Companies Act 2013

Q.1 (i) Four persons are the only members of a private

company. All of them go for a pleasure trip in a car and due to
an accident all the four die. Does the private company exist?
Provision
As per provisions of companies act, 2013 , a company has perpetual
Existence which means cdeath or insolvency of all members doesn’t
impact of existence. Of company
Facts
Here in this case 5 members of ABC, a private company we are going
by a car and all of them died in an accident.
conclusion
Existence of company I will not come to end as per the provisions of
Companies Act, Because by operation of law either legal
representative or nominee will become the new member.
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Q.3(ii)
The Articles of Association of XYZ Ltd. provides that Board of
Directors has authority to issue bonds provided such issue is
authorized by the shareholders by a necessary resolution in the
general meeting of the company. The company was in dire need
of funds and therefore, it issued the bonds to Mr. X without
passing any such resolution in general meeting. Can Mr. X
recover the money from the company?
Decide referring the relevant provisions of the Companies Act,
2013

Provision
 Companies Act 2013

As per companies act, 2013, an outsider is presumed to know about

publlic documents but not abbaoutinternal affairs or irregularities
of the company.
Facts

In present case Boarf of directors of XYZ LTD had authority to issue

bondsafter shareholders resolution. Company was.in need of funds,
so directors issued bonds to Mr X without resolution.
conclusion
The facts of case are similar to Royal British Bank vs Turquand
where court enforced the repayment of bonds despite the
irregularities in issue.
Hence in present case xyz limited is liable to repay Mr x the amount
of of bonds issued.
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Q.5 Krishna, an assessee, was a wealthy man earning huge
income by way of dividend and interest. He formed three
Private Companies and agreed with each to hold a bloc of
investment as an agent for them. The dividend and interest
income received by the companies was handed back to Krishna
as a pretended loan. This way, Krishna divided his income into
three parts in a bid to reduce his tax liability.
Decide, for what purpose the three companies were
established? Whether the legal personality of all
the three companies may be disregarded

Provision
 Companies Act 2013

As Per Companies Act, there lies, corporate veil, which separate

identity of company from its members. However this veil can be
liftedwhn for protection of revenue of government.
Facts
In present case Krishnaa is a wealthy man, earning huge interest
and dividend. He didn't want to pay the tax so he created three
companies and transfer the income into these companies. He taken
back the amount as pretended loan. He did it to reduce his tax
obligation.
conclusion
The facts of the case are similar to 2 DinshawManeckjee Petit, where
Court disregarded separate identity of Companies which Dinshaw
created to avoid tax obligation.
Krishna created companies to avoid his tax obligation
In this case companies created by Krishna will not be treated as
separate entities, their legal personalities will be disregarded.
Krishna's income will be clubbed with income of these companies.
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Q.6 The Object Clause of Memorandum of Association of ABC
Pvt. Ltd. authorised the company to carry on the business of
trading in Fruits and Vegetables. The Directors of the company
in recently concluded Board Meeting decided and accordingly,
the company ordered for fish for the purpose of trading. FSH
Limited supplied fish to ABC Pvt. Ltd. worth Rs. 36 Lakhs. The
members of the company convened an extraordinary general
meeting and negated the proposal of the Board of Directors on
the ground of ultra vires acts. FSH Limited being aggrieved of
the said decision of ABC Pvt Ltd. seeks your advice.
Advice them
 Companies Act 2013

Provision
As per Companies Act, a company can only enter into the contracts
which are within its scope given by it's memorandum of association.
Any contract beyond the memorandum is is ultra virus and always
unenforceable.
Facts
In present case the object clause of memorandum of ABC Private
limited authorised to the company to carry on business of of trading
in fruits and vegetables. The director of company e entered into a
contract with fsh limited for supply of fish World rupees 36 lacs. The
members objected the same
conclusion
It was held in case of Ashbury railway vs Riche that any contract
beyond powwer of memorandum is bnullannd void.
Hence here FSH limited won’t be able to enforce ABC for payment
neither it can claim damages, since the contract was ultra vires.
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Q.6(ii) FAREB Limited was incorporated by acquisition of
FAREB & Co., a partnership firm, which was earlier involved in
many illegal activities. The promoters furnished some false
information and also suppressed some material facts at the
time of incorporation of the company. Some members of the
public (not being directors or promoters of the company)
approached the National Company Law Tribunal (NCLT)
against the incorporation status of FAREB Limited. NCLT is
about to pass the order by directing that the liability of the
members of the company shall be unlimited.
Given the above, advice on whether the above order will be
legal and mention the precaution to be
 Companies Act 2013

taken by NCLT before passing order in respect of the above as

per the provisions of the Companies Act, 2013.
Provision
As per companies Act, when a company is created on basis of
submission of false information or fraud, then Registrar may punish
people involved information of company. The tribunal can also pass
the orders if If anyone had applied for the same
Facts
Here in this case promoters of of forever limited incorporated the
company bye suppressing some material information and also
furnished some false fact. Some members applied against the
incorporation status of forever limited to the tribunal. The tribunal
wants to make the liability of members unlimited.
conclusion
The tribunal can pass such order as it is within the power of tribunal
however following two precautions must be e taken by the tribunal
before passing
Tribunal must give the company e an opportunity of being
heard
Tribunal must consider the transactions already entered into
by the company and the obligations of the company.
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Q.7 F, an assessee, was a wealthy man earning huge income by
way of dividend and interest. He formed three Private
Companies and agreed with each to hold a block of investment
as an agent for them. The dividend and interest income
received by the companies was handed back to F as a pretended
loan This way, F divided his income into three parts in a bid to
reduce his tax liability. Decide, for what purpose the three
 Companies Act 2013

companies were established? Whether the legal personality of

all the three companies may be disregarded

answer same as Q.5

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8. The paid up Share Capital of AVS Private Limited is ` 1 crore,
consisting of 8 lacs Equity Shares of ` 10 each, fully paid up and
2 lacs Cumulative Preference Shares of ` 10 each, fully paid up.
XYZ Private Limited and BCL Private Limited are holding 3 lacs
Equity Shares and 1,50,000 Equity Shares respectively
in AVS Private Limited. XYZ Private Limited and BCL Private
Limited are the subsidiaries of TSR Private Limited. With
reference to the provisions of the Companies Act, 2013,
examine whether AVS Private Limited is a subsidiary of TSR
Private Limited? Would your answer be different if TSR Private
Limited has 8 out of total 10 directors on the Board of Directors
of AVS Private Limited?
Provision
As per Companies Act 2013, a company is said to be holding
company when it controls the composition of board of another
company ee or it holds more than 50% of voting power of another
company either on its own or through its subsidiary.
Facts / Calculation
Avs limited
8 lacs euqity shares

XYZ and BCL holds 300000 and 150000 shares in AVS..

Both XYZ ND BCL are subsidiaries of TSRprivate limited.
Here TSR limited holds more than 50% ofvoting power (450000) in
AVS limited thorough it’s subsidiaries.
 Companies Act 2013

conclusion
As per definition we can say that TSR limited is holding company of
AVS limited. The answer would remain same if TSR limited has 8 out
10 Directors on board of AvS limited.
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Q.9 The paid up share capital of XYZ Pvt. Ltd. is ` 20 lakhs
consisting of 2,00,000 Equity shares of ` 10 each fully paid up.
ABC Pvt. Ltd. and its subsidiary DEF Pvt. Ltd. are holding 60,000
and 50,000 shares respectively in XYZ Pvt. Ltd. Examine with
reference to the provisions of the Companies Act, 2013 whether
XYZ Pvt. Ltd. is a subsidiary of ABC Pvt. Ltd,? Would your
answer be different if only DEF Pvt. Ltd. is holding 1,10,000
shares in XYZ Pvt. Ltd.?
Provision

As per Companies Act 2013, a company is said to be holding

company when it controls the composition of board of another
company ee or it holds more than 50% of voting power of another
company either on its own or through its subsidiary
Facts
XYZ limited 20 lakhs shares

ABC and it’s subsidiary Def limited holds 60000 and 50,000 shares
respectively in in XYZ limited.

conclusion
As per definition ABC limited is holding more than 50% of voting
power of XYZ limited through its subsidiary. Hens ABC limited is
 Companies Act 2013

holding for xyz limited.the answer would not be different even if

only d e f Private limited is holding 110000 shares in XYZ
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10 The object clause of the Memorandum of Association of the
XYZ (Pvt.) Ltd., New Delhi, authorised to do trading in mangoes.
The company, however, entered into partnership with Mr. A
and traded in mangoes and incurred liabilities to Mr. A. The
Company, subsequently, refused to admit the liability to
‘ A’ on the ground of “ ultra vires the Company” Advice,
whether stand of the company is legally valid and if so, give
reasons in support of your answer
Provision
As per Companies Act, a company can only enter into the contracts
which are within its scope given by it's memorandum of association.
Any contract beyond the memorandum is is ultra virus and always
unenforceable.
Facts
In present case the memorandum of of XYZ limited authorised
trading in mangoes. The company entered into partnership with Mr
A for trading in mangoes and incurred liabilities to Mr A which
company subsequently refused to Pay.

conclusion
Applying the provisions of doctrine of ultra virus Mr a cannot
recover money from xyz limited because the partnership was not
mentioned in memorandum of association hence this contract is is
null and void.
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 Companies Act 2013

11 The Articles of a company required that all deeds etc. should

be signed by the M.D., the secretary and an executive director
on behalf of the company. A deed of mortgage was signed by the
managing director on behalf of the company in favour of Z. Can
it be a valid deed?
Provision
.
As per Companies Act 2013, every person entering into contract
with company is presumed to have knowledge of memorandum and
articles of association of the company. They are believed to have
read and understood the public documents of company before
entering into any contract of company. This is doctrine of
Constructive notice where company is favoured on the basis of this
presumption.

Facts
In present case the articles of the company e required that all the
documents must be signed bye managing director secretary e and
executive director. Mortgage deed was signed by managing director
only in favour of mister z.

conclusion
The facts of the case are similar to KotlaVenkat Swami vs Ram
murthy, where court contended that such deed is not enforceable
since it contains just one signature

Applying the provisions and applicable law, in present case also , the
mortgage will not be enforceable since MR z should have known that
deed is not as per the aarticles.
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 Companies Act 2013

12 A company registered under section 8 or the Companies Act,

2013, earned huge profits during the financial year ended on
31st March, 2018 due to some favourable policies declared by
the Government of India and implemented by the company.
Considering the development, some members of the company
wanted the company to distribute dividends to the members of
the company. They approached you to advise them about the
maximum amount of dividend that can be declared by the
company asper the provisions of the Companies Act, 2013.
Examine the relevant provisions of the Companies Act,
2013 and advise the members accordingly
Provision

As per Companies Act 2013, section 8 company, cannot distribute

dividend to its members. If company e distribute its profits then
Central government may revoke its licence.

Facts
In present case a section 8 company earned huge profits hence few
of its members demanded distribution of dividend.

conclusion
Applying the relevant provisions it can be said that the company
should not distribute any dividend to the members otherwise
Central government may revoke its licence.
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14. Mr. X had purchased some goods from M/s ABC Limited on
credit. A credit period of one month was allowed to Mr. X.
Before the due date Mr. X went to the company and wanted to
 Companies Act 2013

repay the amount due from him. He found only Mr. Z there, who
was the factory supervisor of the company. Mr. Z told Mr. X that
the accountant and the cashier were on leave, he is in charge of
receiving money and he may pay the amount to him. Mr. Z
issued a money receipt under his signature. After two months
M/s ABC Limited issued a notice to Mr. X for non payment of the
dues within the stipulated period. Mr. X informed the company
that he had alreadycleared the dues and he is no more
responsible for the same. He also contended that Mr. Z is
anemployee of the company to whom he had made the payment
and being an outsider, he trusted the words of Mr. Z as duty
distribution is a job of the internal management of the company
Provision

As per Companies Act 2013, outsiders are deemed to have

knowledge of memorandum and articles of association. But there is
doctrine of indoor Management with suggest that outsiders cannot
be presumed to have knowledge of internal irregularities of the
company.

Facts
In present case Mr x purchased some goods from M/s ABC limited
on credit period of one month.
Mr X went for payment where he found the supervisor only who
told Me X that cashier is on leave and he is authorised to collect
amount. Mr Z the supervisor issued a receipt to Me X. After two
months company sent a notice to Mr X for non payment of dues in
stipulated period.

conclusion
 Companies Act 2013

Applying the provision of Doctrine of Indoor Management, Mr X

being an outsider can’t be presumed to know that Mr Z was
authorised or not, since it was internal affairs of company. Hence Mr
X would be free from his liability.
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15. Ravi Private Limited has borrowed Rs. 5 crores from Mudra
Finance Ltd. This debt is ultra vires to the company. Examine,
whether the company is liable to pay this debt? State the
remedy if any available to Mudra Finance Ltd.?
Provision

As per Companies Act 2013, any act beyond the powers of

memorandum is ultra vires. Suc acts are null and void, the can't be
enforced against either of the party.

Facts
In present case mudra finance limited landed money e worth rupees
5 crores to Ravi Private limited which was ultra vires act.

conclusion
Ravi Private limited is not liable to pay this debt. There will not be
any remedy d for mudra finance limited because the loan was ultra
vires.
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18. Sound Syndicate Ltd., a public company, its articles of
association empowers the managing agents to borrow both
short and long term loans on behalf of the company,Mr. Liddle,
the director of the company, approached Easy Finance Ltd., a
non banking finance company for a loan of ‘ 25,00,000 in name
 Companies Act 2013

of the company. The Lender agreed and provided the above

said loan. Later on, Sound Syndicate Ltd. refused to repaythe
money borrowed on the pretext that no resolution authorizing
such loan have been actually passed by the company and the
lender should have enquired about the same prior providing
such loan hence company not liable to pay such loan. Analyse
the above situation in terms of the provisions of Doctrine of
Indoor Management under the Companies Act, 2013 and
examine whether the contention of Sound Syndicate Ltd. is
correct or not?
Provision

As per Companies Act 2013 an outsider is presumed to know no

about all the public documents of the company before entering into
any contract but he cannot be presumed to know about the internal
affairs of the company full stop if there is any internal irregularity
outsider may not know about it.

Facts
In present case sound syndicate limited empowered its directors to
borrow funds on behalf of company through a resolution. A director
of the company approached easy finance limited for loan. It lended
the loan worth RS 2500000. Later on company denied to pay saying
that a resolution was not passed to that effect

conclusion
The contention of Sound Syndicate limited is incorrect, the company
is liable to repay the loan because Easy finance can’t be presumed to
know about resolution.
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 Companies Act 2013

20. Popular Products Ltd. is company incorporated in India,

having a total Share Capital of ‘ 20 Crores. The Share capital
comprises of 12 Lakh equity shares of ‘ 100 each and 8 Lakhs
Preference Shares of ‘ 100 each. Delight Products Ltd. and
Happy Products Ltd. hold 2,50,000 and 3,50,000 shares
respectively in Popular Products Ltd. Another company
Cheerful Products Ltd. holds 2,50,000 shares in Popular
Products Ltd. Jovial Ltd. is the holding company for all above
three companies namely Delight Products Ltd; Happy Products
Ltd.; Cheerful Products Ltd. Can Jovial Ltd. be termed as
subsidiary company of Popular products. Ltd., if it. Controls
composition of directors of Popular Products Ltd. State the
related provision in the favour of your answer.

Provision

As per Companies Act 2013, a company is said to be holding

company when it controls the composition of board of another
company ee or it holds more than 50% of voting power of another
company either on its own or through its subsidiary.

Facts
In present case jovial limited is controlling the composition of Board
of Popular products limited. Jovial is also holding more than 50% of
voting power in popular products limited through its subsidiaries.
 Companies Act 2013

conclusion
Jovial can’t be termed as subsidiary for popular limited rather it will
be considered as Holding company as per the definition.
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21. Mr. Anil formed a One Person Company (OPC) on 16th April,
2018 for manufacturing electric cars. The turnover of the OPC
for the financial year ended 31st March, 2019 was about Rs.
2.25 Crores. His friend Sunil wanted to invest in his OPC, so they
decided to convert it voluntarily in of a private limited
company. Can Anil do so?
Provision

As per Companies Act 2013, a one person company can not be

converted until 2 years have been elapsed since it’s incorporation.
OPC has to be converted mandatorily if it’s paid up capital exceed 50
lakhs rupees or it’s average turnover for relevant period exceeds 2
crores

Facts
In present Case Mranil created one person company on 16th April
2018. The turnover of the company for the year ending on 31st
March 2019 was 2.25 crores. MR Sunil wants to invest in this OPC so
they decided to convert it voluntarily into Private limited company.

conclusion
The contention of anil to convert the OPC voluntarily into a private
limited company is incorrect since two years have not been elapsed
yet. However average turnover has exceeded 2 crores so OPC must
be converted mandatorily into Public or private company.
 Companies Act 2013

23 A, an assessee, had large income in the form of dividend and

interest. In order to reduce his tax liability, he formed four
private limited company and transferred his investments to
them in exchange of their shares. The income earned by the
companies was taken back by him as pretended loan. Can A be
regarded as separate from the private limited company he
formed

same As question number 5

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24 Akbar, an assessee, was a wealthy man earning huge income
by way of dividend and interest. He formed three Private
Companies and agreed with each to hold a bloc of investment as
an agent for them. The dividend and interest income received
by the companies was handed back to Akbar as a pretended
loan. This way, Akbar divided his income into three parts in a
bid to reduce his tax liability. Decide, for what purpose the
three companies were established? Whether the legal
personality of all the three companies may be disregarded.
same as Question no 5

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27 Mr. X had purchased some goods from M/s ABC Limited on
credit. A credit period of one month was allowed to Mr. X.
Before the due date Mr. X went to the company and wanted to
repay the amount due from him. He found only Mr. Z there, who
was the factory supervisor of the company.
Mr. Z told Mr. X that the accountant and the cashier were on
leave, he is in charge of receiving money
 Companies Act 2013

and he may pay the amount to him. Mr. Z issued a money

receipt under his signature. After two months M/s ABC Limited
issued a notice to Mr. X for non payment of the dues within the
stipulated period. Mr. X informed the company that he had
already cleared the dues and he is no more responsible for the
same. He also contended that Mr. Z is an employee of the
company whom he had made the payment and being an
outsider, he trusted the words of Mr. Z as duty distribution is a
job of the internal management of the company Analyse the
situation and decide whether Mr. X is free from his liability

same as Question no 14
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28 F, an assessee, was a wealthy man earning huge income by
way of dividend and interest. He formed three Private
Companies and agreed with each to hold a bloc of investment as
an agent for them. The dividend and interest income received
by the companies was handed back to F as a pretended loan.
This way, F divided his income into three parts in a bid to
reduce his tax liability. Decide, for what purpose the three
companies were established? Whether the legal personality of
all the three companies may be disregarded

Same as Question no 5
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29, Flora Fauna Limited was registered as a public company.
There are 230 members in the company as noted below:
The Board of Directors of the company propose to convert it
into a private company. Also advise whether reduction in the
number of members is necessary.
(a) Directors and their relatives 190
(b) Employees 15
 Companies Act 2013

(c) Ex Employees (Shares were allotted when they were

employees 10
(d) 5 couples holding shares jointly in the name of husband and
wife (5*2) 10
(e) Others 5
Provision

As per Companies Act 2013, a private company is companywhich by

it’s articles of association, restricts the transfer of shares, limits the
number of members to 200 and prohibits invitation to public for
issue of it’s securities. In members present and past employees are
excluded and joint members are counted as one.

Facts
The members of Flora Fauna limited can be calculated as under

Directors and Relatives :190

Employees – 0
Ex employees- 0
5 couples – 5
Others – 5

Total – 200

conclusion
Since the number of members of Flora and Fauna limited is not
more than 200, there is no need of reduction.
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30 : company registered under section 8 of the Companies Act,
2013, earned huge profit during the financial year ended on
 Companies Act 2013

31st March, 2019 due to some favorable policies declared by

the Government of India and implemented by the company.
Considering the development, some members of the company
wanted the company to distribute dividends to the members of
the company. They approached you to advise them about the
maximum amount of dividend that can be declared by the
company as per the provisions of the Companies Act, 2013

same as 12

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32 : Mr. X had purchased some goods from M/s ABC Limited on
credit. A credit period of one month was allowed to Mr. X.
Before the due date Mr. X went to the company and wanted to
repay the amount due from him. He found only Mr. Z there, who
was the factory supervisor of the company. Mr. Z told Mr. X that
the accountant and the cashier were on leave, he is in charge of
receiving money and he may pay the amount to him. Mr. Z
issued a money receipt under his signature. After two months
M/s ABC Limited issued a notice to Mr. X for non payment of the
dues within the stipulated period. Mr. X informed the company
that he had already cleared the dues and he is no more
responsible for the same. He also contended that Mr. Z is an
employee of the company to whom he had made the payment
and being an outsider, he trusted the words of Mr. Z as duty
distribution is a job of the internal management of the
company. Analyse the situation and decide whether Mr. X is
free from his liability.
same as 14

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33: Krishna, an assessee, was a wealthy man earning huge
income by way of dividend and interest. He formed three
 Companies Act 2013

Private Companies and agreed with each to hold a bloc of

investment as an agent for them. The dividend and interest
income received by the companies was handed back to Krishna
as a pretended loan. This way, Krishna divided his income into
three parts in a bid to reduce his tax liability. Decide, for what
purpose the three companies were established? Whether the
legal personality of all the three companies may be
disregarded.
same as 5
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36: leaving India permanently due to her marriage abroad. Due
to this fact, she is withdrawing her consent of nomination in the
said One Person Company. Taking into considerations the
provisions of the Companies Act, 2013 answer the questions
given below.
(a) If Navita is leaving India permanently, is it mandatory for
her to withdraw her nomination in the
said One Person Company?
(b) If Navita maintained the status of Resident of India after her
marriage, then can she continue her
nomination in the said One Person Company?
Provision

As per Companies Act 2013, the member and nominee of one person
company must be resident of India.

Facts
In present case Naveen Incorporated a one person company making
his sister nivedita as nominee. Navita is living India permanently
because of marriage.
 Companies Act 2013

conclusion

Answer to (a)
If navita is living India permanently it is mandatory for her to
withdraw the consent. she cannot continue to be a nominee because
of her loss of Indian residential status.

Answer to (b)
If Navita can maintain residential status i.e. if she stays in India for
more than 182 days in every financial year she can continue to be
nominee.