present and voting at the meeting.
In this case, 9000 creditors attended the meeting representing in value 90 Crore. As 5000 creditors voted in
favor of the scheme, the requirement relating to majority in number (i.e. 4501) is satisfied.
9000 creditors who participated in the meeting representing in value ₹ 90 Crore, three- fourth of which
works out to 67.50 Crore while 5000 creditors who voted for the scheme representing in value is 70 Crore.
The majority representing three-fourths in value is also satisfied.

18
As both the requirements are fulfilled, the scheme is adopted and approved by the requisite majority and the
same shall be binding on the company, all the creditors, or class of creditors or members or class of
members, as the case may be.
Thus, the scheme of compromise is binding on all the creditors including the dissenting and absent creditors.
Question 2:
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.
Answer:
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.

19
Chapter 6 Prevention of Opression and Mismanagment

Question 1:
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 where at this minor chuck can register their grievance? Are they eligible to file petition?
Answer:
(a) 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 (refer entry 80 of table F given in schedule I to the Companies Act 2013) 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 be 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

20
(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.

21
Chapter 7 Winding Up
Question 1:
Ganga Textiles Limited incurred huge losses during the last three financial years and its financial position
were quite bad. The Company created a legal mortgage on some of its immovable properties in favor of a bank
on August 21, 2021, in the hope that by keeping good faith with the bank, it could get further advances from
the bank and the same could be utilized to revive the Company. Some creditors filed a winding-up petition in
the Tribunal on January 15, 2022 and the Tribunal passed an order of winding-up on August 1, 2022.
Referring to the relevant provisions of the Companies Act, 2013, explain whether the creation of a legal
mortgage by the company in favor of the bank will amount to fraudulent preference.
[CA Final- Nov 22]
Answer:
Section 328 of the Companies Act, 2013 relates with when any transaction may be treated as fraudulent
preference.
Where a company has given preference to a person who is -
• one of the creditors of the company, or
• a surety or guarantor for any of the debts or other liabilities of the company,
and the company does anything or suffers anything done which has the effect of putting that person into a
position which, in the event of the company going into liquidation, will be better than the position he would
have been in if that thing had not been done prior to 6 months of making winding up application, the Tribunal,
if satisfied that, such transaction is a fraudulent preference may order as it may think fit for restoring the
position to what it would have been if the company had not given that preference.
As per the facts given, Ganga Textiles Limited was running in loss for last three financial years and its
financial position was also bad. The company created a legal mortgage on some of its immovable properties in
favour of bank in good faith that it could get further advances from the bank that could be utilized to revive
the company.
Some creditors filed a winding up petition in the Tribunal and also an order of the winding up has been passed.
According to above stated provision in the light of the given situation, creation of mortgage on immovable
property with the bank with an intent of getting further advances from the bank for its revival was done by
the company in good faith in the ordinary course of business. Further, as per requirement of the law, the said
legal mortgage was neither in favor of any creditor of the company nor for a surety or guarantor of the
company for any debts/liabilities.
Therefore, here the creation of legal mortgage by the company in favour of the Bank will not amount to
fraudulent preference.
Question 2:
Vallabh Hasti (P) Ltd. was dissolved on 25th January, 2021, and on 20th December, 2022, the National
Company Law Tribunal passed an order declaring such dissolution of Vallabh Hasti (P) Ltd. to be void on
receipt of application from M/s Uhstra Pipes & Co. who was a creditor of the said company, and the
outstanding amount of which, was written off in the books of Vallabh Hasti (P) Ltd. at the time it existed.
Examine the tenability of the NCLT order declaring such dissolution void and prescribe the procedure to be
followed after making such order.

22
Answer:
According to section 356 of the Companies Act, 2013, where a company has been dissolved, the Tribunal may
–
• at any time within two years of the date of the dissolution,
• on application by the Company Liquidator of the company or by any other person who appears
to the Tribunal to be interested, make an order, upon such terms as the Tribunal thinks fit, declaring the
dissolution to be void, and thereupon such proceedings may be taken as if the company had not been
dissolved.
Further, the Tribunal shall—

(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record
the same; and
(b) direct the Company Liquidator or the person on whose application the order was made, to file a certified
copy of the order, within thirty days from the date thereof or such further period as allowed by the
Tribunal, with the Registrar who shall record the same.
Here, Vallabh Hasti (P) Ltd. was dissolved on 25th January, 2021, and on 20th December, 2022, the NCLT
declared such dissolution to be void, i.e. within 2 years of the date of the dissolution, on receipt of
application from M/s Uhstra Pipes & Co., the person which would have appeared to be interested by the
Tribunal, and accordingly, it was tenable for the Tribunal to declare such order to be void.
After making such order, the copy of said order is to be filed with the Registrar by the Tribunal and also a
certified copy of the said order is to be filed by M/s Uhstra Pipes & Co., within the time period, as aforesaid.
Question 3:
What will be the consequences, where winding up order is passed by the Tribunal?
Answer:
Where any winding up order is passed, Tribunal appoints Official Liquidator (OL) as company Liquidator (CL)
to look into the affairs of the company. When the affairs of a company have been completely wound up, the
Company Liquidator shall make an application to the Tribunal for dissolution of such company. Tribunal shall
make an order that the company be dissolved from the date of the order, and the company shall be dissolved
accordingly.
Tribunal shall, within thirty days from the date of order forward the copy of Order to Registrar. Registrar
shall record in the register relating to the company a minute of the dissolution of the company, and direct
the Company Liquidator to forward a copy of the order to the Registrar who shall record in the register
relating to the company a minute of the dissolution of the company.
Question 4:
Sangram 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.

23
Answer:
Statement that Company is in Liquidation [Section 344 of the Companies Act, 2013]
(1) 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.
(2) If a company contravenes the above provisions, the company and every officer of the Company, the
Company Liquidator and any receiver or manager, who willfully authorises or permits the non-compliance, shall
be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh
rupees.
In the instant case, the Auditor would have advised accordingly.

24
Chapter 9 Companies incorporated outside India

Question 1:
Search & Find Pte. Ltd., incorporated in Singapore. The Company sells its goods through electronic mode on
the e-commerce platforms in India, however, it does not have any branch or office in India. Is the Company
required to submit the documents as required under Section 380 of the Companies Act, 2013.
Answer:
(i) Yes, as per 2(42) of the Companies Act, 2013, 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 shall be considered as a foreign company.
Accordingly, as Search & Find Pte. Ltd., is conducting its business through electronic mode, it is considered a
foreign company as per Companies Act, 2013 and is required to submit the documents mentioned under
Section 380 of the Companies Act, 2013.
Question 2:
Arica is a Company Limited incorporated in Singapore desires to establish a branch office at Mumbai. You
being a practicing Chartered Accountant have been appointed by the company as a liaison officer for
compliance of legal formalities on behalf of the company. Examining the provisions of the Companies Act,
2013, answer the following:
(1) Whether branch office will be considered as a company incorporated outside India.
(2) If yes, state the documents you are required to furnish on behalf of the company, on the establishment
of a branch office at Mumbai.
Answer:
(1) According to section 2(42) of the 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.
Further, branch offices are generally considered as reflection of the Parent Company’ office. Thus, branch
offices of a company incorporated outside India are considered as a place of business for conducting business
activity in India and will be required to follow provisions of this chapter and such other provisions as may be
specified elsewhere under Companies Act, 2013.
(2) Under section 380(1) of the Companies Act, 2013 every foreign company shall, within 30 days of the
establishment of place of business in India, deliver to the Registrar for registration the following documents:
(a) a certified copy of the charter, statutes or memorandum and articles, of the company or other instrument
constituting or defining the constitution of the company.
(b) the full address of the registered or principal office of the company;

25
(c) a list of the directors and secretary of the company containing their respective details as per the rules.
(d) the name/s and address/s of one or more persons resident in India authorised to accept on behalf of the
company service of process and any notices or other documents required to be served on the company;
(e) the full address of the office of the company in India which is deemed to be its principal place of business
in India;
(f) particulars of opening and closing of a place of business in India on earlier occasion or occasions;
(g) declaration that none of the directors of the company / the authorised representative in India has ever
been convicted or debarred from formation of companies and management in India or abroad; and
(h) any other information as may be prescribed.
According to the Companies (Registration of Foreign Companies) Rules, 2014, any document which any foreign
company is required to deliver to the Registrar shall be delivered to the Registrar having jurisdiction over
New Delhi.
Question 3:
Zell Power LLC (ZPL), is foreign company as per definition provided in the Companies Act 2013, carrying
business in India also. It is strictly observing the provisions stated for foreign companies in Companies Act
2013, while Registrar (ROC, Delhi) is of opinion that ZPL apart from observing the provision prescribed for
foreign companies (section 380 to 386 along section 392 and 393) ZPL also need to observe other provisions
of the Companies Act, 2013 with regard to the business carried on by it in India as if it were a company
incorporated in India.
ZPL is not agreed to opinion of Registrar and continue to observe only those provisions which are applicable to
foreign companies. ZPL also furnish the following details to ROC. ZPL capital includes;
Ordinary Share (6 million @ Face Value ₤ 5 with ₤ 2 Paid-up) – ₤12 Million Preference Stock (1.2 Million @
₤10 fully Paid-Up) - ₤ 12 Million
Debt Fund - ₤ 21.25 Million
Out of which;
Mr. Trishi who is an Indian citizen and residing in India being part of promoter group own 2,932,780 ordinary
shares of ZPL
Mr. Nirav who is an Indian citizen but residing in UAE own 109,205 preference stock of ZPL
Modern Engineering Limited that an Indian Company own 67,220 ordinary shares and 142,320 preference
stocks of ZPL
Raj Investment Limited, which is an Indian Company holds 393,475 preference stocks of ZPL
You are required to evaluate the facts, and determine whose opinion hold legal validity in the light of the
relevant provisions of the Companies Act, 2013.
Answer:
Section 379 of the Companies Act 2013 deals with application of Act to foreign companies.
Sub-section 2 to section 379 provides where not less than fifty percent 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) one or more companies or bodies corporate incorporated in India, or
(iii) one or more citizens of India and one or more companies or bodies corporate incorporated in India,

26
Whether singly or in the aggregate, such company shall comply with the provisions of this Chapter 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.
Total of ordinary shares held by Indian citizen or corporation in aggregate are 3 million (i.e. 2932780 and
67220) whose paid-up value is ₤6 million
Total of preference stock held by Indian citizen or corporation in aggregate are 0.645 million (i.e. 109,205,
142,320, and 393,475) whose paid-up value is ₤6.45 million
Since out of paid-up capital of ₤24 (i.e. ₤12 million ordinary share capital + ₤12 million preference share
capital) of ZPL, ₤12.45 million held by citizens of India along with companies incorporated in India, in
aggregate hence ZPL shall comply with the provisions of this Chapter 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.
Opinion of Registrar is legally valid and shall prevail.

27
Chapter 10 Miscellaneous
Question 1:
CNC Limited is a foreign company having its places of business in Mumbai and Ahmedabad in India. It has
amended its Memorandum of Association on 1st June, 2022 and closed branch office situated at Mumbai.
Referring to the provisions of the Companies Act, 2013 advise the company on the following matters:
(i) Compliance procedure as regards to amendment of Memorandum of Association.
(ii) Compliance procedure as regards to closure of Mumbai office and discontinuing submission of documents
to the Registrar of Companies afterwards.
[CA Final- Nov 22]
Answer:
According to section 380 of the Companies Act, 2013 read with Rule 8 of the Companies (Registration
of Foreign Companies) Rules, 2014, following shall be the compliances duly required to be fulfilled by the
CNC Limited, a foreign company, for closure of one of its branch of Mumbai office.
(i) W.r.t. Compliance procedure as regards to amendment of Memorandum of Association
According to Section 380 (3) of the Act which provides that where any alteration is made or occurs in the
documents delivered to the Registrar under section 380, the foreign company shall, within 30 days of such
alteration, deliver to the Registrar for registration, a return containing the particulars of the alteration in
the prescribed form. The Companies (Registration of Foreign Companies) Rules, 2014, has prescribed that the
return containing the particulars of the alteration shall be filed in form FC-2 along with prescribed fees.
As in the instance, the CNC Limited has amended its Memorandum of Association on 1st of June 2022 and
closed its branch office of Mumbai. This altered document is required to be delivered to Registrar by CNC
Limited within 30 days i.e., latest by 1st of July 2022.
(ii) W.r.t. compliance procedure as regards to closure of Mumbai office and discontinuing submission of
documents to the registrar of companies afterwards
If any foreign company ceases to have a place of business in India, it shall forthwith give notice of the fact
to the Registrar, and from the date on which such notice is so given, the obligation of the company to deliver
any document to the Registrar shall cease, provided it has no other place of business in India.
Here, in the given case, CNC Limited has still Ahmedabad as a place of business in India. So, will continue the
submission of document to the Registrar even after the closure of Mumbai office.
Question 2:
Sujeet, a registered valuer, was appointed by Him Limited for valuation of its goodwill for the proposed joint
venture with its suppliers. A sum of ₹ five lakh was given to him towards remuneration. Later, it was found
that Sujeet had given lower valuation intentionally to defraud the company which caused a loss of ₹ one crore
to the company. As per the Companies (Registered Valuers and Valuation) Rules, 2017 state the remedies
available to Him Limited and also mention the consequences to be faced by Sujeet for the default.
[CA Final- Nov 22]
Answers:
In the given question, Sujeet, a registered valuer, had given lower valuation of goodwill, with the intention to
defraud the company. This caused loss to Him Limited. The remedies mentioned in Rule 9 of the Companies
(Registered Valuers and Valuation) Rules, 2017, shall be applicable to Him Limited, which is stated below:
A complaint may be filed against a registered valuer or registered valuer’s organization before the authority
in person or by post or courier along with a non-refundable fee of 1,000 in favor of the authority and the
authority shall examine the complaint and take such necessary action as it deems fit.

28
Further, the consequences/ liabilities to be faced by Sujeet, as per section 247 of the Companies Act, 2013,
are mentioned below:
1. If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be
liable to a penalty of fifty thousand rupees.
However, if the valuer has contravened such provisions with the intention to defraud the company or its
members, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which
shall not be less than ₹ 1 Lakh but which may extend to ₹ 5 lakh.
2. Where a valuer has been convicted for defrauding the company or member (as mentioned above), he shall
be liable to—
(a) refund the remuneration received by him to the company; and
(b) pay for damages to the company or to any other person for loss arising out of incorrect or misleading
statements of particulars made in his report.
Question 3:
Mr. Sohel and Sushil, joint shareholders of Pragati (Nidhi) Limited have applied for a fresh loan whereas
other member Mr. Sahil has applied for a further loan who has defaulted the repayment of earlier loan
borrowed from the Nidhi. The name of Mr. Sohel appears first in the register of members. The latest
audited financial statements of the Nidhi as on 31 March, 2022 show that the total amount of deposits from
its members is ₹ 5 crore. The financial statements further show that the Nidhi is continuously in losses
during the last three financial years 2019-20, 2020-21 and 2021-22. You are required to decide the eligibility
and maximum quantum of loan that can be sanctioned to Mr. Sohel and Mr. Sahil as per the provisions of the
Companies Act, 2013.
[CA Final- Nov 22]
Answers:
Rule 15 of the Nidhi Rules, 2014, deals with Loans is as follows:
(a) A Nidhi shall provide loans only to its members.
(b) The loan given by a Nidhi to a member shall be subject to seven lakh fifty thousand rupees, where the
total amount of deposits of such Nidhi from its members is more than two crore rupees but less than twenty
crore rupees;
Provided that where a Nidhi has not made profits continuously in the three preceding financial years, it shall
not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified.
Provided further that a member shall not be eligible for any further loan if he has borrowed any earlier loan
from the Nidhi and has defaulted in repayment of such loan.
Here, the amount of deposits shall be calculated on the basis of the last audited annual financial statements.
In the light of the above provisions:

1. The maximum amount of fresh loans that the Nidhi may give to member = 7,50,000.
Since, the company is incurring losses during the last three years, so, the eligible amount for giving fresh
loans will be= 50% of 7,50,000= 3,75,000.
The maximum amount that can be given to Mr. Sohel is 3,75,000.
2. Mr. Sahil is not eligible for any further loan as he has defaulted in repayment of earlier loan borrowed
from Pragati (Nidhi) Limited.

29
Question 4:
The name of Yutakuruk (P) Ltd. was stuck off from the register by the ROC vide order dated 21.12.2021 and
notice relating to same was published on 24.12.2021 in the Official Gazette. The company was in existence
since 2010, but it was found that the company was not carrying on any business, as revealed after the
physical verification being carried out. The management of the company had given necessary undertaking
relating to realisation of all amount due to company and for discharge of its liabilities by the company within a
reasonable time.
Examine the validity of the dissolution date of company, liability of company towards creditors post removal
of its name and status of liability of director, if any, towards dissolved company.
Answer:
According to section 248 of the Companies Act, 2013, 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 (Sub-section (5).
The Registrar, before passing an order under subsection (5), shall satisfy himself that sufficient provision
has been made for the realisation of all amount due to the company and for the payment or discharge of its
liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary
undertakings from the managing director, director or other persons in charge of the management of the
company.
Provided that notwithstanding the undertakings referred to in this sub-section, the 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 (Sub-section (6)
The liability, if any, of every director, manager or other officer who was exercising any power of
management, and of every member of the company dissolved under sub-section (5), shall continue and may be
enforced as if the company had not been dissolved (Sub-section (7)
Here, the name of Yutakuruk (P) Ltd. was struck off from the register by the ROC vide order dated
21.12.2021 and notice relating to same was published on 24.12.2021 in the Official Gazette. Accordingly,
dissolution date of company shall be considered to be 24.12.2021.
Further, the 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 notwithstanding that its management had given necessary undertaking relating to the same.
Also, liability of director, if any, towards dissolved company, shall continue and may be enforced as if the
company had not been dissolved.
Question 5:
Referring to the provisions of the Companies Act, 2013 and the Companies (Registered Valuer and Valuation
Rules), 2017 answer the following:
(i) Mr. Shah was convicted by Court in case of valuation report issued to X Limited for preferential allotment
to Outlook investors. The valuer made no due diligence, and methods adopted while valuing the company

30
intended to defraud its members. What will be the liability of Mr. Shah in the above-mentioned conviction?
(ii) Mr. Ravish, a Chartered Accountant, was convicted by the Court to civil offence dated 31st December,
2013 for 10 years. On 1st January, 2023, he wants to registered himself as a registered valuer. Can Mr.
Ravish register himself as a registered valuer?
Answer:
(i) Mr. Shah was convicted by Court for valuation report wherein he made no due diligence and conducted
valuation with the intention to defraud the members of the company. Hence, he shall be liable to the
following:
1. According to Section 247(4) of the Companies Act, 2013, if the valuer has contravened the provisions of
Section 247 with the intention to defraud the company or its members, he shall be punishable with
imprisonment for a term which may extend to 1 year and with fine which shall not be less than ₹ 1 Lakh but
which may extend to ₹ 5 lakhs. [Section 247(3)]
2. Where a valuer has been convicted as given in point above, he shall be liable to—
(a) refund the remuneration received by him to the company; and
(b) pay for damages to the company or to any other person for loss arising out of incorrect or misleading
statements of particulars made in his report.
(ii) According to Rule 3 of the Companies (Registered Valuer and Valuation Rules), 2017, a person shall be
eligible to be a registered valuer if he has not been convicted by any competent Court for an offence
punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and
a period of 5 years has not elapsed from the date of expiry of the sentence;
Provided that if a person has been convicted of any offence and sentenced in respect thereof to
imprisonment for a period of 7 years or more, he shall not be eligible to be registered.
As per the facts of the question and provision of law, since, Mr. Ravish has been convicted by the Court for
10 years (i.e. more than 7 years) imprisonment, he is not eligible to registered as a registered valuer.
Question 6:
Sunshine Benefit Fund Limited, incorporated as a Nidhi Company under the Companies Act, 2013. The Board
of Directors have decided to provide Locker Facilities on rent to its members and have estimated that rental
income from such letting would be around 25% of the gross income of the company. Examine the legal validity
on the proposal of the Board of Directors to provide Locker facilities on rent?
Answer:
According to Rule 6 (e) of the Nidhi Rules, 2014, Nidhi’s which have 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 twenty per cent of the gross income of the Nidhi at any point of time during a financial year.
So, in the given case, the Board of Directors of Sunshine Benefit Fund Limited incorporated as Nidhi
Company cannot provide locker facilities on rent to its member on which the rental income will be around 25%
of the gross income of the company as its more than the prescribed limit.

31
Question 7:
Leading Ltd. filed an application to the registrar for removal of the name of company from the register of
companies after passing special resolution. On the complaint of certain members, Registrar came to know that
already an application is pending before the Tribunal for the approval of proposed compromise or
arrangement scheme. The application of compromise or arrangement was filed two months prior to filing of
this application to the Registrar.
Determine the given situations in the lights of the given facts as per relevant provisions of the Companies
Act, 2013:
(i) Legality of filing an application by Leading Ltd. before the Registrar.
(ii) Consequences if Leading Ltd. files an application in the above given situation.
(iii) In case Registrar notifies Leading Ltd. as dissolved under section 248 in compliances to the required
provisions, what remedy will be available to the aggrieved party?
Answer:
According to the Section 248(2) of the Companies Act, 2013, a company may, after extinguishing all its
liabilities, by a special resolution, or consent of seventy-five per cent. 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 specified in section 248(1) and the Registrar
shall, on receipt of such application, cause a public notice to be issued in the prescribed manner.
Further Section 249 provides restrictions on making application under section 248 .
An application under section 248 on behalf of a company shall not be made if, at any time in the previous
three months, the company—
(a) has changed its name or shifted its registered office from one State to another;
(b) has made a disposal for value of property or rights held by it, immediately before cesser of trade or
otherwise carrying on of business, for the purpose of disposal for gain in the normal course of trading or
otherwise carrying on of business;
(c) has engaged in any other activity except the one which is necessary or expedient for the purpose of
making an application under that section, or deciding whether to do so or concluding the affairs of the
company, or complying with any statutory requirement;
(d) has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the
matter has not been finally concluded; or
(e) is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.
Violation of above conditions on filing of application: If a company files an application in violation of

restriction given above, it shall be punishable with fine which may extend to one lakh rupees.
Rights of registrar on non-compliance of conditions by the company: An application filed under above
circumstances, shall be withdrawn by the company or rejected by the Registrar as soon as conditions are
brought to his notice.
Aggrieved person to file an appeal against the order of registrar: As per section 252(1),any person
aggrieved by an order of the Registrar, notifying a company as dissolved under section 248, may file an appeal
to the Tribunal within a period of three years from the date of the order of the Registrar and if the
Tribunal is of the opinion that the removal of the name of the company from the register of companies is not

32
justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may
order restoration of the name of the company in the register of companies. However a reasonable opportunity
is given to the company and all the persons concerned.
According to the above provisions, following are the answers:

(i) As per the restrictions marked in the Section 249(d) stating that an application under section 248 on
behalf of a company shall not be made if, at any time in the previous three months, the company has made an
application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been
finally concluded.
As per the facts application to the registrar for removal of the name of company from the register of
companies, was filed by the Leading Ltd. within three months to the filing of an application to the Tribunal
for approval of compromise or arrangement proposal. Therefore filing of such an application by Leading Ltd. is
not valid.
(ii) If a company files an application in above situation, it shall be punishable with fine which may extend to
one lakh rupees. An application so filed, shall be withdrawn by the company or rejected by the Registrar as
soon as conditions are brought to his notice.
(iii) According to the provision given in section 252(1),a person aggrieved by an order of the Registrar,
notifying Leading Ltd. as dissolved under section 248, may:
• file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar,
and
• if the Tribunal is of the opinion that the removal of the name of the company from the register of
companies is not justified in view of the absence of any of the grounds on which the order was passed by the
Registrar, it may order restoration of the name of the Leading Ltd. in the register of companies.
• A reasonable opportunity is given to the Leading Ltd. and all the persons concerned.

33
Chapter 11 The SEBI Act, 1992 and LODR

Question 1:
Meera is a highly qualified professional and independent director in several listed companies. Referring to the
provisions of the Securities and Exchange Board of India Act, 1992 and SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015, answer the following questions:
(i) In how many listed companies she can be appointed as a director and independent director?
(ii) Whether the above number will be changed if she is serving as a whole-time director in a listed entity?
(iii) In how many committees she can be member?
(iv) In how many committees she can be appointed as Chairperson?
[CA Final- Nov 22]
Answer:
As per the given information, Meera is a highly professional and independent director in several listed
companies. Following are the answers as per the Regulations 17A and 26 of the SEBI (LODR), Regulation
2015:
(i) Regulation 17A(1) of the SEBI (LODR) Regulations, 2015 provides that a person shall not be a director or
independent director in more than seven listed entities.
Hence, Meera can be appointed as a director and independent director in maximum 7 listed companies.
(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 Meera, besides holding the position of WTD, can serve as an Independent Director maximum up to 3
listed companies only.
(iii) As per Regulation 26 of the SEBI (LODR) Regulations, 2015, a director shall not be a member in more
than ten committees across all listed entities.
So, Meera can be a member in maximum ten committees.
(iv) As per Regulation 26 of the SEBI (LODR) Regulations, 2015, a director shall not act as chairperson of
more than five committees across all listed entities.
So, Meera can be appointed as chairperson in maximum five committees.
Question 2:
The Central Government has issued directions on the question of policy from time-to-time to the Securities
and Exchange Board of India (SEBI / Board). However, SEBI defied the orders on many occasions and hence,
the Central Government superseded the Board. Referring to the provisions of the Securities and Exchange
Board of India Act, 1992 analyze the validity of the order of the Central Government and answer the
following:
(i) The powers of the Central Government to supersede the Board and reasons therefor.
(ii) Eligibility of person's who vacated their office on supersession of the Board for appointment on the
reconstituted board.
[CA Final- Nov 22]
Answer:
Power of Central Government to supersede the Board: According to section 17 of the Securities and
Exchange Board of India Act, 1992, if at any time the Central Government is of opinion that the Board has
persistently made default in complying with any direction issued by the Central Government under this Act or
in the discharge of the functions and duties imposed on it by or under the provisions of this Act and as a
result of such default the financial position of the Board or the administration of the Board has

34
deteriorated, then in such case the Central Government may, by notification, supersede the Board for such
period, not exceeding six months, as may be specified in the notification.
Thus, the powers of Central Government to supersede the Board is valid due to persistent committing of
default in complying with directions issued by the Central Government on the question of policy from time to
time.
(ii) Further section 17(3) of the Securities and Exchange Board of India Act, 1992 states that on the
expiration of the period of supersession specified in the notification issued, the Central Government may
reconstitute the Board by a fresh appointment and in such case any person or persons who vacated their
offices, shall not be deemed disqualified for appointment.
Provided that the Central Government may, at any time, before the expiration of the period of supersession,
take action under this sub-section and appoint such person/s by a fresh appointment.
Hence, the person/s who vacated their office on supersession of the Board will be eligible for appointment on
reconstituted Board.
Question 3:
M/s Chivaram Investors is a registered stock broking firm, dealing in share market since 2009. In case of
one of its clients, the said firm failed to deliver shares to him, as instructed. Accordingly, on complaint made
by the said client, the firm was penalized by way of adjudication order passed by the adjudicating officer
appointed by SEBI. The said firm filed a suit with the civil court challenging such order. Examine the relevant
penalty provisions that would have been attracted for such failure made by M/s Chivaram Investors and
whether the civil court would entertain such suit made by the firm.
Answer:
As per clause (b) of Section 15F of the SEBI Act, 1992, in case if any person, who is registered as a
stockbroker under this Act, fails to deliver any security or fails to make payment of the amount due to the
investor as per the regulations, then such person shall be liable for penalty not less than 1 lakh + 1 lakh / day
during which such failure continues subject to maximum of ₹ 1 Crore.
As per Section 15T of the SEBI Act, 1992, if any person is aggrieved by an order, inter -alia, made by an
adjudicating officer under this Act, the he may prefer an appeal to a Securities Appellate Tribunal having
jurisdiction in the matter within the prescribed time-period.
Further, as per Section 15Y of the SEBI Act, 1992, no civil court shall have jurisdiction to entertain any suit
or proceeding in respect of any matter which an adjudicating officer appointed under this Act or a Securities
Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no
injunction shall be granted by any court or other authority in respect of any action taken or to be taken in
pursuance of any power conferred by or under this Act.
Hence, provisions of clause (b) of Section 15F of the SEBI Act, 1992, would have been attracted for such
failure to deliver shares to client, as instructed.

35
Further, the civil court has been expressly barred by the Act from entertaining any suit in respect of any
matter for which an adjudicating officer appointed under SEBI Act or a Securities Appellate Tribunal
constituted under SEBI Act is empowered and in the given case, Securities Appellate Tribunal was
empowered to consider the case of M/s Chivaram Investors and so, the civil court would not entertain such
suit made by the said firm.
Question 4:
An intermediary associated with the securities market violated the provisions of the SEBI Act. The Board on
the reasonable ground, directed IA(Investigating authority) to investigate the matter and submit its report.
IA will ask the intermediary to produce to the relevant documents and record. IA through order, impounded
the said documents and records on ground to believe that the same may be destroyed. After 6 months, from
the conclusion of the investigation, intermediary demanded the IA to return the same .
Examine the given situation and determine the validity of demand of intermediary to return the impounded
documents.
Answer:
According to section 11 C of the SEBI Act, 1992, where the Board has reasonable ground to believe that any
intermediary associated with the securities market has violated any of the provisions of this Act or the rules
or the regulations made or directions issued by the Board there under, it may, at any time by order in writing,
direct any person, the Investigating Authority, to investigate the affairs of such intermediary and to report
thereon to the Board. During the investigation, if required, he may ask for the production of the requisite
documents.
Where in the course of investigation, the Investigating Authority has reasonable ground to believe that the
related documents of any intermediary or any person associated with securities market in any manner, may be
destroyed, the Investigating Authority may make an application to the Magistrate or Judge of such
designated court in Mumbai, as may be notified by the Central Government for an order for the seizure of
documents.
Impounded documents will remain in the custody of investigating authority: The Investigating Authority shall
keep in its custody the documents and record seized under this section for such period not later than the
conclusion of the investigation as it considers necessary and thereafter shall return the same to the
intermediary, from whose custody or power they were seized and inform the Magistrate or Judge of the
Designated Court of such return. Retaining of document with IA, even after conclusion of investigations is
not valid. Demand of Intermediary to return the impounded documents after conclusion of investigation is its
right and is valid.
Question 5:
The 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
Securities and Exchange Board of India Act, 1992 to protect the interest of investors and securities market,
on completion of such inquiry.

36
Answer:
As per section 11 (4) of the Securities and Exchange Board of India Act, 1992, the Board may, by an order,
for reasons to be recorded in writing, in the interest 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:—
(i) suspend the trading of any security in a recognized stock exchange;

(ii) restrain persons from accessing the securities market and prohibit any person associated with securities
market to buy, sell or deal in securities;
(iii) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such
position;
(iv) impound and retain the proceeds or securities in respect of any transaction which is under investigation;
(v) attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or
any person associated with the securities market.
(vi) 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.
The amount disgorged, pursuant to a direction issued, under the SEBI Act or the Securities Contracts
(Regulation) Act, 1956 or the Depositories Act, 1996, as the case may be-
• shall be credited to the Investor Protection and Education Fund (IPEF) established by the Board, and
• such amount shall be utilized by the Board in accordance with the regulations made
under this Act.
Provided that the Board may take any of the measures specified in clause (d) or clause (e) or clause (f), in
respect of any listed public company or a public company (not being intermediaries referred to in section 12)
which intends to get its securities listed on any recognized stock exchange where the Board has reasonable
grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade
practices relating to securities market:
Provided further that the Board shall, either before or after passing such orders, give an opportunity of
hearing to such intermediaries or persons concerned.
Question 6:
Mr. Human is registered as an Intermediary fails to enter into an agreement with his client and hence
penalised by SEBI under the SEBI Act,1999. Advise Mr. Human as to what remedies are available to him
against the order of SEBI.
Answer:
Remedies against SEBI order: Section 15B of the Securities and Exchange Board of India Act, 1992 lays
down that if any person, who is registered as an intermediary and is required under this Act or any rules or
regulations made there under, to enter into an agreement with his client, fails to enter into such agreement,
he shall be liable to levy a penalty as prescribed under the Act.
Mr. Human will be provided with the following two remedies in this matter: -
(i) Appeal to the Securities Appellate Tribunal: Section 15T of the SEBI Act, states that any person

37
aggrieved, —
(a) by an order of the Board, or
(b) by an order made by an adjudicating officer under this Act; or
(c) by an order of the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and
Development Authority, may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the
matter.
Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order
made above, is received by him.
Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period
of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.
On receipt of an appeal, the Securities Appellate Tribunal may, after giving the parties to the appeal, an
opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside
the order appealed against.
(ii) Appeal to the Supreme Court: Section 15Z of the SEBI Act, 1992 provides that any person aggrieved by
any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within 60
days from the date of communication of the decision or order to him on any question of fact or law arising
out of such order.
Question 7:
Modern Furniture Limited (MFL) is a listed company dealing in furniture, with expertise in Space-saving
foldable furniture items. Board of MFL through its chairman instructs the secretary to call and convene
board meeting to consider certain agenda items.
If board meeting to be taken place on 9th January 2023, then after explaining the relevant SEBI Regulation
regarding prior intimations to Stock Exchanges of the Board Meetings, where certain proposals are to be
considered, you are required to list the cut-off date of intimation in each of following cases considering this
as independent case from each other.
(a) Consider quarterly financial results
(b) Proposal for buy-back
(c) Change in interest cycle of debenture
(d) Conversion of securities
(e) Reconsidering redemption date of preference shares
Answer:
Provisions related to prior intimation of Board Meeting where any of the following proposals is to be
considered are included in Regulation 29 of SEBI (LODR) Regulations, 2015 are;
(i) At least 5 clear Days excluding the date of the intimation and date of the meeting in which financial
results viz. quarterly, half yearly, or annual to be considered.
(ii) At least 2 clear Working Days excluding the date of the intimation and the meeting for the given
proposals.
(a) proposal for buyback of securities
(b) proposal for voluntary delisting

38
(c) fund raising by way of

1. Further public offer
2. Rights Issue
3. American Depository Receipts
4. Global Depository Receipts
5. Foreign Currency Convertible Bonds
6. Qualified institutions placement
7. Debt issue
8. Preferential issue and
9. Determination of issue price.
(d) Any AGM or EGM or Postal Ballot proposed to be held for obtaining shareholder approval for further fund
raising indicating type of issuance.
(e) Declaration/recommendation of dividend, issue of convertible securities including convertible debentures
or of debentures carrying a right to subscribe to equity shares or the passing over of dividend.
(f) The proposal for declaration of bonus securities, if part of Agenda papers.
(iii) At least 11 Working Days before

(a) Any alteration in the form or nature of any of its securities or in the rights or privileges of the holders
thereof.
(b) Any alteration in the date on which, the interest on debentures or bonds, or the redemption amount of
redeemable shares or of debentures or bonds, shall be payable.
Accordingly, the cut-off date for intimation to SEBI shall be as following (Saturday and Sunday are non-
working days);
Case Agenda Cut-off date for intimation

a Consider quarterly financial results 3rd January 2023
b Proposal for buy-back 4th January 2023
c Change in interest cycle of debenture 23rd December 2022
d Conversion of securities 4th January 2023
e Reconsidering redemption date of preference shares 23rd December 2022

39
Economic Laws
Chapter 1 The Foreign Exchange Management Act, 1999
Question 1:
ADL Limited is eligible for External Commercial Borrowing (ECB). It raised ECB of INR 100 crore on
01.01.2021 from eligible foreign lender to establish a power plant in India. As the forest and other
government clearances are getting delayed, the implementation of the project is likely to be deferred by one
year. Hence, the company dropped down the ECB amount of INR 100 crore and parked the proceeds, as
detailed below:
(i) INR 80 crore were parked in capital market, the break-up of which is that - INR 20 crore in equity shares,
INR 40 crore in secured debentures and INR 20 crore in mutual funds.
(ii) INR 20 crore in term deposits with AD Category 1 bank in compliance with all conditions.
Referring to the provisions of the Foreign Exchange Management Act, 1999. examine the validity of the
parking of ECB proceeds in the manner as detailed above.
[CA Final- Nov 22]
Answer:
ECB proceeds are permitted to be parked abroad as well as domestically.
Parking of ECB proceeds domestically: ECB proceeds meant for Rupee expenditure should be repatriated
immediately for credit to their Rupee accounts with AD Category I banks in India.
ECB borrowers are also allowed to park ECB proceeds in term deposits with AD Category I banks in India for
a maximum period of 12 months cumulatively. These term deposits should be kept in unencumbered position.
By looking at the above provisions,
(i) Parking of 80 crore in capital market is not valid.
(ii) Parking of 20 crore in term deposit with AD category 1 bank in compliance with all condition is valid.
Question 2:
A Flying Club in Indore, India was established in the year 2016. The principal activity of the club is to impart
classroom and field training to the aspiring pilots. After running smoothly for first five years the club
became defunct. With the initiative and support of the Government it could be revived during the year 2021.
To restart the training activity the club exported two aircraft engines and spare parts for repairs abroad
and getting them back to India within six months for functioning of the club activities.
The club had with it one imported aircraft on lease basis which was also re-exported abroad permanently by
cancelling the lease agreement and obtaining the requisite approvals / permissions of the government
agencies. However, the club failed to furnish declaration to the Reserve Bank of India and other authorities
with respect to this export. Referring to the provisions of the Foreign Exchange Management Act, 1999,
analyze, whether the club has contravened the provisions of the Act relating to export and re-export of the
said goods.
[CA Final- Nov 22]
Answer:
Export of goods / software may be made without furnishing the declaration in the following cases, namely:
(i) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their
reimport into India after overhauling /repairs, within a period of six months from the date of their export;

40
(ii) re-export of leased aircraft/helicopter under cancellation of the lease agreement between the lessor and
lessee subject to permission by DGCA/Ministry of Civil Aviation for such export/s.
In the instant case, since Flying Club has fulfilled the requirement with respect to export and re- export of
goods in compliance with FEM (Export of Goods and Services) Regulations, 2015, hence, not furnishing of the
declaration to the RBI and other authorities with respect to this export and re-export, is not the
contravention from Flying Club.
Question 3:
Embryonic Club in Chennai, India was established in the year, 2019. The club was meant to impart training to
the aspiring engineers for the manufacturing and repairing of the spare parts of the aircrafts. After three
years of functioning, the club became non-operational. The Government supported and bought the said club
into revival during the year, 2023. To restart the training activity, the club exported two aircraft engines
and spare parts for abroad and getting them back to India within 7 months for functioning of the club
activities at an earliest. The club had with it one imported aircraft on lease basis which was also re -exported
abroad permanently by cancelling the lease agreement and obtaining the requisite approvals / permissions of
the government agencies. However, the club failed to furnish declaration to the Reserve Bank of India and
other authorities with respect to this export.
Referring to the provisions of the Foreign Exchange Management Act, 1999 analyze whether the club has
contravened the provisions of the Act relating to export and re -export of the said goods.
Answer:
Export of goods / software may be made without furnishing the declaration in the following cases, namely:
(a) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their
reimport into India after overhauling /repairs, within a period of six months from the date of their export;
(b) re-export of leased aircraft/helicopter under cancellation of the lease agreement between the lessor and
lessee subject to permission by DGCA/Ministry of Civil Aviation for such export/s.
In the instant case, since the Embryonic Club has reimported aircraft engines and spare parts after the
required period of 7 months, which is beyond the prescribed time period. Such a re- export requires to be
furnished with the declaration in compliance with export and re- export of goods read with FEM (Export of
Goods and Services) Regulations, 2015. Hence, not furnishing of the declaration to the RBI and other
authorities with respect to this export and re-export, is the contravention of the legal requirement from
Club.
Question 4:
What will be the legal position with respect to obtaining of bonus shares and the rights inherited with such
bonus shares to be transferred to a person resident in India, where a person resident in India has acquired
equity capital of a foreign entity.
Answer:
Regulation 6 of the Overseas Investment Rules, 2022 deals with the rights attached to the holding of equity
shares.
According to it, any person resident in India who has acquired and continues to hold equity capital of any
foreign entity in accordance with the provisions of the Act or the rules or regulations made thereunder–

41
(a) may invest in the equity capital issued by such entity as a rights issue; or
(b) may be granted bonus shares subject to the terms and conditions under these rules.
Further, the person resident in India acquiring the rights under sub-rule (1) may renounce such rights in
favour of a person resident in India or a person resident outside India.
In line with the stated legal requirement, any person resident in India who have been granted bonus shares,
as a right on holding of equity shares of any foreign entity, may be refused such right which is inherited as
such, in favour of a person resident in India.
Question 5:
Hill Limited, an Indian company 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.
Answer:
Legal position regarding valuation of shares
For conversion of ECB dues into equity, 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
Conversion of ECB, including those which are matured but unpaid, into equity is permitted subject to the
following conditions:
In case of full conversion of ECB into equity, the reporting to the Reserve Bank will be of the entire portion,
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.
Question 6:
Mr. Vishwa, an Indian resident, working in Singapore for last ten years. He is currently holding assets and
bank balances in Singapore and planning to settle down in India. You being an expert under the FEMA, Mr.
Vishwa seeks your advice as to whether he can hold, own, transfer or invest in a foreign currency, foreign
security or any immovable property situated outside India as per the Foreign Exchange Management Act,
1999.
Answer:
A per Section 6 of the FEMA, 1999, a person resident in India may hold, own, transfer or invest in foreign
currency, foreign security or any immovable property situated outside India if such currency, security or
property was acquired, held or owned by such person when he was resident outside India or inherited from a
person who was resident outside India.

42
Here, in the given case, Mr. Vishwas, an Indian Citizen, who was working in Singapore for ten 10 years,
currently planning to settle in India wanted to hold, own, transfer or invest in foreign currency, foreign
security or any immovable property situated outside India.
Hence in the given case, Mr. Vishwas, earned income through employment or business or vocation when he was
outside India. After his settlement in India, he may freely utilize all their eligible assets abroad as well as
income on such assets or sale proceeds thereof received af ter their return to India for making any payments
or to make any fresh investments abroad without approval of Reserve Bank.
Question 7:
Grand Father of Mr. Narendra Kamal was farmer in undivided India and own large chunk of land. Due to
partition, his grand-father along other family members evacuated from west Punjab, hence got a piece of
agricultural land in compensation under Displaced Persons (Compensation and Rehabilitation) Act, 1954 in that
area of east Punjab which is present day Haryana touching NCT.
Such land was inherited by Mr. Saurabh Kamal and Mr. Varun Kamal (both resides in India) in equal portion as
per the testament of their Narendra’ Grandfather. Mr. Narendra is only child of Mr. Saurabh. At death of
Mr. Saurabh in 2005, his will was executed and piece of land belong to him transferred to Mr. Narendra.
Mr. Narendra in 2002, shifted to New Zealand, there he operates an accounting KPO firm. Mr. Narendra
surrender Indian citizenship and hold kiwi passport. Now the children of Mr. Narendra is also grown-up. His
son wants to enter in film-making hence need funds, Mr. Narendra decided to sell the land inherited by him
from his father (in -turn from his grandfather). He approached Mr. Balraj, a property linker for identifying
buy for said land. It was decided that part of proceed will be used by son of Mr. Narendra and rest will be
planned to invest in New Zealand only.
You are required to advise Mr. Narendra can he sell/transfer the land he owned in India as per the relevant
provisions of FEMA.
Answer:
According to Section 6 (5) of The Foreign Exchange Management Act 1999, it is provided that a person
resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable
property situated in India if such currency, security or the property was acquired, held, or owned by such
person when he was resident in India or inherited from a person who was resident in India (like in given case
inherited by Mr. Narendra in 2005).
Further, a person referred to in sub-section (5) of Section 6 of the Act, or his successor shall not, except
with the general or specific permission of the Reserve Bank, repatriate outside India the sale proceeds of
any immovable property referred to in that sub-section as per the second schedule of the FEM (Permissible
Capital Account Transaction) Regulation, 2000.
Hence Mr. Narendra allowed transfer (sale) the agriculture land and after seeking permission of RBI can
repatriate the sale proceeds, outside India.

43
Chapter 2 The Prevention of Money Laundering Act, 2002

Question 1:
One NGO made a complaint before Special Court against Rishabh, alleged to be indulged into the money
laundering activities. In the same complaint, he has been accused of other offences under the Code of
Criminal Procedure, 1973.
Referring to the provisions of the Prevention of Money Laundering Act, 2002, examine the following:
(i) Can Special Court take cognizance of alleged offence complained of?
(ii) Can Police officer initiate investigation on receiving a Complaint?
(iii) Can Special Court initiate trial under the Code of Criminal Procedure, 1973 while trying an offence under
this Act?
[CA Final- Nov 22]
Answer:
Cognizance of offence by Special Court: According to section 45 of the Prevention of Money Laundering
Act, 2002, the Special Court cannot take cognizance of any offence punishable under section 4 of the Act,
unless a complaint in writing is made by:
(a) The Director or
(b) Any officer of the Central Government or a State Government authorized in writing by the Central
Government by a general or special order made by that Government.
Accordingly, NGO is not eligible to file complaint before special court against Rishabh alleged to be indulged
into the money laundering activities.
Therefore, Special court cannot take cognizance of alleged offence complained of against Rishabh.
(ii) As per the law, Police officer shall investigate into an offence under this Act only when specifically
authorized, by the Central Government by a general or special order, and, subject to such conditions as may
be prescribed.
Here in the given, Police officer cannot initiate investigation on receiving a compliant from NGO.
(iii) Section 44 of the Prevention of Money Laundering Act, 2002, provides that this Act overrides the
provisions of the Code of Criminal Procedure, 1973. So, Special Court while trying Scheduled Offence or
offence of money laundering shall hold trial in accordance with the provision of Code of Criminal Procedure as
it applies to a trial before a court of session.
Question 2:
Mr. Wilson, a notorious person, was caught in possession of Counterfeit Currency Notes, an offence specified
under Part A- Paragraph I of the Schedule of the Prevention of Money Laundering Act, 2002. State the
Punishment that can be awarded to him under the above Act. Also identify the Punishment for the offence
specified under Part A Paragraph 2 of the Schedule of the Prevention of Money Laundering Act, 2002.
[CA Final- Nov 22]
Answer:
According to section 4 of the Prevention of Money Laundering Act, 2002, whoever commits the offence of
money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three
years but which may extend to seven years and shall also be liable to fine.
Accordingly, Mr. Wilson, a notorious person, was caught with the possession of counterfeit currency notes, is
an offence specified under Part A-Paragraph 1 of the Schedule of the PMLA. So, he will be punished with
rigorous imprisonment for a term of three years to seven years with fine.

44
Where the proceeds of crime involved in money-laundering relate to any offence specified under paragraph 2
of Part A of the Schedule, the punishment will be for a term of three years to ten years with fine.
Question 3:
During the proceedings before Adjudicating authority under the Prevention of Money Laundering Act, 2002 a
notice to attach the property (a car) was issued to Shyam. Shyam pleaded that his car was not used in the
money laundering activities. Whether his plea can be accepted and the said notice be quashed under the said
act? Explain.
[CA Final- Nov 22]
Answers:
According to section 8 of the Prevention of Money Laundering Act, 2002, on receipt of a complaint under
section 5 (5), if the Adjudicating Authority has reason to believe that any person has committed an offence
under section 3 or is in possession of proceeds of crime, it may serve a notice on such person calling upon him
to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired
the property attached, the evidence on which he relies, and other relevant information and particulars, and to
show cause why all or any of such properties should not be declared to be the properties involved in money-
laundering and confiscated by the Central Government.
Thus, the plea of Shyam shall not be accepted and notice will be served on him, for attachment of property.
Question 4:
During the on-going case of Mr. Chirantan Datta under the Prevention of Money Laundering Act, 2002, the
director on the basis of information obtained by him found that Mr. Chirantan was in possession of some USD
currency notes which were brought into India by him, beyond the prescribed limit, without making any
declaration to the Custom Authorities at the Airport. The director formed an opinion that the provisions
under the Foreign Exchange Management Act, 1999, had been contravened by Mr. Chirantan. Examine the
responsibility of director in such case under the provisions of the PMLA, 2002.
Answer:
As per Section 66 of the Prevention of Money Laundering Act, 2002:
1. The Director or any other authority specified by him by a general or special order in this behalf may
furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to imposition of any tax,
duty or cess or to dealings in foreign exchange, or prevention of illicit traffic in the narcotic drugs and
psychotropic substances under the Narcotic Drugs and Psychotropic Substances Act, 1985 or
(ii) such other officer, authority or body performing functions under any other law as the Central
Government may, if in its opinion it is necessary so to do in the public interest, specify by notification in the
Official Gazette in this behalf, any information received or obtained by such Director or any other authority,
specified by him in the performance of their functions under this Act, as may, in the opinion of the Director
or the other authority so specified by him, be necessary for the purpose of the officer, authority or body
specified to perform his or its functions under that law.

45
2 The Director or any other authority specified by him by a general or special order in this behalf may
furnish or cause to be furnished to-
If the Director or other authority specified under sub-section (1) is of the opinion, on the basis of
information or material in his possession, that the provisions of any other law for the time being in force are
contravened, then the Director or such other authority shall share the information with the concerned
agency for necessary action.
In the given case, the director under the Prevention of Money Laundering Act, 2002, on the basis of
information obtained by him found that Mr. Chirantan was in possession of some USD currency notes which
were brought into India by him, beyond the prescribed limit, without making any declaration to the Custom
Authorities at the Airport and accordingly, he formed an opinion that the provisions under the Foreign
Exchange Management Act, 1999, had been contravened by Mr. Chirantan.
Hence, the director under PMLA shall share the information with respect to contravention of provisions
under FEMA by Mr. Chirantan Dutta with the concerned agency under FEMA for necessary action.
Question 5:
LMR Limited, a banking company has a "Record Preservation Policy" which inter alia states to maintain the
documents evidencing identity of its clients and beneficial owners for a period of 5 years after the account
has been closed. Evaluate, whether the "Record Preservation Policy" of the Company has fulfilled its
obligation under the provisions of the Prevention of Money Laundering Act, 2002?
Answer:
Section 12 of the Prevention of Money Laundering Act, 2002 provides for the obligation of Banking
Companies, Financial Institutions and Intermediaries i.e. the reporting entity to maintain records of all
transactions.
According to sub-section (1)(e), every reporting entity shall maintain record of documents evidencing identity
of its clients and beneficial owners as well as account files and business correspondence relating to its
clients.
Maintenance of Records: The records referred to in clause (e) of sub-section (1) of documents evidencing
identity of its clients and beneficial owners as well as account files and business correspondence relating to
its clients shall be maintained for a period of five years after the business relationship between a client and
the reporting entity has ended or the account has been closed, whichever is later.
The records shall contain information about nature of transaction, amount of transaction, currency, date of
transaction and parties to transaction as per the respective Rules of the Prevention of Money• laundering
(Maintenance of Records) Rules, 2005.
In view of the above, LMR Limited has not fulfilled its obligation to maintain the above stated documents for
a period of 5 years after the business relationship between a client and the Company has ended or the
account has been closed, whichever is later. The Record Preservation Policy of the Company does not provide
such conditions stated above.

46
Question 6:
The Special Court at Jaipur passed the final order that Mr. Rohit has committed the offences of money
laundering. The Special Court ordered to confiscate the property of Mr. Rohit. However, his friend Mr. Mohit
claimed that he is the beneficial owner of the property since he has given finance against the property and
have encumbrance on it. Based on the above scenario, referring to provisions of the Prevention of Money
Laundering Act, 2002, comment whether Mr. Mohit has encumbrance on the property after the final order
having been passed by the special court and conclude who has the vested interest in the property?
Answer:
According to Section 9 of the Prevention of Money Laundering Act, 2002, where an order of confiscation has
been made under Section 8(5) or Section 8(7) or Section 58B or Section 60(2A) in respect of any property of
a person, all the rights and title in such property shall vest absolutely in the Central Government free from all
encumbrances.
However, where the Special Court or the Adjudicating Authority, as the case may be, after giving an
opportunity of being heard to any other person interested in the property attached under this Chapter, or
seized or frozen, is of the opinion that any encumbrance on the property or lease-hold interest has been
created with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or
lease-hold interest to be void and thereupon the aforesaid property shall vest in the Central Government
free from such encumbrances or lease-hold interest.
Further, nothing in this section shall operate to discharge any person from any liability in respect of such
encumbrances, which may be enforced against such person by a suit for damages.
Thus, Mr. Mohit does not have encumbrance on the property after the final order by the Special Court and
the Central Government has vested interest in the property has been passed.
Question 7:
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?
Answer:
Continuation of proceedings in the event of death or insolvency [Section 72 of PMLA, 2002]
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

47
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.
Hence, in the instant case, the appeal can be made to the Appellate Tribunal by the official assignee or the
official receiver of Mr. Rana.
Question 8:
Mr. Ranga allegedly handed over a sum of ₹ 50,000,000 (Rupees five crore) to a public servant Mr. Billa. An
FIR was registered under Indian Penal Code, 1860 for criminal conspiracy and Sections 7, 12, 13(1)(d) read
with Section 13(2) of the Prevention of Corruption Act, 1988. Later, a case was registered by the
Enforcement Directorate against Mr. Billa including Mr. Ranga under Sections 3 and 4 of the Prevention of
Money Laundering Act, 2002.
It may be decided between Mr. Ranga and Mr. Billa, that Mr. Ranga will leave suitcase carrying money in the
car, parked in parking space. Even before Mr. Billa could project the sum of ₹ 50,000,000 as untainted money,
the CBI intervened and seized the money in the parked car.
Mr. Ranga moved a petition to the hon’ble High Court. The High Court allowed the petition of Mr. Ranga and
quashed the PMLA proceedings against him. According to the High Court, the sum of ₹ 50,000,000 as long as
it was in the hands of Mr. Ranga could not have been stated as tainted money. The sum of ₹ 50,000,000
became the proceeds of a crime only when Mr. Billa accepted it as a bribe.
Enforcement Directorate approached you (a leading consultant on Economic Law Matters) for advice. Analyse
the given situation and state the legal position of Mr. Ranga.
Answer:
As per the definition of money laundering and proceeds of crime given under the PMLA, 2002, it can be
advised as follows:
(i) so long as the amount is in the hands of a bribe giver, and till it does not get impressed with the requisite
intent and is actually handed over as a bribe, it would definitely be untainted money.
(ii) If the money is handed over without such intent, it would be a mere entrustment. If it is thereafter
appropriated by the public servant, the offense would be of misappropriation or species thereof but certainly
not of bribe. The crucial part, therefore, is the requisite intent to hand over the amount as a bribe and
normally such intent must necessarily be antecedent or prior to the moment, the amount is handed over.
(iii) Such intent having been entertained well before the amount is actually handed over, the person
concerned would certainly be involved in the process or activity connected with "proceeds of crime" including
inter-alia, the aspects of possession or acquisition thereof.
(iv) By handing over the money with the intent of giving bribes, such a person will be assisting or will knowingly
be a party to an activity connected with the proceeds of crime. Without such active participation on part of
the person concerned, the money would not assume the character of being proceeds of crime.
(iv) The relevant expressions from Section 3 of the PML Act are thus wide enough to cover the role played by
such a person.
Therefore Mr. Ranga being ‘Bribe Giver’ is connected party to proceed of crime and is liable for proceeding
under the Prevention of Money Laundering Act, 2002.

48
Chapter 3 The Foreign Contribution Regulation Act, 2010

Question 1:
Mr. Mustafa is contesting an election as an authorized candidate of a registered political party. He has
received, during the financial year 2021-22, a contribution of INR 25,00,000 from his brother Mr. Rehman
who is a citizen of and living in UAE. Mr. Mustafa has obtained this money to defray his election expenditure.
Referring to the provisions of the Foreign Contribution (Regulation) Act, 2010 (FCRA) advise whether Mr.
Mustafa, by accepting foreign contribution, has violated the provisions of FCRA.
[CA Final- Nov 22]
Answers:
As per section 3 of the Foreign Contribution (Regulation) Act, 2010, no foreign contribution shall be accepted
by any candidate for election.
Further section 21 of the Act states that every candidate for election, who had received any foreign
contribution, at any time within one hundred and eighty days immediately preceding the date on which he is
duly nominated as such candidate, shall give, within such time and in such manner as may be prescribed, an
intimation to the Central Government or prescribed authority or both as to the amount of foreign
contribution received by him, the source from which, and the manner in which, such foreign contribution was
received and the purposes for which and the manner in which such foreign contribution was utilized by him.
Accordingly, in the given case, though section 3 of the FCRA prohibits acceptance of foreign contribution by
any candidate for election but in terms of section 21, it is permissible, to the duly nominated candidate
contesting an election as an authorized candidate of a registered political party. He shall give, an intimation
to the Central Government or prescribed authority or both as to the amount of foreign contribution received
by him, the source from which, and the manner in which, such foreign contribution was received and the
purposes for which and the manner in which such foreign contribution was utilized by him.
Hence, Mr. Mustafa, if accepted foreign contribution in compliance with the requirement as provided under
section 21, can be said to have not violated the provisions of FCRA.
Question 2:
(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?
Answer:
(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 ten lakh rupees 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 ten lakh, so Ms. Suman is not
required to inform the Central Government.

49
(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.
Question 3:
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 wears that chain. I - phone in Indian rupee worth ₹ 1 lac 10 thousands,
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 to give the legal
position of Mr. Yadav in the light of the FCRA.
Answer:
According to Rule 6 and 6A of Foreign Contribution (Regulation) Rules, 2011, the Central Government has
notified the Foreign Contribution (Regulation) Amendment Rules, 2022 vide GSR No. 506(E) on 1st July, 2022
to further amend the Foreign Contribution (Regulation) Rules, 2011.
As per amended Rule 6, any person receiving foreign contribution in excess of ten lakh rupees 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 three months from the date of receipt of such
contribution.
Earlier such monetary threshold limit was ₹ 1 Lakh and intimation to Central Government was required within
thirty days.
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 one lakh rupees shall not be a foreign contribution within the
meaning of sub-clause (i) of clause (h) of sub-section (1) of section (2).
I-phone (even for personal use, but value more than 1 lac; hence foreign contribution) and shares together
amounts to only 3 lacs and 10 thousand, which less than threshold of ten 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.

50
Chapter 4 The Arbitration and Conciliation Act, 1996

Question 1:
There was some dispute between Mr. Pankaj and Mr. Arun which could not be resolved smoothly by them and
was referred to the Arbitral Tribunal having three arbitrators, by virtue of the arbitration agreement
between them. Two of the arbitrators were of the opinion that Mr. Pankaj has to pay a compensation of 2
crore to Mr. Arun. The third arbitrator was of the opinion that Mr. Arun is not eligible to get any
compensation from Mr. Pankaj. The award was then written and signed by the first two arbitrators, while the
third arbitrator refused to sign. The fact that the third arbitrator refused to sign and the reason behind
that was stated in the award. Mr. Pankaj contended that since all the arbitrators did not sign, the award is
invalid. Decide whether the contention of Mr. Pankaj is tenable as per the provisions of the Arbitration and
Conciliation Act, 1996.
[CA Final- Nov 22]
Answers:
As per the Arbitration and Conciliation Act, 1996, all decisions, including an award, must be made through
majority. An award must also be complete concerning all issues that are submitted to the Arbitral Tribunal
for adjudication.
Further, section 31(1)(a) requires an award to be in writing and having the signature of the members of the
arbitral tribunal. It is not an award unless these two conditions are fulfilled.
A mandatory requirement for an award is that it should be reasoned. Failure to state reasons would make the
award invalid. Presence of reason would show that the arbitrators had applied their minds to the matter,
taken into consideration all materials put before them and only then arrived at a decision. The only exception
is when the parties have agreed that no reasons need be given for the award.
Thus, the award given is in compliance as it was written and signed by majority, with reason behind the
refusal to sign by the third member. Accordingly, the contention of Mr. Pankaj is not tenable. Hence, the
award is valid.
Question 2:
Aman, a Chartered Accountant with his own independent practice, was appointed as an arbitrator in an
arbitration entered between A Ltd., and B Ltd.
Scenarios I - Prior to starting his practice, Aman had already worked for five years with A Ltd.
Scenarios II – During the proceedings before the arbitral tribunal, Aman would allow A Ltd take many
liberties, for instance taking as much time for making oral arguments, cross examining the witnesses, for
submitting documents, etc. Also, the proceedings were adjourned (postponed) whenever so requested by A
Ltd when B Ltd wanted to take extra time they were not allowed. In few instances when they were permitted,
they are asked to pay heavy cost to A Ltd for delaying the proceedings.
B Ltd on the basis of above scenarios wanted to challenge the appointment of Mr. Aman. State whether the
appointment of Mr. Aman as an arbitrator can be challenged? State your answer in the light relevant legal
provision of the Arbitration and Conciliation Act, 1996.
Answer:
As per section 12 of the Arbitration and Conciliation Act, 1996, when a person is approached in connection
with his possible appointment as an arbitrator, he shall disclose in writing any circumstances-
a. such as existence either direct or indirect of any past or present relationship with or interest in any of the

51
parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind,
which is likely to give rise to justifiable doubts as to his independence or impartiality; and
b. which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability
to complete the entire arbitration within a period of twelve months.
In the first case, Aman had worked for five years with A Ltd. In this situation the law would deem Aman to
be lacking independence.
In second case, arbitrator by his / her behavior gives an impression that he is favoring one party over the
other.
An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his
independence or impartiality. In the given scenarios, it would be deemed that Aman to be lacking
independence and whereas in the second case it clearly reflects that arbitral tribunal favors and is partial
towards A Ltd, and therefore lacks impartiality. Yes, appointment of Mr. Aman as an arbitrator can be
challenged.
Question 3:
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?
Answer:
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) Section 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.

52
Chapter 5 The Insolvency Bankruptcy Code, 2016

Question 1:
(i) Star Bank of India Ltd. (SBI) has provided a loan of 50 Lakh to SMALL Private Limited which is a small
company under the Companies Act, 2013. The Company defaulted the repayment as a result of which SBI
wants to initiate the Corporate Insolvency Resolution Process (CIRP) against the company to settle the
matter within a period of three months approximately. The Solicitor advised the Bank that the maximum
period allowed for completion of CIRP is 270 days. Referring to the provisions of the Insolvency and
Bankruptcy Code, 2016 advise the Bank the measures available, if any, for speedy disposal of the process as
desired by it.
(ii) Harsha Fabrics Private Limited (Corporate Debtor) has taken a loan of 30 Lakh from a financial
institution (Financial Creditor) for business purpose. On filing an application by the financial creditor, the
Corporate Insolvency Resolution Process (CIRP) was commenced declaring moratorium by order of the
Adjudicating Authority on 30th May, 2022. The High Court having jurisdiction, in disposing of the pending
petition of some other creditors which was filed prior to 30th May, 2022, passed an order for auction of
assets of the Corporate Debtor on 6th June, 2022.
Referring to the provisions of the Insolvency and Bankruptcy Code, 2016 advise the financial creditor
whether the order of High Court is valid and can it be challenged?
[CA Final- Nov 22]
Answers:
Sections 55 to 58 of the Insolvency and Bankruptcy Code, 2016 deals with the fast track corporate
insolvency resolution process for corporate persons.
(i) Manner of initiating fast track corporate insolvency resolution process:

An application for fast track corporate insolvency resolution process may be filed by a creditor or corporate
debtor as the case may be, along with:
(a) the proof of the existence of default as evidenced by records available with an information utility or such
other means as may be specified by the Board; and
(b) such other information as may be specified by the Board to establish that the corporate debtor is eligible
for fast track corporate insolvency resolution process.
Manner of initiating fast track corporate insolvency resolution process: An application under fast track
insolvency resolution can be made in respect of prescribed corporate debtor, in which small company under
section 2(85) of Companies Act is also prescribed.
Time period for completion of fast track corporate insolvency resolution process: The fast track
corporate insolvency resolution process shall be completed within a period of ninety days from the insolvency
commencement date. The period of CIRP can be extended by 45 days if required by Adjudicating Authority.
In line with above provisions Star Bank Limited can go in for speedy disposal of CIRP against SMALL Private
Limited (a small company).
(ii) According to the section 14(1) of the Insolvency and Bankruptcy Code, 2016, on the insolvency
commencement date, the Adjudicating Authority shall by order, declare moratorium prohibiting the
institution of suits or continuation of pending suits or proceedings against the corporate debtor including
execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.

53
In the given case, moratorium was declared by the order of the Adjudicating Authority commencing CIRP on
30th May, 2022. The High Court passed an order of pending petition on 6th June, 2022 (i.e. after the
moratorium was declared). As, section 14(1) prohibits execution of decree or order of the court during
moratorium period, therefore, the passing of order of High Court is not valid and yes it can be challenged.
Question 2:
Explain the duties of Resolution Professional before initiation of pre-packaged insolvency resolution process
as per the Insolvency and Bankruptcy Code, 2016.
[CA Final- Nov 22]
Answers:
Duties of resolution professional before initiation of pre-packaged insolvency resolution process.
According to section 54B of the Insolvency and Bankruptcy Code, 2016 , the insolvency professional, proposed
to be appointed as the resolution professional, shall have the following duties commencing from the date of
the approval under clause (e) of sub-section (2) of section 54A, namely:—
(a) prepare a report in prescribed form, confirming whether the corporate debtor meets the requirements of
section 54A, and the base resolution plan conforms to the requirements referred to in section 54A;
(b) file such reports and other documents, with the Board, as may be specified; and
(c) perform such other duties as may be specified.
Question 3:
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?
Answer:
Section 27 of the Code states that where, at any time during the corporate insolvency resolution process, 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.

54
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 per cent voting share, NCLT had passed such an
order in compliance though without giving any opportunity of being heard to RP1.
Question 4:
A Corporate Debtor, classified as a Small Enterprise, owes 60 Lakh to its creditors. The Corporate Debtor
was not in a position to recover money which it lended time to time in hour of need to its debtors. So it
commits default in settling dues to the Creditors. The Corporate Debtor decided to go for Pre-packed
Insolvency Resolution Process [PPIRP] under the provisions of the Insolvency and Bankruptcy Code, 2016
(IBC) and accordingly took the following steps to initiate PPIRP.
The Financial Creditors of the Corporate Debtor, not being its related parties, representing 66% in value of
the financial debt due to them proposed Mr. P, the Insolvency Professional, to be appointed as Resolution
Professional to conduct PPIRP.
Referring to the provisions of the Insolvency and Bankruptcy Code 2016, advise whether the act of Financial
Creditors proposing the name of the Mr. P as Resolution Professional is valid while undergoing insolvency
proceeding?
Answer:
In terms of Section 54A (1) of the IBC,2016 an application for initiating PPIRP may be made in respect of a
corporate debtor classified as a Small Enterprise.
In terms of Section 54A(2) of the IBC, 2016 an application for initiating PPIRP may be made in respect of a
corporate debtor who commits default referred to in Section 4 subject to a condition specified in Section
54A2(e) whereby, the financial creditors of the corporate debtor not being its related parties, representing
not less than 66% in value of the financial debt due to such creditors have approved, the name of such
insolvency professional to be appointed as resolution professional for conducting the PPIRP of the corporate
debtor .
Therefore, in view of the above, the act of Financial Creditors proposing the name of Mr. P as Resolution
Professional, is valid.
Question 5:
(i) Crown Industrial Conveyors Limited had advanced a loan of ₹ 1 crore to M & Co. Private Limited whose
office was functioning in a rented house property belonged to Mr. M, the Managing Director. The lending
company intends to attach the property of Mr. M as liquidation asset and seeks your advice with regard to its
position in a Liquidation proceeding initiated under the Insolvency and Bankruptcy Code 2016.
(ii) Whether it is possible to go for a liquidation process before the submission of resolution plan.

55
Answer:
(i) According to Section 36 of the Insolvency and Bankruptcy Code, 2016 (the Code) for the purposes of
liquidation, the liquidator shall form an estate of the assets, which will be called the liquidation estate in
relation to the corporate debtor. The liquidator shall hold the liquidation estate as a fiduciary for the benefit
of all the creditors.
Exceptions
In terms of Section 36(4) of the Code, the assets owned by a third party which are in possession of the
corporate debtor, shall not be included in the liquidation estate assets and shall not be used for recovery in
the liquidation. These assets include other contractual arrangements which do not stipulate transfer of title
but only use of the assets.
In the given instance, Crown Industrial Conveyors Limited has advanced a loan of ₹ 1 crore to M & Co. Private
Limited. Its (M & Co. Private Limited) office was functioning in a rented house property belonging to Mr. M,
the Managing Director.
On liquidation of M & Co. Private Limited (the Corporate debtor), Crown Industrial Conveyors Limited, the
Financial Creditor, intends to attach the property of Mr. M as a liquidation asset.
In line with above stated exclusion, the property in which M & Co. Private Limited was operating
its office on rent belonged to Mr. M i.e. third party.
Therefore, Crown Industrial Conveyors Limited, the lending Company, cannot attach the property of Mr. M as
it cannot be included in the liquidation estate assets and shall not be used for recovery in the liquidation.
(ii) Yes, as per Section 33 of the Insolvency and Bankruptcy Code, 2016, liquidation process may be initiated
before submission of resolution plan for approval of Adjudication Authority -where the Adjudicating
Authority has not received a resolution plan before the expiry of the insolvency resolution process period or
the maximum period permitted for completion of the corporate insolvency resolution process or the fast
track corporate insolvency resolution process as the case may be.
Further, where the resolution professional, at any time during the corporate insolvency resolution process but
before confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the
Committee of Creditors approved by not less than 66% of the voting share to liquidate the corporate debtor,
the Adjudicating Authority shall pass a liquidation order.
Question 6:
Pursuant to Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) a liquidation order was
passed against Luci Soya Limited (LSL) (Corporate Debtor) by the Adjudicating Authority (NCLT). Mr. Solanki
was appointed as the liquidator by the NCLT. Upon resuming his mantle, Mr. Solanki started collecting claims
from all the creditors within the time frame as prescribed in the IBC, 2016. While initiating the liquidation
process as per provisions of the IBC, 2016, Mr. Solanki proposed to include the equity shares of one of its
subsidiary as part of the liquidation estate in relation to the corporate debtor. Besides this, one of the
unsecured financial creditors demanded that, at the time of distribution of liquidation proceeds, his dues may
be paid before the government dues are paid. Mr. Solanki also observed that pending legal proceedings
against the corporate debtor, 'A' Ltd, an operational creditor, has filed a case with the Arbitral Tribunal
praying for an arbitral award against LSL.

56
On the basis of the above information and in the light of the Insolvency and Bankruptcy Code, 2016, answer
the following:
(i) Whether the proposal of Mr. Solanki to include the equity shares of the subsidiary Company of LSL as part
of liquidation estate is tenable?
(ii) Whether 'A' Ltd will succeed in its prayer for an arbitral award against LSL?
Answer:
(i) Liquidation estate: As per section 36 of the Insolvency and Bankruptcy Code, 2016, for the purposes of
liquidation, the liquidator shall form an estate of the assets, which will be called the liquidation estate in
relation to the corporate debtor.
Liquidation estate shall comprise all liquidation estate assets which shall include any assets over which the
corporate debtor has ownership rights, including shares held in any subsidiary of the corporate debtor.
Hence, the proposal of Mr. Solanki to include the equity shares of subsidiary company of LSL as part of
liquidation estate is tenable.
(ii) Section 33(5) of the Code provides that when a liquidation order has been passed, no suit or legal
proceeding shall be instituted by or against the corporate debtor.
The institution of suits or continuation of any pending suits or proceedings against the corporate debtor
including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other
authority.
Hence, Mr. A will not succeed in its prayer for an arbitral award against LSL.
Question 7:
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.
Answer:
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)].

57
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.

58

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The Ultimate Solution! – Question Bank Addendum!

2. Is it mandatory to refer to these questions or is it optional?

Index and Number of Questions

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 1 Appointment and Qualifications of Directors

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

(ii) Eligibility of Mr. Aarav to be a registered valuer

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 2 Meetings of Board and its Powers

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 3 Appointment and Remuneration of Managerial Personnel

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

[CA Final MTP- May 23]

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 4 Inspection, Inquiry, and Investigation

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Filing of an application by members:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 5 Compromises, Arrangements and Amalgamations

(i)Total votes casted in favor of the schemes:

In person 2,000 creditors representing in value ₹ 35 crore

(ii)Total votes casted against the scheme:

In person 3,000 creditors representing in value ₹ 5 crore

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 6 Prevention of Opression and Mismanagment

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Further, the Tribunal shall—

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 9 Companies incorporated outside India

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

(i) one or more citizens of India or

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Opinion of Registrar is legally valid and shall prevail.

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

In the light of the above provisions:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Violation of above conditions on filing of application: If a company files an application in violation of

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

According to the above provisions, following are the answers:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 11 The SEBI Act, 1992 and LODR

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

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

CA Final Addendum Sheet - Nov'23

CA Final Addendum Sheet - Nov'23