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Suggested Answer_Syllabus 2016_Jun2017_Paper 13
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS

JUNE - 2017
Paper-13 : CORPORATE LAWS & COMPLIANCE
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory, carrying 20 marks and
answer any 5(five) Questions from Question No. 2 to Question No. 8.
1. Answer all questions mentioned below. Mark the correct answer (Only indicate A or B or
C or D and give justification. 2×10=20
(i) Every Company shall hold the first Board meeting within
(A) 3 months of its incorporation.
(B) 30 days of its incorporation.
(C) 15 days of its incorporation.
(D) 4 months of its incorporation.
(ii) Every Nidhi shall maintain members not less than
(A) 500
(B) 200
(C) 100
(D) 50
(iii) Unless the Articles require a larger number of members, Quorum of a General
Meeting of a Producer Company shall be
(A) 5 members
(B) one-third of total membership
(C) one-fourth of total membership
(D) half of total membership
(iv) Original Books and paper which were seized during Search & Seizure u/s 209 of the
Companies Act, 2013 shall be returned by the Registrar or Inspector to the Company
from whom such documents are seized as soon as possible but not later than
(A) 180 days after such seizure.
(B) 90 days after such seizure.
(C) 360 days after such seizure.
(D) 30 days after such seizure.
(v) Sec 233 of the Companies Act, 2013 prescribed simplified procedures for merger or
amalgamation of two or more small company & small company means a company
whose paid up capital does not exceed
(A) ` 10,00,000
(B) ` 25,00,000
(C) ` 50,00,000
(D) ` 100,00,000
(vi) On the determination of sickness of a company by the Tribunal, the applicant shall
make an application accompanied with Audited Financial Statements etc. for revival
or rehabilitation within
(A) 30 days of determination of sickness.
(B) 60 days of determination of sickness.
(C) 120 days of determination of sickness.
(D) 180 days of determination of sickness.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(vii)Companies Act, 2013 contemplated Penalties which are of
(A) 10 types
(B) 5 types
(C) 7 types
(D) 3 types
(viii)Any person aggrieved by any order of Appellate Tribunal, may file an appeal to the
Hon'ble Supreme Court within days, from the date of receipt of the order of Appellate
Tribunal.
(A) 30 days
(B) 60 days
(C) 90 days
(D) 120 days
(ix) Any allotment of securities made on the basis of Prospectus should be void if
permission of listing is not granted by the Stock Exchange before expiry of
(A) 12 weeks from the closure of the issue.
(B) 10 weeks from the closure of the issue.
(C) 8 weeks from the closure of the issue.
(D) 30 days from the closure of the issue.
(x) Unfair competition under the Competition Act, 2002 means adoption of practices viz.
(A) collusive price fixing.
(B) allocation of markets.
(C) discriminatory pricing etc.
(D) All of the above
Answer:
1. (i) (B) As per Sec . 173(1) the 1st Board Meeting shall be held within 30 days of the date
of its incorporation
(ii) (B) Number of members shall not be less than 200 (Nidhi Rules 2014 Rules 5)
(iii) (C) 1/4th membership. (SEC 581 Y)
(iv) (A) 180 days; Ref .Sec. 209 (2) of companies Act 2013 as soon as possible but not later
than 180 only.
(v) (C) 50,00,000; Ref. Sec. 2 (85) of Companies Act. 2013.
(vi) (B) 60 days; Sec. 254 of Company act. 2013
(vii) (B) 5 Types i.e. (1) Fine (2) Imprisonment or fine (3 Imprisonment or fine or with both (4)
imprisonment and fine and (5) imprisonment only
(viii)(B) 60 Days (Ref. Sec. 423. However Supreme Court if it is satisfied then SC may allow.
Further time not more than 60 days.
(ix) (B) 10 Weeks, Sec. 40 of Companies Act. 2013
(x) (D) All the above (SEC.40 collusive price fixing: creation of barriers to entry: allocation
of market: tie in scales: predatory price; discriminating price etc.
2. (a) Explain briefly the purpose of establishing SEBI. 6
(b) (i) What are the duties of the inspector as enumerated in Sec 223 of the Companies
Act, 2013 in relation to his report.
(ii) Corporate governance is about Stakeholder's satisfaction. Comment. 6+4=10
Answer:
2. (a) The purpose of the SEBI Act is to provide for the establishment of a Board called Securities
and Exchange Board of India (SEBI). The Preamble to the Act provides for the
establishment of a Board to:
(i) Protect the interests of investors in securities,
(ii) Promote the development of the securities market,
(iii) To regulate the securities market, and
(iv) For matters connected therewith or incidental thereto.
The Securities and Exchange Board of India was set up to achieve the following
objectives:
(i) To promote fair dealings by the issuers of securities and ensure a market place
where they can raise funds at a relatively low cost.
(ii) To provide, a degree of protection to the investors and safeguard their rights and
interests so that there is a steady flow of savings into the market.
(iii) To regulate and develop a code of conduct and fair practices by intermediaries
like brokers, merchant bankers, etc., with a view to making them competitive and
professional.
(b) (i) Section 223 of the Companies Act, 2013 deals with Inspector's report. The
following provisions are applicable in respect of the Inspector's report on
investigation:
(i) Submission of interim report and final report [Sub section (1)]: An inspector
appointed under this Chapter (Chapter XIV- inspection, Inquiry and
Investigation) may, and if so directed by the Central Government shall, submit
interim reports to that Government, and on the conclusion of the
investigation, shall submit a final report to the Central Government.
(ii) Report to be writing or printed [Sub section (2)]: Every report made under sub
section (1) above shall be in writing or printed as the Central Government
may direct.
(iii) Obtaining copy or report [Sub section (3)]: A copy of the above report may be
obtained by making an application in this regard to the Central Government,
(iv) Authentication of report [Sub section (4)]: The report of any inspector
appointed under this Chapter shall be authenticated either—
(a) by the seal, if any, of the company whose affairs have been investigated;
or
(b) by a certificate of a public officer having the custody of the report, as
provided under section 76 of the Indian Evidence Act, 1872, and such
report shall be admissible in any legal proceeding as evidence in relation
to any matter contained in the report. .
(v) Exceptions: Nothing in this section shall apply to the report referred to in
section 212 of the Companies Act, 2013.
(ii) Corporate governance is about stakeholders' satisfaction: The term "Corporate

Governance" is not easy to define. The term governance relates to a process of
decision making and implementing the decision in the interest of all stakeholders, it
basically relates to enhancement of corporate performance and ensure proper
accountability for management in the interest of all stakeholders. It is a system
through which an organization is guided and directed. On the basis of this definition,
the core of objectives of Corporate Governance are focus, predictability,
transparency, participation, accountability, efficiency and effectiveness and
satisfaction of stakeholders.
3. (a) A meeting of members of Joka Agricultural Equipments Limited was convened under
the orders of the Court for the purpose of considering a scheme of compromise and
arrangement. The meeting was attended by 200 members holding 500000 shares. 70
members holding 400000 shares in the aggregate voted for the scheme.120 members
holding 90000 shares in aggregate voted against the scheme. 10 members holding
10000 shares abstained from voting. Examine with reference to the relevant provisions
of the Companies Act, 1956 whether the scheme was approved by the requisite
majority? 6
(b) (i) The auditors of a company refuses to make their report on the annual accounts of
a company before it is signed on behalf of the Board of Directors. Advise the
company.
(ii) What are the restrictions on the Banking Companies for granting of loan &
advances against the security of its own shares. 4+6=10
Answer:
3. (a) Compromise or Arrangement: According to sub-section (2) of the section 391 of the
Companies Act, 1956, the scheme of compromise and arrangement must be
approved by a resolution passed with a majority in number representing three-fourths
in value of the creditors, or members, or class of members, as the case may be,
present and voting either in person or, by proxy.
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 paid-up capital held by members present
and voting at the meeting.
In this case 200 members attended the meeting, but only 190 members voted at the
meeting. As 70 members voted in favour of the scheme the requirement relating to
majority in number (i.e. 95) is not satisfied.
190 members who participated in the meeting held 4,90,000 shares, three-fourth of
which works out to 3,67,500 while 70 members who voted for the scheme held
4,00,000 shares. The majority representing three-fourths in value is satisfied. .
Thus, in the instant case, the scheme of compromise and arrangement of Joka
Agricultural Equipments Limited is not approved as though the value of shares voting
in favour is significantly more, the number of members voting in favour do not exceed
the number of members voting against.
(b) (i) The auditor is right. Theoretically, accounts are presented to auditors only after they
are approved by the Board and signed by authorized persons. The auditor is only
expected to submit his report on the accounts presented to him for audit after
conducting an examination of the necessary documents, analyzing relevant
information and test checking accounting records in order to be able to form an
opinion of the financial statements presented to him. In practice, the checking of
accounts is already completed before accounts are approved by the Board. Auditor
informally approves the draft account with notes etc., before the accounts are
approved by the Board. However, auditor signs the accounts only after these are
approved by Board and signed by persons authorized by Board of the company.
(ii) Restrictions on loans and advances (Sections 20 & 21)

Section 20 lays down the restrictions on banking companies from entering into
any commitment from granting any loan to any of its director or to any firm in
which a director is interested or to any individual or whom director stands as a,
guarantor. Further the bonking companies are prohibited from granting loans or
advance, on the security of its own shares.
Under Section 21, the RBI has been empowered, to determine the policy to be
followed by the banks in relation to advances, Thus, RBI gives directions to
banking companies on the following matters.
(a) The purposes for which an advance may or may not be granted.
(b) The margins to be, maintained In Case of secured advances.
(c) The rate of Interest charged on advances, other financial accommodation
and commission on guarantees.
(d) The maximum amount of advance or other financial accommodation that a
bank may make to or guarantee that it may issue for, a single party having
regard to the paid up capital, reserves and deposits of the concerned bank.
4. (a) Can a Company pay compensation to its Directors for loss of office? Explain briefly
the relevant provisions of the Companies Act, 2013 in this regard. 8
(b) (i) Define "contributory" in a winding up. Explain the liabilities of contributories as
present and past member. Give your answer according to the Companies Act,
1956.
(ii) State the kind of approval required for the following transactions under the Foreign
Exchange Management Act, 1999:
(I) L, a famous playback singer of India wants to perform a musical night in Paris
for Indians residing there. Foreign exchange to the extent of USD 20,000 is
required for this purpose.
(II) M requires USD 5,000 to make payment related to 'call back services' of
telephone. 5+3=8
Answer:
4. (a) A company can pay compensation to its directors for loss of office as provided in
sections 202 of the Companies Act, 2013. Under section 202, such compensation can
be paid only to managing director, director holding the office of the manager and to
a whole time director but not to others. The compensation payable shall be on the
basis of average remuneration actually-earned by such director for three years, or
such shorter period as the case may be, immediately preceding the ceasing of
holding of such office and shall be for the unexpired portion of his term or for three
years whichever is shorter. No such payment can be made, if winding up of the
company is commenced before or commences within 12.months after he ceases to
hold office if the assets of the company on the winding up, after deducting expenses
thereof, are not sufficient to repay to the shareholders the share capital (including the
premium, if any) contributed by them, However, no payment of compensation can
be made in the following cases:
(a) where a director resigns on the ground of amalgamation or reconstruction and is
appointed the office of managing director or manager or other officer of such
reconstructed or amalgamated company,
(b) where the director resigns his office otherwise than on the reconstruction of the
company or its amalgamation as aforesaid,
(c) where the director vacates office under section 167 of the Companies Act, 2013,
(d) where the winding up of the company is due to the negligence of the director
concerned,
(e) where the director has been guilty of any fraud or breach of trust,
(f) where the director has instigated or has taken part directly or indirectly in bringing
about, the termination of his office.
(b) (i) Contributory: According to Section 428 of the Companies Act, 1956 in a winding
up, the term "contributory" means a past or present member liable to contribute
to the assets of the company in the event of its being wound up and includes
holders of shares which are fully paid up. If a member is once placed in the list of
contributories, he is liable to the extent of original shares that remain unpaid,
unless he proves that he should not have been placed in the list.
When a company goes into liquidation, every member, whether past or present,
has to contribute to the assets of the company. However, a past member will not
be required to contribute in the following circumstances:
(a) if he had ceased to be a member for a period of one year or upwards before
the commencement of winding up.
(b) if the debt or liability of the company was contracted or incurred after he
ceased to be a member.
(c) if the present members are able to satisfy the contributions required to be
made by them under the Act.
(ii) (i) Foreign exchange drawals for cultural tours require prior permission/approval
of the Government of India irrespective of amount of foreign exchange
required, Therefore, in the given case L, the singer is required to seek
permission of the Government of India.
(ii) Drawal of foreign exchange for payment related to 'call back services' of
telephones is prohibited. Therefore 'M' cannot draw foreign exchange.
5. (a) What is the minimum contribution the companies are required to make towards CSR
as per Companies Act, 2013. 8
(b) (i) What do you mean by anti-competitive agreements, viz tie-in arrangement and
resale price maintenance?
(ii) Mr. X is a director of ABC Ltd. He has approached Housing Finance Co. Ltd. for the
purpose of obtaining a loan of ` 50 lacs to be used for construction of building of
his residential house. The loan was sanctioned subject to the condition that ABC
Ltd. should provide the guarantee for repayment of loan installments by Mr. X.
Advise Mr. X. 5+3=8
Answer:
5. (a) Required minimum contribution of the Companies towards CSR:

(A) The Board of every company shall ensure that the company spends, in every
financial year, at least two per cent of the average net profits of the company
made during the three immediately preceding financial years, in pursuance of its
CSR Policy.
(B) The company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities.
(C) If the company fails to spend such amount, the Board shall, in its report, specify
the reasons for not spending the amount.
(D) Companies may build CSR capacities of their own personnel as well as those of
their implementing agencies through Institutions with established track records of
at least three financial years. However, such expenditure shall not exceed five
percent of total CSR expenditure of the company in one financial year.
(b) (i) Anti competitive agreements - According to section 3 of the Competition Act,
2002, it shall not be lawful for any enterprise or association of enterprises or person
or association of persons to 'enter' into an agreement in respect of production.
supply, storage, distribution, acquisition or control of goods or provision of services,
which causes or is likely to cause an appreciable adverse effect on competition
within India. These agreements are called as anti-competitive agreements. All
such agreements entered into in contravention of the aforesaid prohibition shall
be void.
Tie-in arrangement - It includes any agreement requiring a purchaser of goods, as
a condition of such purchase, to purchase some other goods;
Resale price maintenance - It includes any agreement to sell goods on condition

that the prices to be charged on the resale by the purchaser shall be the prices
stipulated by the seller unless it is clearly stated that prices lower than those prices
may be charged.
(ii) According to section 185 of the Companies Act, 2013, no company shall, directly or
indirectly, advance any loan, including any loan represented by a book debt, to any
of its directors or to any other person in whom the director is interested or give any
guarantee or provide any security in connection with any loan taken by him or such
other person.
Thus, Mr. X is not allowed for loan of ` 50 Lacs against guarantee by the company
ABC Ltd.
6. (a) Examine with reference to the provisions of the Companies Act, 2013 whether notice
of a Board Meeting is required to be sent to the following persons:
(i) An interested Director;
(ii) A Director who has expressed his inability to attend a particular Board Meeting;
(iii) A Director who has gone abroad (for less than 3 months). 6
(b) (i) The Board of Directors of Nimbahera Chemicals Limited proposes to transfer more
than 10% of the profits of the company to the reserves for the current year. Advise
the Board of Directors of the said company mentioning the relevant provisions of
the Companies Act, 2013.
(ii) State the "Insurable Interest"— based on the Insurance Act, 1938. 4+6=10
Answer:
6. (a) Notice of Board meeting

(i) Interested director: Section 173(3) of the Companies Act, 2013 makes it
mandatory for every director to be given proper notice of every board meeting. It
is immaterial whether a director is interested or not. In case of an Interested
Director, notice must be given to him even though he is precluded from voting at
the meeting on the business to be transacted.
(ii) A Director who has expressed his inability to attend a particular Board Meeting: In
terms of section 173(3) even if a director states that he will not be able to attend
the next Board meeting; notice must be given to that director.
(iii) A director who has gone abroad: A director who has gone abroad is still a
director. Therefore, he is entitled to receive notice of board meetings during his
stay abroad, The Companies Act, 2013, allows delivery of notice of meeting by
electronic means also. This is important because the Companies Act, 2013 permits
a director to participate in a meeting by video conferencing or any other audio
visual means.
(b) (i) The first proviso to 123 (1) of the Companies Act, 2013 provides that a company
may, before the declaration of any dividend in any financial year, transfer such
percentage of its profits for that financial year as it may consider appropriate to
the reserves of the company. Therefore, under the Companies Act, 2013 the
amount transferred to reserves out of profits for a financial year has been left at
the discretion of the company acting vide its Board of Directors. Therefore the
company is free to transfer any part of its profits to reserves as if deems fit.
(ii) Insurable Interest

To constitute insurable interest, it must be an interest such "that the risk would by its
proximate effect cause damage to the assured, that is to say, cause him to lose a
benefit or incur a liability. The validity of an insurance contract in India is
dependent on the existence of an insurable interest in the subject matter. The
person seeking an insurance policy must establish some kind of interest in the life
or property to be insured, in the absence of which, the insurance policy would
amount to a wager and consequently void in nature.
The test for determining if there is an insurable interest is whether the insured will in
case of damage to the life or property being insured, suffer pecuniary loss [New
India Insurance Company ltd. v. G.N. Sainani (1997) 6 SCC 383). A person having
a limited interest can also insure such interest.
Insurable interest varies depending on the nature of the insurance. The

controversy as to the existence of an insurable interest between spouses was
settled by the court, which held that such an interest could exist as neither was
likely to indulge in any1 mischievous game'. The same analogy may be .extended
to parents and children. Further, the courts have also held that such an insurable
interest would exist for a creditor (in a debtor) and for an employee (in an
employer) to the extent of the debt incurred and the remuneration due,
respectively.
The existence of insurable interest at the time of happening of the event is

another important consideration. In case, of life and personal accident insurance
it is sufficient if the insurable interest is present at the time of taking the policy.
However, in the case of fire and motor accident insurance the insurable interest
has to be present both at the time of taking the policy and at the time of the
accident. The case is completely different with marine insurance wherein there
need not be any insurable interest at the time of taking the policy.
7. (a) (i) Whether XBRL is mandatory in all the Companies. If not, state the Companies
where XBRL is mandatory.
(ii) What are the advantages of XBRL? 2+6=8
(b) What are the documents etc. to be delivered to the Registrar of Companies (MCA) by
foreign companies for registration? 8
Answer:
7. (a) (i) XBRL applies to the following companies:

1) All Public listed companies in India and their Indian subsidiaries.
2) All companies having a paid up Capital of ` 5 Crores and above.
3) All companies having Turnover of INR 100 Crores and above.
(ii) Advantages of XBRL

XBRL offers major benefits at all stages of business reporting and analysis. The
benefits are seen in automation, cost saving, faster, more reliable and more
accurate handling of data, improved analysis and in better quality of information
and decision making. XBRL enables producers end-consumers of financial data to
switch resources away from costly manual processes; typically involving time
consuming comparison, assembly and re-entry of data. They are able to
concentrate effort on analysis aided by software which can validate" and
'process XBRL information. XBRL is a flexible language, which is intended to
support, all current aspects of reporting in different countries and industries. Its
extensible nature means that it can be adjusted to meet particular business
requirements, even 'at the individual organization level.
All types of organizations can use XBRL to save costs and improve efficiency in
handling business and financial information. Because XBRL is extensible and
flexible, it can be adopted to a wide variety of different requirements. All
participants in the financial information supply chain can benefit, whether they
are preparers, transmitters or users of business data.
XBRL is set to become the standard way of recording, storing arid transmitting
business financial information. It is capable of use throughout the world, whatever
the language of the country concerned, for a wide variety of business purposes. It
will deliver major cost savings and gains in efficiency, improving' processes in
companies; governments and other organizations.
(b) Documents to be delivered to registrar "by foreign companies [Section 380(1)]. Every
foreign company shall, within 30 days of establishment of its place of business fn India.
Deliver to the Registrar for registration.
1) a certified copy of the Charter. Statutes or Memorandum and Articles, of the
Company or other instruments constituting or defining the constitution of the
company. If the instrument is not in the English language, a certified translation
thereof in the English language.
2) the full address of the Registered or Principal Office of the Company.
3) a list of the director's and secretary of the Company containing such particulars
as may be prescribed.
In relation to the nature of particulars to be provided as above, the Companies
(Registration of Foreign Companies) Rules. 2014 provide that the list of directors
and secretary or equivalent (by whatever name called) of the Foreign Company
shall contain the following Particulars for each of the persons included in such list,
namely:
(a) personal name and surname in full.
(b) any former name or names and surname or surnames in full.
(c) father's name or mother's name and spouse's name.
(d) date of birth.
(e) residential address.
(f) nationality.
(g) if the present nationality is not the nationality of Origin, his nationality of origin.
(h) Passport Number, date of issue and country of issue, (if a person holds more
than one passport then details of all passports to be given)
(i) income-tax permanent account number (PAN), if applicable.
(j) occupation, if any.
(k) Whether directorship in any other Indian company. (Director Identification
Number (DIN), Name Corporate Identity Number (CIN) of the company in
case of holding directorship).
(l) other directorship or directorships held by him.
(m) membership number (for Secretary only), and
(n) e-mail ID.
4) The name and address or the names and addresses of. one or more persons
resident in India authorized to accept, on behalf of the company, service of
process and any notices or other documents required to be served on the
company.
5) The full address of the office of the company in India which is deemed to be its
principal place of business in India.
6) Particulars of opening and closing of a place of business in India on earlier
occasion or occasions.
7) Declaration that none of the directors of the company or the authorized
representative in India has ever been convicted or debarred from formation of
companies and management in India or abroad, and
8) any other information, as may be prescribed.
8. Write short notes on any four of the following: 4×4=16

(a) Producer Companies
(b) Actuarial Valuation/ Report (Section 13)
(c) Lock-in of Specified Securities held by promoters.
(d) STR (Suspicious Transaction Reports)
(e) Grant of recognition to Stock Exchanges—Conditions, Section 4(2) SCRA,1956.
Answer:
8. (a) Producer Companies

The Companies (Amendment) Act, 2002 has introduced provisions relating to
Producer Companies vide Sections 581A to 581ZT under Part-IXA of the Companies
Act, 1956. Section 465-of the Companies Act, 2013, deals with the provisions relating
to repeal of certain enactments and savings. However, Section 465 (1) of the
Companies Act, 2013 has retained the provisions relating to Producer Companies
and clarifies that these provisions shall continue to be in force in a manner as if the
Companies Act, 1956 has not been repealed until a special Act is enacted for
Producer Companies.
In view of the explicit provisions contained in the Companies Act, 2013, the Producer
Companies are continued to be governed by the Companies Act, 1956 (Section
581A to 581ZT) for the time bring. Thus, under this topic 'Producer Companies',
wherever the word 'Act' is used, it refers to the Companies Act, 1956.
It must be understood that the concept of Producer companies has not-taken off
despite there being enough potential in view of some of the irritants like restricted
tenure of directors of maximum five years. People who have for long been
associated with co-operative and other such movements in' India nave found that
the tenure of five years is too short and would force people out of the producer
companies. The tenure should be suitably enhanced. The Government has done well
to retain the old provisions of Companies Act, 1956, but should give a try to remove
the irritants so that the movement tokes off.
(b) Actuarial Valuation/Report (section 13)

At least once a year, every insurer carrying on life insurance business shall cause an
investigation of the life insurance business carried on by him including a valuation of
his liabilities in respect thereto and shall cause an abstract of the report of such
actuary to made in accordance with the regulations. The Authority may, having
regard to the circumstances of any particular insurer, allow him to have the
investigation made as at a date not later than two' years from the date as at which
the previous investigation was made. If the investigation is made annually by any
insurer, the statement need not be appended every year but shall be appended at
least once in every three years.
(c) Lock-in of specified securities held by promoters.

In a public issue, the equity shares and convertible debentures held by promoters are
locked-in for the/period stipulated below:
1) Minimum promoters contribution is locked-in for a period of 3 years from the date
of commencement of commercial production or date of allotment in the public
issue, whichever is later.
2) Promoters' holding in excess of minimum promoters' contribution is locked-in for a
period of 1 year. However, excess promoters' contribution in a further public offer
is not subject to lock-in.
However, excess promoters' contribution in a further public offer is not subject to lock-
in.
(d) STR (Suspicious Transaction Reports)

The Prevention of Money laundering Act, 2002 and the Rules made there under
require ever banking company to furnish details of suspicious transactions whether or
not made in cash. Suspicious transaction means a transaction whether or not made
in cash which, to a person acting in good faith:
1) Gives rise to a reasonable ground of suspicion that it may involve the proceeds or
crime, or
2) Appears to be made in circumstances of unusual or unjustified complexity, or
3) Appears to have no economic rationale or bonafide purpose.
(e) Grant of recognition to stock exchanges - Conditions: Section 4(2), SCRA, 1956
The conditions may include, condition relating to:
1) qualification for Membership of the Stock Exchange.
2) manner in which contracts shall be entered into and enforced as between
members.
3) representation of the Central Government on the Stock Exchange (not
exceeding 3 nominated by the Central Government,)
4) maintenance of Accounts of members and their audit by Chartered
Accountants whenever audit is required by the Central Government.
SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-13
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)

DECEMBER - 2017
answer any 5(five) Questions from Question No. 2 to Question No. 8.
C or D and give justification.
(a) Multiple choice questions: 2x10=20
(i) The power of appointing additional director can be exercised by the

(A) Annual General Meeting
(B) Board Meeting
(C) Statutory Meeting
(D) None of the above
(ii) A company has 9 Directors, on 01-01-2016. The office of 2 Directors have fallen
vacant on 02-01-2016. The quorum required for conducting a Board meeting is
(A) 4
(B) 3
(C) 2
(D) 5
(iii) Power to recognize Stock Exchange vests with
(A) Central Government
(B) State Government
(C) SEBI
(D) Supreme Court
(iv) A Government department supplying water for irrigation to the agriculturists after
levying charges for water supplied can be considered as
(A) Firms
(B) Enterprise
(C) Joint venture
(D) Joint sector
(v) The Apples producers of Shimla have formed an association to control the
production of apples. This association is called as
(A) Pool
(B) Cartel
(C) Merger
(D) Combination
(vi) Every Banking Company incorporated in India shall prepare a balance sheet and
profit and loss account as on the last working day of the
(A) Calendar Year
(B) Accounting Year
(C) Month
(D) None of the above
(vii)A memorandum containing such salient features of a prospectus as may be
specified by the Securities and Exchange Board by making regulation in this
behalf is known as
(A) Red Herring Prospectus
(B) Abridged Prospectus
(C) Shelf Prospectus
(D) Deemed Prospectus
(viii)The Chairman of the Insurance Regulatory and Development Authority shall hold
office for a term of ____________ from the date on which he enters upon his office
and should be eligible for reappointment.
(A) 3 years
(B) 4 years
(C) 5 years
(D) 6 years
(ix) Corporate Governance is a blend of the Internal and External Corporate
Governance
(A) Techniques
(B) Mechanisms
(C) Systems
(D) Methods
(x) Which of the following is the advantage of the family business over non-family
business?
(A) Staff recruitment
(B) Raising funds for growth
(C) Ownership vs. Management
(D) Deep industry insight
Answer:
1. (i) (B) The power to appoint additional directors vests with the Board of Directors and it
will be decided in the AGM of the company.
(ii) (B) The total strength shall be 9-2=7 directors. Quorum shall be higher of 2 or 1/3rd of
7. 1/3rd of 7 comes to 2.33. As per Clause (i) of Explanation to section 174(4), any
fraction of a number shall be rounded off as 1. Accordingly, the quorum shall be 3
directors (being higher of 2 or 3).
(iii) (C) Power to recognize Stock Exchange vests with Central Government. However,
Central Government has delegated the powers to SEBI vide its notification
No.F.No. 1/57/SE/93 dated 13.9.94. (Section 3 of Securities Contracts (Regulation)
Act, 1956).
(iv) (B) The given problem relates to Section 2(h) of the Competition Act, 2002. As per this
section 2(h), enterprise means a person or a department of the Government, who
or which is, or has been, engaged in any activity, relating to the production,
storage, supply, distribution, acquisition or control of articles or goods.
(v) (B) The term "cartel" has an inclusive meaning. Thus an association formed to control
the production of apples is within the aforesaid definition of a cartel. Hence the
association of apple producers of Shimla will be considered as a cartel under the
provisions of the Act.
(vi) (B) According to Section 29 of the Banking Regulation Act 1949 every Banking
Company incorporated in India, in respect of all business transacted by it and
through its branches in India, shall prepare a balance sheet and profit & loss
account as on the last working day of the Accounting year which is (1st April to
31st March.)
(vii) (B) Abridged Prospectus is a shorter version of the prospectus that includes all the
most key elements of the typical prospectus.
(viii)(C) The Chairman of the Insurance Regulatory and Development Authority shall hold
office for a term of five years from the date on which he enters upon his office
and should be eligible for reappointment. Maximum age of Chairman to be 65
year: [First Proviso to section 5(1)]. No person shall hold office as such Chairman
after he has attained the age of 65 years.
(ix) (B) Corporate Governance is a blend of the internal and external corporate
governance mechanisms. The external mechanisms include the managerial
labour market, the capital market, takeover and legal systems. The internal
governance mechanisms include the board of directors and most important is
ownership
(x) (D) Deep Industry Insight. Family businesses gain significant experience and expertise
as they typically work in one industry for longer durations. This gives them the
added advantage of understanding and appreciating the challenges faced in
that industry much better than any non-family businesses.
2. (a) Minu Limited was incorporated by furnishing false informations. As per the Companies
Act, 2013, state the power of the Tribunal in this regard. 7
(b) Referring to the provisions of the Companies Act, 2013, examine the validity of the
following:
The Board of Directors of ABC Limited proposes to declare dividend at the rate of 20%
to the equity shareholders, despite the fact that the company has defaulted in
repayment of public deposits accepted before the commencement of this Act. 4
(c) The Board of Directors of a company have filed a complaint with the Institute of
Chartered Accountants of India against their Statutory Auditors for their failing to
attend the Annual General Meeting of the Shareholders in which audited accounts
were considered. Comment. 5
Answer:
2. (a) According to section 7(7) of the Companies Act, 2013:

Incorporation by furnishing of incorrect information: Without prejudice to the
provisions of sub-section (6), where a company has got incorporated by furnishing
any false or incorrect information or representation or by suppressing any material
fact or information in any of the documents or declaration filed or made for
incorporating such company or by any fraudulent action, the Tribunal may, on an
application made to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the management of the
company including changes, if any, in its memorandum and articles, in public
interest or in the interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section.—

(i) the company shall be given a reasonable opportunity of being heard in the
matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the
company, including the obligations, if any, contracted or payment of any liability.
(b) Prohibition on declaration of dividend: Section 123(6) of the Companies Act, 2013,
specifically provides that a company which fails to comply with the provisions of
section 73 (Prohibition of acceptance of deposits from public) and section 74
(Repayment of deposits, etc., accepted before the commencement of this Act) shall
not, so long as such failure continues, declare any dividend on its equity shares.
In the given instance, the Board of Directors of ABC Limited proposes to declare
dividend at the rate of 20% to the equity share holders, in spite of the fact that the
company has defaulted in repayment of public deposits accepted before the
commencement of the Companies Act 2013. So according to the above provision,
declaration of dividend by the ABC Limited is not valid.
(c) Auditors Attendance at Annual General Meeting: As per Section 146 of the
Companies Act, 2013, it is right of the auditor to receive notices, and other
communications relating to any general meeting and to be heard at such meeting,
relating to the matter of his concern, however, it is duty of the auditor to attend the
same or through his authorised representative unless otherwise exempted.
In the instant case, the Board of Directors of a company have filed a complaint with
the Institute of Chartered Accountants of India against their statutory auditors for their
failing to attend the Annual General Meeting of the Shareholders in which audited
accounts were considered.
In view of above discussed provisions of section 146, the statutory auditor of the
company should attend the general meetings either through himself or through his
authorised representative.
3. (a) Robertson Ltd. is a company registered in Thailand. Although, it has no place of

business established in India, yet it is doing online business through telemarketing in
India. Whether it will be treated as a Foreign Company under the Companies Act,
2013? Explain. 7
(b) Various complaints have been made against the activities of a Co-operative Banking
company to the effect that, if unchecked, the shareholders, depositors and others will
suffer heavily and the complainants requested for the appointment of directors by
Reserve Bank of India. Discuss whether the Reserve Bank has any powers to inspect
the records of the Co-operative Bank to ascertain the truth or otherwise in the
complaints and to appoint directors in the Co-operative Bank under the Banking
Regulation Act, 1949. 5
(c) The Board of Directors of Stepping Stones Publications Ltd. at a meeting held on
15.01.2014 resolved to borrow a sum of `15 crores from a nationalized bank.
Subsequently the said amount was received by the company. One of the Directors,
who opposed the said borrowing as not in the interest of the company has raised an
issue that the said borrowing is outside the powers of the Board of Directors. The
Company seeks your advice and the following data is given for your information:
(i) Share Capital ` 5 crores
(ii) Reserves and Surplus ` 5 crores
(iii) Secured Loans ` 15 crores
(iv) Unsecured Loans ` 5 crores
Advise the management of the company. 4
Answer:
3. (a) According to section 2(42) of the Companies Act, 2013, "foreign company" means a
company or body corporate incorporated outside India which -
(a) has a place of business in India whether by itself or through an agent, physically
through electronic mode; and
(b) conducts any business activity in India in any other manner.
According to the Companies (Registration of Foreign Companies) Rules, 2014:

"electronic mode" means carrying out electronically based, whether main server
installed in India or not, including, but not limited to –
(a) business to business and business to consumer transactions, data interchange and
other digital supply transactions;
(b) offering to accept deposits or inviting deposits or accepting deposits
subscriptions in securities in India or from citizens of India;
(c) financial settlements, web based marketing, advisory and transactional services
data base services and products, supply chain management;
(d) online services such as telemarketing, telecommuting, telemedicine, education
and information research; and
(e) all related data communication services whether conducted by e-mail, mobile
devices, social media, cloud computing, document management, voice or data
transmission or otherwise.
Looking to the above description, it can be said that being involved in business
activity through telemarketing, Robertson Ltd., will be treated as foreign company.
(b) Power of Reserve Bank of India to inspect banks (Section 35 of the Banking Regulation
Act, 1949): RBI is empowered to conduct inspection of any bank and to give them
direction as it deems fit. All banks are bound to comply with such directions. Every
directors or other officer of the bank shall produce all such books, documents as
required by the inspector. The inspector may examine on oath any director or other
officers.
RBI shall supply the bank a copy of such report of the inspection. RBI submits report to
Central Government and the latter, on scrutiny, if is of the opinion that the affairs of
the bank are being conducted detrimental to the interest of its depositors, it may,
after giving an opportunity of being heard, to the bank, may order in writing
prohibiting the bank from receiving fresh deposits, direct the RBI to apply section 38
for winding up of the bank.
Power of RBI to appoint Directors (Section 36AB of the Banking Regulation Act, 1949):
RSI is empowered to appoint additional Directors for the banking company with
effect from the date to be specified in the order, in the interest of the bank or that of
depositors. Such additional directors shall hold office for a period not exceeding
three years or such further period not exceeding three years at a time.
(c) According to the provisions of Section 180(1)(c) of the Companies Act, 2013, there
are restrictions on the borrowing powers to be exercised by the Board of directors.
According to the said section, the borrowings should not exceed the aggregate of
the paid up capital and free reserves. While calculating the limit, the temporary loans
obtained by the company from its bankers in the ordinary course of business will be
excluded. However, from the figures available in the present case the proposed
borrowing of `15 crores wilt exceed the limit mentioned. Thus, the borrowing will be
beyond the powers of the Board of directors.
Thus, the management of Stepping Stone Publications Ltd., should take steps to
convene the general meeting and pass a special resolution by the members in the
meeting as stated in Section 180(1)(c) of the Companies Act, 2013. Then the
borrowing will be valid and binding on the company and its members.
4. (a) (i) ABC Private Limited is a company in which there are eight shareholders. Can a
member holding less than one-tenth of the share capital of the company apply to
the Tribunal for relief against oppression and mismanagement? Give your answer
according to the provisions of the Companies Act, 2013.
(ii) Does the scheme of compromise or arrangement require approval of preference

shareholder? 4+3=7
(b) (i) Shareholders of Hide and Seek Ltd. are not satisfied about performance of the
company. It is suspected that some activities being run in the name of the
company are not in the interest of the company or its members. 101 out of total
500 shareholders of the company have made an application to the Central
Government to appoint an inspector to carry out investigation and find out the
true picture.
With reference to the provisions of the Companies Act, 2013, mention whether the
shareholders' application will be accepted. Elaborate.
(ii) B B Ltd. is a listed company and it has been served with notice for appointment of
small shareholders' director. Referring to the provisions of the Companies Act,
2013, advise on the following:
What is the tenure of small shareholders' director and whether he can be re-
appointed as such, after expiry of his tenure? Also state whether he can be
appointed as an officer of the company on expiry of his tenure as small
shareholders' director. 6+3=9
Answer:
4. (a) (i) Under section 244 of the Companies Act, 2013, in the case of a company having
share capital, the following member(s) have the right to apply to the Tribunal
under section 241:
(a) Not less than 100 members of the company or not less than one-tenth of the
total number of members, whichever is less; or
(b) Any member or members holding not less than one-tenth of the issued share
capital or the company provided the applicant(s) have paid all the calls and
other sums due on the shares.
In the given case, since there are eight shareholders. As per the condition (a)
above, 10% of 8 i.e. 1 satisfies the condition. Therefore, a single member can
present a petition to the Tribunal, regardless of the fact that he holds less than
one-tenth of the company's share capital.
(ii) Preference shareholders: The term member' includes preference shareholders

also. Further, preference shareholders are a class of members and their rights may
be affected differently in the proposed scheme of arrangement. Hence their
approval is also required.
If the Court/Tribunal directs separate meeting of preference shareholders and

equity shareholders, then the scheme should be approved by requisite majority in
both such meetings held as per directions of the Court/Tribunal.
(b) (i) According to the Companies Act, 2013, the Central Government under section
210 (1) may order an investigation into the affairs of the company, if it is of the
opinion that it is necessary to do so:
(a) on the receipt of a report of the Registrar or Inspector under section 208;
(b) on intimation of a special resolution passed by a company that the affairs of
the company ought to be investigated;
(c) in public interest.
According to section 210 (3) of the Companies Act, 2013, the Central
Government may appoint one or more persons as inspectors to investigate into
the affairs of the company and to report thereon in such manner as the Central
Government may direct.
The shareholders' application will not be accepted as under 210 of the

Companies Act, 2013, Central Government may order an investigation into affairs
of the company on the intimation of a special resolution passed by a company
that the affairs of the company ought to be investigated and then may appoint
the inspectors. Here, 101 out of total 500 shareholders of the company have
made an application to the Central Government to appoint an inspector to carry
out investigation but it is not sufficient as the company has not passed the special
resolution.
(ii) The tenure of small shareholder’s director shall not exceed a period of 6
consecutive years and on the expiry of the tenure, such director shall not be
eligible for re-appointment.
A small shareholders' director shall not, for a period of 3 years from the date on
which he ceases to hold office on a small shareholders' director in a company, be
appointed in or be associated with such company in any other capacity, either
directly or indirectly.
5. (a) (i) In the annual general meeting of XYZ Ltd., while discussing on the matter of
retirement and reappointment of director Mr. X, allegations of fraud and financial
irregularities were levelled against him by some members. This resulted into chaos
in the meeting. The situation was normal only after the Chairman declared about
initiating an inquiry against the director, Mr. X, however, could not be re-
appointed in the meeting. The matter was published in the newspapers next day.
On the basis of such news, whether the court can take cognizance of the matter
and take action against the director on its own? Justify your answer with reference
to the provisions of the Companies Act, 2013.
(ii) What is the role of the Audit Committee vis-a-vis the statutory auditor when the
company wishes to engage them to perform certain engagements not restricted
under Section 144? 4+4=8
(b) (i) X was appointed as Managing Director for life by the Articles of Association of a
private company incorporated on 1st June, 2014. Examine in this connection.
(A) Can 'X' be appointed for life as Managing Director?
(B) Is it possible for the company in general meeting to remove 'X' from his office
of directorship during his life time?
(ii) Explain briefly over-riding preferential payments in accordance with the provision
of the Companies Act, 2013. 4+4=8
Answer:
5. (a) (i) Section 439 of the Companies Act, 2013 provides that offences under the Act
shall be non-cognizable. As per this section:
1. Notwithstanding anything in the Code of Criminal Procedure, 1973, every
offence under this Act except the offences referred to in sub section (6) of
section 212 shall be deemed to be non-cognizable within the meaning of the
said Code.
2. No court shall take cognizance of any offence under this Act which is alleged
to have been committed by any company or any officer thereof, except on
the complaint in writing of the Registrar, a shareholder of the company, or of
a person authorized by the Central Government in that behalf.
Thus, in the given situation, the court shall not initiate any suo moto action against
the director Mr. X without receiving any complaint in writing of the Registrar of
Companies, a shareholder of the company or of a person authorized by the
Central Government in this behalf.
(ii) According to section 177(5), the Audit Committee is empowered to;

(1) call for the comments of the auditors about:
(A) internal control systems,
(B) the scope of audit, including the observations of the auditors,
(C) review of financial statement before their submission to the Board,
(2) discuss any related issues with the internal and statutory auditors and the
management of the company.
Audit committee should review the annual financial statements and submit the
same to the Board with its recommendations, if any.
(b) (i) (a) Under section 196(2) of the Companies Act, 2013 lays down that no company
shall appoint or re-appoint any person as its managing director, whole-time
director or manager for a term exceeding five years at a time. No concession
or exception is allowed by the Act to private companies.
Hence, 'X' cannot be appointed as Managing Director for life in a private

company.
(b) Section 169(1) of the Companies Act, 2013 empowers the company to
remove a director, by ordinary resolution before the expiry of his period of
office after giving him an opportunity of being heard. This section applies to
both public and private companies. It applies to all directors except a
director appointed by the Tribunal under section 242 of the Act. The above
provision applies to the Managing Director also as he is a director of the
company and the member of its Board of Directors. Hence, it is possible for
the company in general meeting to remove 'X' before the expiry of his term of
office by an ordinary resolution.
(ii) Overriding preferential payments (Section 326)

Section 326(1) notwithstanding anything contained in this Act or any other law for
the time being in force in the winding up of a company:
(a) workmen's dues, and
(b) debts due to secured creditors to the extent such debts rank under clause (iii)
of the proviso to Section (1) of Section 325 pari passu with such dues, shall be
paid in priority to all other debts.
In case of the winding up of a company, the sums towards wages or salary

referred to in sub-clause (i) of clause (b) of Sub-Section (3) of Section 325, which
are payable for a period of two years preceding the winding up order or such
other period as may be prescribed, shall, be paid in priority to all other debts
(including debts due to secured creditors), within a period of thirty days of sale of
assets and shall be subject to such charge over the security of secured creditors
as may be prescribed.
Sub-Section (2) states that the debts payable under the proviso to Sub-Section (1)
shall be paid in full before any payment is made to secured creditors and
thereafter debts payable under that Sub-Section shall be paid in full, unless the
assets are-insufficient to meet them, in which case they shall abate in equal
proportions Preferential payments.
6. (a) Business should support inclusive growth and equitable development. Explain briefly
as per National Voluntary Guidelines 2011 in this regard. 7
(b) Interior Pvt. Ltd. is a manufacturing company having turnover of ` 210 crore but
having maximum outstanding loan from public financial institution of ` 90 crore only
during the preceding financial year. You are required to state whether the company
is liable for internal audit as per the provisions of the Companies Act, 2013. 5
(c) XYZ. Ltd. is a listed company having turnover of ` 1200 crores during the financial year
2015-16. The CSR committee of the Board formulated and recommended a CSR
project which was approved by the Board. Company finalised the project under its
CSR initiatives which require funds @ 5% of average net profit of the company for last
three financial years. Will such excess expense be counted in subsequent financial
years as a part of CSR expenditure? Advise. 4
Answer:
6. (a) Principle 8: Businesses should support Inclusive growth and equitable development:
The principle recognizes the challenges of social and economic development faced
by India and builds upon the development agenda that has been articulated in the
government policies and priorities.
The principle recognizes the value of the energy and enterprise of businesses and
encourages' them to innovate and contribute to the overall development of the
country, especially to that of the disadvantaged, vulnerable and marginalised
sections of society.
The principle also emphasizes the need for collaboration amongst businesses,
government agencies and civil society in furthering this development agenda. The
principle reiterates that business prosperity and inclusive growth and equitable
development are interdependent.
Core Elements
(a) Businesses should understand their impact on social and economic development,
and respond through appropriate action to minimise the negative impacts.
(b) Businesses should innovate and invest in products, technologies and processes
that promote the wellbeing of society.
(c) Businesses should make efforts to complement and support the development
priorities at local and national levels, and assure appropriate resettlement and
rehabilitation of communities who have been displaced owing to their business
operations.
(d) Businesses operating in regions that are underdeveloped should be especially
sensitive to local concerns.
(b) Applicability of Provisions of Internal Audit : As per section 138 of the Companies Act,
2013, read with rule 13 of Companies (Audit and Auditors) Rules, 2014 every private
company shall be required to appoint an internal auditor or a firm of internal auditors,
having-
(i) turnover of two hundred crore rupees or more during the preceding financial
year; or
(ii) outstanding loans or borrowings from banks or public financial institutions
exceeding one hundred crore rupees or more at any point of time during the
preceding financial year;
Thus, either of the condition is required to be satisfied for the applicability of the
provision. The internal auditor to be appointed shall either be a chartered
accountant whether engaged in practice or not or a cost accountant, or such other
professional as may be decided by the Board to conduct internal audit of the
functions and activities of the companies auditor may or may not be an employee of
the company.
Interior Pvt. Ltd. is having turnover of ` 210 crore and maximum outstanding loan from
public financial institution of ` 90 crore during the previous financial year, here in the
case, the turnover is over and above two hundred crore rupees i.e. either of the
condition in respect of turnover or outstanding loans is satisfied. Therefore the
company is liable for internal audit as per section 138 of the Companies Act, 2013.
(c) In terms of Section 135(5) of the Companies Act, 2013, the Board of every company
to which section 135 is applicable, shall ensure that the company spends, in every
Financial year at least 2 per cent of average net profits of the company made during
the three immediately preceding financial years, in pursuance of its CSR policy. There
is no provision for carry forward of excess expenditure to the next year(s). The words
used in the section are 'at least'. Therefore, any expenditure over 2% would be
considered as voluntary higher spending.
7. (a) Referring to the provisions of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 state the circumstances under which
the Reserve Bank of India may cancel the certificate of registration granted to a
Securitisation Company. 8
(b) With reference to the provisions of Insurance Act, 1938 as amended by Insurance
Regulatory and Development Authority Act, 1999, state the norms in respect of paid
up equity capital for carrying out the business of an insurer. Also state the items that
are excluded in determining the amount of paid up equity capital of an insurer under
the said Acts. 4
(c) (i) Central Government and Government of Maharashtra together hold 40% of the
paid-up share capital of MN Limited. A government company also holds 20% of
the paid-up share capital in MN Limited.
(ii) PQ Limited is a subsidiary but not a wholly owned subsidiary of a government
company.
Examine with reference to the provisions of the Companies Act, 2013 whether MN
Limited and PQ Limited can be considered as Government Company. 4
Answer:
7. (a) Cancellation of Certificate of Registration (Section 4 of the securitization and

reconstruction of financial assets and enforcement of Security Interest Act, 2002).
As per the section 4 of the Securitisation & Reconstruction of Financial Assets and
Enforcement of security Interest Act, 2002, the Reserve Bank may cancel a certificate
of registration granted to a securitization company or a reconstruction company, if
such company-
(i) ceases to carry on the business of securitisation or asset reconstruction; or
(ii) ceases to receive or hold any investment from a qualified institutional buyer; or
(iii) has failed to comply with any conditions subject to which the certificate of
registration has been granted to it; or
(iv) at any time fails to fulfill any of the conditions referred to in clauses (a) to (g) of
sub-section (3) of section 3; or
(v) fails to-
(a) comply with any direction issued by the Reserve Bank under the provisions of
this Act; or
(b) maintain accounts in accordance with the requirements of any law or any
direction or order issued by the Reserve Bank under the provisions of this Act;
or
(c) submit or offer for inspection its books of account or other relevant documents
when so demanded by the Reserve Bank; or
(d) obtain prior approval of the Reserve Bank required under sub-section (6) of
section 3.
(b) Requirement of Paid Up equity capital for insurance business: No insurer carrying on
the business of life insurance, general insurance, health insurance or re-insurance in
India on or after the commencement of the Insurance Regulatory and Development
Authority of India Act, 1999, shall be registered unless he has, —
(i) a paid-up equity capital of rupees one hundred crores, in case of a person
carrying on the business of life insurance or general insurance; or
(ii) a paid-up equity capital of rupees one hundred crore, in case of a person
carrying on exclusively the business of health insurance; or
(iii) a paid-up equity capital of rupees two hundred crore, in case of a person
carrying on exclusively the business as a re-insurer.
Items to be excluded in determining the amount of paid up equity share capital: In

determining the paid-up equity capital specified above, any preliminary expenses
incurred in the formation and registration of any insurer as may be specified by the
regulations made under this Act, shall be excluded.
(c) According to section 2(45) of the Companies Act, 2013, "Government company"
means any company in which not less than fifty-one per cent of the paid-up share
capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a
Government company.
(i) The Central Government and Government of Maharashtra together hold 40% of
the paid-up share capital of MN Limited. A government company also holds 20%
of the paid-up share capital in MN Limited.
In this case, MN Limited is not a Government company because the holding of

the Central Government and Government of Maharashtra is 40% which is less
than the 51% prescribed under the definition of Government Company. The
holding of the government company in MN Limited of 20% cannot be taken into
account while counting the prescribed limit of 51%.
(ii) PQ Limited is a subsidiary but not a wholly owned subsidiary of a government

company
In this case, PQ Limited is a government company as the definition of Government

Company clearly specifies that a Government Company includes a company which
is a subsidiary company of a Government company. Whether the subsidiary should
be a: wholly owned subsidiary or not is not clearly mentioned under the definition of
the Government company under section 2(45).
(a) Objectives of the Competition Act, 2002
(b) Difference between Mediation and Conciliation
(c) Benefits of Listing
(d) Objectives of MOU System
(e) Strategy to tackle black money
Answer:
8. (a) Objectives of the Competition Act, 2002

Keeping in view of the economic development of the country, the Competition Act,
2002 was laid down to provide for an establishment of a Commission seeks to achieve
the following objectives:-
(a) to prevent practices having adverse effect on competition.
(b) to promote and sustain competition in markets.

(c) to protect the interests of consumers.
(d) To ensure freedom of trade carried on by other participants in' markets in India
and for matters' connected therewith or incidental thereto.
The objectives of the Act are sought to be achieved through the instrumentality of
the Competition' Commission of India (CCI) which has been established by the
Central Government with effect from 14th October, 2003.
(b) Difference between Mediation and Conciliation

The meaning of these words as understood in India appears to be similar. 'Mediation'
is a way of settling disputes by a third party who helps both sides to come to an
agreement, which each considers acceptable. Mediation can be 'evaluative' or
'facilitative'. 'Conciliation', is a procedure like mediation but the third party, the
conciliator, takes a more interventionist role in bringing the two parties together and
in suggesting possible solutions to help achieve a settlement. The difference lies in the
fact that the 'conciliator' can make proposals for .settlement, 'formulate' or
'reformulate' the terms of a possible settlement while a 'mediator' would not do so but
would merely facilitate a settlement between the parties.
From the very wording it appears that the 'Mediation and Conciliation Panel' as
contemplated under Section 442 (as the name suggests) will adopt dual approach of
'Mediation' as well as 'Conciliation' in settling the disputes.
(c) Benefits of Listing

The following benefits are available when securities are listed by a company in the
stock exchange:
(a) public image of the company is enhanced.
(b) the liquidity of the security is ensured making it easy to buy and sell the securities in
the stock exchange.
(c) tax concessions are made available both to the investors and the companies.
(d) listing procedure compels company management to disclose important
information to investors enabling them to make crucial decisions with regard to
holding or disposing of such securities.
(e) Shares for listed companies command better credibility as they could be offered
as security for loans from Banks and Fls.
(d) Objectives of MoU System

The specific objectives of the MoU system are to:
(a) Improve the performance of CPSEs though increased management autonomy.
(b) Remove the haziness in goals and objectives.
(c) Evaluate management performance through objective criteria; and
(d) Provide incentives for better future performance.
(e) Strategy to tackle black money:

The committee has identified following strategy to tackle black money:
(a) Preventing generation of black money.
(b) Discouraging use to black money.
(c) Effective detection of black money.
(d) Effective investigation and adjudication.
(e) Other steps.
Suggested Answers_Syl 2016_June2018_Paper 13
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)

JUNE - 2018
Paper-13: Corporate Laws & Compliance
Answer Question No. 1 which is compulsory, carrying 20 marks and answer
any 5 (five) Questions from Question No. 2 to Question No. 8.
C or D) and give justification.
Multiple choice questions: 2x10=20
(i) A company shall have its Registered Office from the date __________ of its incorporation.
(A) 7th day
(B) 15th day
(C) 30th day
(D) one month
(ii) During any financial year Corporate Social Responsibility Committees of the Board shall
be constituted by every Company having
(A) Turnover of ` 5,000 crores or more.
(B) A Net Profit of ` 2 crores or more.
(C) Net Worth of ` 5 crores or more.
(D) Authorized capital of ` 500 crores or more.
(iii) Board of every Company shall ensure that the company spends in every financial year
on account of CSR Policy at least
(A) 5% of average Net Profit.
(B) 3% of average Net Profit.
(C) 2.5% of average Net Profit.
(D) 2% of average Net Profit.
(iv) Under Insolvency Bankruptcy code 2016 where extension of time is requested, the
Corporate Resolution process shall be completed within a period of _____________ from
the date of admission of the application to initiate such process.
DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(A) 60 days
(B) 90 days
(C) 180 days
(D) 240 days
(v) According to Banking Regulation Act 1949, no Banking Company shall pay dividend on
its shares until all its
(A) Depreciation is fully written off.
(B) "Capitalized expenses" have been completely written off
(C) Bad debts are provided in full.
(D) Contingent liability is settled.
(vi) The Director prepared the annual accounts in Director Responsibility Statement on a/an
(A) Money measurement basis
(B) Going concern basis
(C) Accrual basis
(D) Business Entity basis
(vii)Accounts and Balance Sheet along with auditor's reports should be filed with Reserve
Bank of India within ______ from the end of the period to which these relate.
(A) 3 months
(B) 6 months
(C) 9 months
(D) 12 months
(viii)A minor can be nominated as a nominee in Life Insurance Policy by its

(A) Drawer
(B) Agent
(C) Holder
(D) Corporation
(ix) Which of the following is not the type of unfair competition?

(A) Collusive price fixing
(B) Creation of barriers to entry
(C) Tie in purchase
(D) Predatory pricing
(x) Business should _______ the interests of and be responsive towards all stakeholders,
especially those who are disadvantaged, vulnerable and marginalized.
(A) Accept
(B) Respect
(C) Reject
(D) Object
Answer:
1.
(i) B 15th day Sec. 12 - A company shall on and from the fifteenth day of
its incorporation have a Regd. Office to receive &
acknowledge of communication & notices addressed to it.
(ii) A Turnover of ` 5000 According to Section 135(1) of the Companies Act 2013,
crores or more every Company having net worth of rupees five hundred
crores or more, or turnover of ` One thousand crores or
more or a net profit of rupees five crores or more during
any financial year shall constitute a corporate social
Responsibility Committee of the Board.
In view of the above, Option (A) Turnover of ` 5000 crores

or more which is more than of rupees one thousand crores
or more as per required provision stated above should be
considered.
(iii) D 2% of average Towards CSR expense (Sec. 135)
Net Profit.
(iv) C 180 days Where extension of time is requested, the corporate
insolvency resolution process shall be completed within a
period of 180 days [Sec 12 (2)].
(v) B "Capitalized Sec. 15 prohibits every Banking Co. from paying any
expenses" have dividend on its share until all its capitalized expense
been completely completely written off.
written off
(vi) B Going concern The director prepared the annual accounts in Director
basis Responsibility Statement on a going concern basis.
(vii) A 3 months Section 31, the accounts and balance sheet together with
the auditor's report’s shall be furnished as returns to the
Reserve Bank within three months from the end of the
period to which these relate.
(viii) C Holder A minor can be nominated as a nominee in life insurance
policy by its holder.
(ix) C Tie in purchase Tie in purchase is not the type of unfair competition.
(x) B Respect Business should respect the interests of and be responsive
towards all stakeholders, especially those who are
disadvantaged, vulnerable and marginalized.
2. (a) ABC Ltd. having a networth of ` 80 crores and turnover of ` 30 crores wants to accept
deposits from public other than its members. Referring to the provisions of the
Companies Act, 2013, state the conditions and the procedures to be followed by ABC
Ltd. for accepting deposits from public other than its members. 4
(b) The Secretary of a company issued a share certificate to 'Prem' under the company's
seal with his own signature and the signature of a Director forged by him. 'Prem'
borrowed money from 'Amar' on the strength of this certificate. 'Amar' wanted to
realise the security and requested the company to register him as a holder of the
shares. Explain whether 'Amar' will succeed in getting the share registered in his name.
Explain with the help of the doctrine of 'Indoor management' in brief. 4
(c) (i) X Ltd. appointed CA Innocent as a statutory auditor for the company for the
current financial year. Further the company offered him the services of actuarial,
investment advisory and investment banking which was also approved by the Board
of Directors. Comment.
(ii) Universal, a foreign company, incorporated in Australia was carrying on its business
in Delhi related to manufacturing of automobile parts. Due to failure of its
compliance with the respective law of the country under which it was incorporated,
it was ceased to exist. Decide in the light of the Companies Act, 2013 the status of
the company and the effect on the Conduct of Business in India. 5+3=8
Answer:
2. (a) Acceptance of deposit from public: According to section 76 of the Companies Act,
2013, a public company, having net worth of not less than 100 crore rupees or
turnover of not less than 500 crore rupees, can accept deposits from persons other
than its members subject to compliance with the requirements provided in sub-
section (2) of section 73 and subject to such rules as the Central Government may, in
consultation with the Reserve Bank of India, prescribe.
Provided that such a company shall be required to obtain the rating (including its
networth, liquidity and ability to pay its deposits on due date) from a recognised
credit rating agency for informing the public the rating given to the company at the
time of invitation of deposits from the public which ensures adequate safety and the
rating shall be obtained for every year during the tenure of deposits.
Provided further that every company accepting secured deposits from the public
shall within thirty days of such acceptance, create a charge on its assets of an
amount not less than the amount of deposits accepted in favour of the deposit
holders in accordance with such rules as may be prescribed.
Since, ABC Ltd. has a net worth of ` 80 crores and turnover of ` 30 crores, which is less
than the prescribed limits, hence, it cannot accept deposit from public other than its
members. If the company wants to accept deposits from public other than its
members, it has to fulfill the eligibility criteria of net worth or Turnover or both and then
the other conditions as stated above.
(b) The doctrine of Indoor Management is laid down in the Royal British Bank vs.
Turquand (1956) 6E&B 327 case in which the directors of RBB (Royal British Bank) gave
a bond to one T (Turquand) without the required resolution being passed. The Articles
empowered the directors to issue such bonds under the authority of a proper
resolution. In fact no such resolution was passed. It was decided in the case that
notwithstanding the non passing of the required resolution, T could sue on the bonds
on the ground that he was entitled to assume that the resolution had been duly
passed. Thus, the persons dealing with the company are entitled to assume that the
acts of the directors or the officers of the company are validly performed, if they are
within the scope of their apparent authority.
However, this doctrine is not applicable where the person dealing with the company
has notice of irregularity or when an instrument purporting to be enacted on behalf
of the company is a forgery.
In the instant problem, the doctrine of indoor management will not apply as the
certificate is a forgery which does not give a good title to Prem and thereby to Amar.
Hence, Amar will not succeed in getting the share registered in his name.
(c) (i) Services not to be Rendered by the Auditor: Section 144 of the Companies Act,
2013 prescribes certain services not to be rendered by the auditor. An auditor
appointed under this Act shall provide to the company only such other services
as are approved by the Board of Directors or the audit committee, as the case
may be, but which shall not include any of the following services (whether such
services are rendered directly or indirectly to the company or its holding
company or subsidiary company), namely:
(i) accounting and book keeping services;
(ii) internal audit;
(iii) design and implementation of any financial information system;
(iv) actuarial services;
(v) investment advisory services;
(vi) investment banking services;
(vii) rendering of outsourced financial services;
(viii) management services; and
(ix) any other kind of services as may be prescribed.
Further section 141(3)(i) of the Companies Act, 2013 also disqualify a person for
appointment as an auditor of a company who is engaged as on the date of
appointment in consulting and specialized services as provided in section 144.
In the given case, CA Innocent was appointed as an auditor of X Ltd. He was

offered additional services of actuarial, investment advisory and investment
banking which was also approved by the Board of Directors. The auditor is
advised not to accept the services as these services are specifically notified in the
services not to be rendered by him as an auditor as per section 144 of the Act.
(ii) Section 376 of the Companies Act, 2013 provides the law related to the power of
winding up Foreign Companies, although dissolved. Provision states that where a
body corporate incorporated outside India which has been carrying on business
in India, ceases to carry on business In India, it may be wound up as an
unregistered company under this Part (i.e., Part I of the Chapter 21 which deals
with the companies authorized to register under this Act), notwithstanding that
the body corporate has been dissolved or otherwise ceased to exist as such
under or by virtue of the laws of the country under which it was incorporated.
As per the facts given in the question, Universal, a foreign company, incorporated
in Australia ceased to exist as per the law of the country, also ceased to carry on
business in Delhi. Accordingly, Universal Company may be wound up as an
unregistered company although it ceased to exist in Australia.
3. (a) There are four directors in Shine Paper Limited. Mr. Madhav, being the director in
station, has been authorized to draw and endorse cheque or other negotiable
instruments on account of the company and also to direct registration of transfer of
shares and signing the share certificates etc. Evaluate whether he will be treated as
Managing Director of the company. Also recommend the procedure of appointment
of a Managing Director in a company in the light of the Companies Act, 2013. 6
(b) Examine the following aspect related to convening of board meeting with reference to
the provisions of the Companies Act, 2013:
(i) The Chairman of Greenhouse Limited convened a board meeting and two weeks'
notice was served on all directors of the company. Two of the independent
directors on the board objected on the grounds that no proper agenda for the
meeting was circulated.
(ii) Purple Florence Limited proposes to hold its board meeting at a shorter notice
through video conferencing. 7
(c) State briefly the composition of SERIOUS FRAUD INVESTIGATION OFFICE (SFIO) under
the Companies Act, 2013. 3
Answer:
3. (a) Managing Director [Section 2(54)]: Section 2(54) of the Companies Act, 2013 defines
a "Managing Director" as a director who is entrusted with substantial powers of
management of the affairs of the company by:
(a) virtue of articles of a company, or
(b) an agreement with the company, or
(c) a resolution passed in its general meeting, or by its Board of Directors, and
includes a director occupying the position of the managing director, by
whatever name called.
Explanation to Section 2 (54) clarifies that substantial powers of the management

shall not be deemed to include the power to do such administrative acts of a routine
nature when so authorised by the Board such as:
(i) the power to affix the common seal of the company to any document or
(ii) to draw and endorse any cheque on the account of the company in any bank
or
(iii) to draw and endorse any negotiable instrument or
(iv) to sign any certificate of share or
(v) to direct registration of transfer of any share.
In the instant case, Mr. Madhav, a director in Shine Paper Limited has been,
authorized to draw and endorse cheque or other negotiable instruments on account
of the company and also to direct registration of transfer of shares and signing the
share certificates etc.
Hence, according to explanation to section 2(54), Mr. Madhav will not be treated as
managing director of the company as he is authorized to do administrative acts of a
routine nature.
Procedure of appointment of a managing director [Section 196(4)]

1. Subject to the provisions of section 197 and Schedule V, a managing director
shall be appointed, and the terms and conditions of such appointment and
remuneration payable be approved by the Board of Directors at a meeting.
2. The terms and conditions and remuneration approved by Board of Directors as
above shall be subject to the approval of shareholders by a resolution at the next
general meeting of the company.
3. In case such appointment is at variance to the conditions specified in the
Schedule V of the Companies Act, 2013, the appointment shall be approved by
the Central Government.
4. The notice convening Board or general meeting for considering such
appointment shall include the terms and conditions of such appointment,
remuneration payable and such other matters including interest, of a director or
directors in such appointments, if any.
5. A return in the prescribed form (Form No. MR.1) along with the prescribed fee
shall be filed with the Registrar within sixty days of such appointment.
(b) (i) According to section 173 (3) of the Companies Act, 2013, a meeting of the Board
shall be called by giving not less than 7 days' notice in writing to every director at
his address registered with the company and such notice shall be sent by hand
delivery or by post or by electronic means.
According to the question, two of the independent directors on the Board has
objected on the grounds that no proper agenda for the meeting was circulated.
The Companies Act, 2013 does not specifically provide for sending agenda along
with the notice of the meeting. However, generally as a good secretarial
practice, the notice is accompanied with the agenda of the meeting. Thus, the
contention of the independent directors objecting on the grounds that no
agenda for the meeting was circulated, does not hold good.
Further, the Chairman of Greenhouse Limited has convened the Board meeting
by serving a two weeks' notice (i.e. more than 7 days). Hence, the meeting shall
be valid.
(ii) According to section 173 of the Companies Act, 2013,
(a) The directors can participate in a meeting of the Board either in person or
through video conferencing or other audio visual means, as may be
prescribed, which are capable of recording and recognising the participation
of the directors and of recording and storing the proceedings of such
meetings along with date and time. Further, Central Government may
provide for matters which cannot be dealt in a meeting through video
conferencing or other audio visual means.
(b) A meeting of the Board shall be called by giving not less than 7 days' notice in
writing to every director at his address registered with the company.
Provided that a meeting of the Board may be called at shorter notice to

transact urgent business subject to the condition that at least one
independent director, if any, shall be present at the meeting. Further, in case
the independent directors are not present at such a meeting of the Board,
decisions taken at such a meeting shall be circulated to all the directors and
shall be final only on ratification thereof by at least one independent director,
if any.
Hence, Purple Florence Limited can hold a board meeting at a shorter notice
through video conferencing, for transacting urgent business subject to the
condition that at least one independent director, if any, shall be present at
the meeting. Further, if the independent directors are absent from the
meeting of the Board, decision taken at such a meeting shall be circulated to
all the directors and shall be final, only on ratification thereof by at least one
independent director, if any.
(c) Composition of SFIO [Section 211(2)]
The SFIO shall be:

(1) Headed by a Director, and
(2) Consist of such number of experts from the following fields to be appointed by
the Central Government from amongst persons of ability, integrity and
experience in:
(a) Banking;
(b) Corporate affairs;
(c) Taxation;
(d) Forensic audit;
(e) Capital market;
(f) Information technology;
(g) Law; or
(h) Such other fields as may be prescribed.
4. (a) Winding up proceedings has been commenced by the Tribunal against Paramount
Limited, a government company (Central Government is a member). Even after
completion of one year from the date of commencement of winding up proceedings, it
has not possible to conclude the same. The liquidator is of the opinion that the statement
shall be filed with tribunal and registrar only.
(i) Decide validity to the opinion made by the liquidator and penalty that can be
imposed on the liquidator for contravention of the provision as per the Companies
Act, 2013.
(ii) Discuss, if the Paramount Limited is a non-government company. 7
(b) State the law with respect to the Establishment of Special Court. Mr. A is Judicial
Magistrate in a Lower Court. He was appointed to hold the office of the Special Court for
the speedy disposal of the pending cases under the Act. Decide as per the applicable
provisions of the Companies Act, 2013, whether the appointment of Mr. A is tenable. 4
(c) (i) State the different types of Penalties prescribed under the Companies Act, 2013.
(ii) State the provisions of the companies Act, 2013 relating to preservation of books
and papers of amalgamated Companies. 3+2=5
Answer:
4. (a) Section 348 of the Companies Act, 2013 states that, if the winding up of a company is
not concluded within one year after its commencement then the Company
Liquidator shall file a statement in such form containing such particulars as may be
prescribed. Such statement shall be filled within two months of the expiry of such year
and it shall be filled continuously thereafter until the winding up is concluded, at
intervals of not more than one year or at such shorter intervals as may be prescribed.
The statement shall be duly audited, by a person qualified to act as auditor of the
company and position of with respect to the proceedings in the liquidation.
The statement shall be filled with the tribunal in the case of a winding up by the
Tribunal. A copy shall simultaneously be filed with the Registrar and shall be kept by
him along with the other records of the company.
Where a statement relates to a Government company in liquidation, the Company

Liquidator shall forward a copy thereof,
 to the Central Government, if that Government is a member of the Government
company;
 to any State Government, if that Government is a member of the Government
company; or
 to the Central Government and any State Government, if both the Governments
are members of the Government company.
If Paramount Limited is a Government Company
In the current scenario, we can understand that the Paramount Limited is a

government company in which Central Government is a member and hence
statement is also required to file to the Central Government along with the Tribunal
and Registrar. So, the opinion by the Company Liquidator is not tenable in the eyes of
the law and he is liable for penal action under the Act.
The company liquidator shall be punishable with fine which may extend to five
thousand rupees for every day during which the failure continues.
If Paramount Limited is a Non-Government Company
In the current scenario, the Paramount Limited is a non-government company hence

statement is only required to file with the Tribunal and Registrar only. So, the opinion
by the Company Liquidator is tenable in the eyes of the law and he is not liable for
any penal action under the Act.
(b) Establishment of special court: As per section 435 of the Companies Act, 2013, the
Central Government may, for the purpose of providing speedy trial of offences
punishable under this Act with imprisonment of two years or more, by notification,
establish or designate as many Special Courts as may be necessary.
Provided that all other offences shall be tried, as the case may be, by a Metropolitan
Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any
offence under this Act or under any previous company law.
Appointment of judge: A Special Court shall consist of a single judge who shall be
appointed by the Central Government with the concurrence of the Chief Justice of
the High Court within whose jurisdiction the judge to be appointed is working. A
person shall not be qualified for appointment as a judge of a Special Court unless he
is, immediately before such appointment, holding office of a Sessions Judge or an
Additional Sessions Judge.
Since in the given case, Mr. A who is a judicial magistrate in a lower court, was
appointed to hold the office of the special court for the speedy disposal of the
pending cases under the Act. As per the above provision, person shall be qualified for
appointment as a judge of a Special Court if he, immediately before such
appointment, holding office of a Sessions Judge or an Additional Sessions Judge.
Here Mr. A. was not complying with the eligibility criteria, so his appointment as a
judge of special court is not tenable.
(c) (i) Types of Penalties

There are five types of penalties that have been contemplated under the
Companies Act, 2013. They are:
(1) fine only
(2) Imprisonment or fine
(3) Imprisonment or fine or with both

(4) Imprisonment and fine and
(5) Imprisonment only
Of the above, the offences referred to in (1) to (3) are compoundable and
others are not compoundable.
(ii) Preservation of Books and Papers of Amalgamated Companies (Section 239)
As per Section 239, the books and papers of a company which has been
amalgamated with, or whose share have been acquired by, another company
under this Chapter shall not be disposed of without the prior permission of the
Central Government and before granting such permission, that Government may
appoint a person examine the books and papers or any of them for the purpose
of ascertaining whether they contain any evidence of the commission of art
offence in connection with the promotion or formation, or the management of
the affairs of the transferor company or its amalgamation or the acquisition of its
shares.
5. (a) List out the main features of a qualified and independent audit committee to be set
up under SEBI (listing obligations and disclosure Requirements) Regulations, 2015. 5
(b) Upon an enquiry made by the Competition Commission of India it was found that
Huge Limited is enjoying dominant position in the market and there is every possibility
that the company may abuse its dominant position. In order to overcome such a
possible situation, the Competition Commission of India wants to order for division of
Huge Limited. Referring to the provisions of the Competition Act, 2002, describe the
matters which may be provided in the said order. 5
(c) (i) A group of shareholders consisting of 25 members decide to file a petition before
the Tribunal for relief against oppression and mismanagement by the Board of
Directors of M/s Fly By Night Operators Ltd. The company has a total of 300 members
and the group of 25 members holds one-tenth of the total paid-up share capital
accounting for one-fifteenth of the issued share capital. The main grievance of the
group is that due to mismanagement by the board of directors, the company is
incurring losses and the company has not declared any dividend even when
profits were available in the past years for declaration of dividend. In the light of
the provisions of the Companies Act, 2013, advise the group of shareholders
regarding the success of (I) getting the petition admitted and (II) obtaining relief
from the Tribunal.
(ii) Mr. Arnab, one of the Directors of Aim Insurance Company Limited had taken some
life insurance policies from the company. He, now, wants to avail a temporary loan
from the company. The company refused to grant such loan on the ground that
there is a prohibition in this regard. Mr. Arnab, approached you, now, about the
matter. Advise him with reference to the Insurance Laws Amendment Act, 2015 as
well as Section 185 of the Companies Act, 2013, whether such loan can be obtained
by him. 3+3=6
Answer:
5. (a) The main features of a qualified and independent audit committee to be set up
under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are as
follows:
1. The audit committee shall have minimum three directors as members. Two-thirds
of the members of audit committee shall be independent directors;
2. All members of audit committee shall be financially literate and at least one
member shall have accounting or related financial management expertise;
Explanation (I): The term "financially literate" means the ability to read and
understand basic financial statements i.e. balance sheet, profit and loss account,
and statement of cash flows.
Explanation (ii): A member will be considered to have accounting or related

financial management expertise if he or she possesses experience in finance or
accounting, or requisite professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight responsibilities.
3. The Chairperson of the Audit Committee shall be an independent director;
4. The Chairperson of the Audit Committee shall be present at Annual General

Meeting to answer shareholder queries;
5. The Audit Committee at its discretion shall invite the finance director or the head
of the finance function, head of internal audit and a representative of the
statutory auditor and any other such executives to be present at the meetings of
the committee; provided that occasionally, the Audit Committee may meet
without the presence of any executives of the listed entity.;
6. The Company Secretary shall act as the secretary to the committee.
(b) According to section 28 of the Competition Act, 2002, the Commission, may,
notwithstanding anything contained in any other law for the time being in force, by
order in writing, direct division of an enterprise enjoying dominant position to ensure
that such enterprise does not abuse its dominant position. The order may provide for
ail or any of the following matters, namely:—
(i) the transfer or vesting of property, rights, liabilities or obligations;

(ii) the adjustment of contracts either by discharge or reduction of any liability or
obligation or otherwise;
(iii) the creation, allotment, surrender or cancellation of any shares, stocks or
securities;
(iv) the formation or winding up of an enterprise or the amendment of the
memorandum of association or articles of association or any other instruments
regulating the business of any enterprise;
(v) the extent to which, and the circumstances in which, provisions of the order
affecting an enterprise may be altered by the enterprise and the registration
thereof;
(vi) any other matter which may be necessary to give effect to the division of the
enterprise.
(vii) The payment of compensation to any person who suffered any loss due to
dominant position of such enterprise.
(c) (i) Section 244 of the Companies Act, 2013 provides the right to apply to the Tribunal
for relief against oppression and mis-management. This right is available only
when the petitioners hold the prescribed limit of shares as indicated below:
(i) In the case of company having a share capital, not less than 100 members of
the Company or not less than one tenth of the total number of its members
whichever is less or any member or members holding not less than one tenth
of the issued share capital of the company, provided that the applicant(s)
have paid all calls and other dues on the shares.
(ii) In the case of company not having share capital, not less than one-fifth of the
total number of its members.
Since the group of shareholders do not number 100 or hold 1/10th of the issued
share capital or constitute 1/10th of the total number of members, they have no
right to approach the Tribunal for relief.
However, the Tribunal may, on an application made to it waive all or any of the
requirements specified in (i) or (ii) so as to enable the members to apply under
section 241.
As regards obtaining relief from Tribunal, continuous losses cannot, by itself, be

regarded as oppression (Ashok Betelnut Co. P. Ltd. vs. M.K. Chandrakanth).
Similarly, failure to declare dividends or payment of low dividends also does not
amount to oppression. (Thomas Veddon V.J. (v) Kuttanad Robber Co. Ltd).
Thus the shareholders may not succeed in getting any relief from Tribunal.
(ii) Section 29 of the Insurance Act, 1938 as amended by the Insurance Laws
(Amendment) Act, 2015 provides for the Prohibition of loans. According to this
section, no Insurer shall grant loans or temporary advances either on
hypothecation of property or on personal security or otherwise, except loans on

life insurance policies Issued by him within their surrender value, to any director,
manager, actuary, auditor or officer of the insurer, If a company or to any other
company or firm in which any such director, manager, actuary or officer holds
the position of a director, manager, actuary, officer or partner.
The provisions of section 185 of the Companies Act, 2013 shall not apply to a loan
granted to a director of an insurer being a company, if the loan is one granted
on the security of a policy on which the insurer bears the risk and the policy was
Issued to the director on his own life, and the loan is within the surrender value of
the policy.
Accordingly such loan can be obtained by the Mr. Arnab, director of Aim
Insurance Company Limited.
6. (a) Popular Limited defaulted in the repayment of term loan taken from a Bank against
security created as a first charge on some of its assets. The Bank issued notice pursuant
to Section 13 of the SARFAESI Act, 2002 to the Company to discharge its liabilities within a
period of 60 days from the date of the notice. The company failed to discharge its
liabilities within the time limit specified. Identify and explain the measures to be taken
by the Bank to enforce its security interest under the said Act. 4
(b) Ms. Ashima, daughter of Mr. Mittal (an exporter), is residing in Australia since long. She
wants to buy a flat in Australia. Since she is unmarried, she wants to make her father Mr.
Mittal a joint holder in that flat, for which entire proceeds are to be paid by her.
(i) State the provisions of FEMA governing such type of transaction.
(ii) On Applying the relevant provisions, can Mr. Mittal join his daughter in acquiring
such a flat in Australia? 4
(c) (i) State the manner of initiation of corporate insolvency resolution process by
financial creditor under the Insolvency and Bankruptcy Code, 2016.
(ii) State the qualification for appointment as Presiding Officer or member of
securities Appellant Tribunal (Section 15M). 5+3=8
Answer:
6. (a) Sub-section (4) of section 13 of SARFAESI Act, 2002, provides that if the borrower fails
to discharge his liability in full within the 60 days, the secured creditor may take
recourse to one or more of the following measures to recover his secured debt:
(i) take possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset;
(ii) take over the management of the business of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be
exercised only where the substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of the business or part of
the business is severable, the secured creditor shall take over the management of
such business of the borrower which is relatable to the security for the debt;
(iii) appoint any person (hereafter referred to as the manager), to manage the
secured assets the possession of which has been taken over by the secured
creditor;
(iv) require at any time by notice in writing, any person who has acquired any of the
secured assets from the borrower and from whom any money is due or may
become due to the borrower, to pay the secured creditor, so much of the money
as is sufficient to pay the secured debt.
In the instant case, the Bank may take the above mentioned procedure to enforce
its security interest in case Popular Limited has failed to discharge its liabilities within
the time limit specified.
(b) (i) The provisions governing the acquisition and transfer of immovable property
outside India.
(1) A person resident in India may acquire immovable property outside India:
(a) By way of gift or inheritance from a person referred to in sub-section (4) of
Section 6 of the FEMA or referred to in clause (b) of regulation 4 acquired
by a person resident in India on or before 8 th July, 1947 and continued to
be held by him with the permission of Reserve Bank.
(b) by way of purchase out of foreign exchange held in Resident Foreign
Currency (RFC) account maintained in accordance with the foreign
exchange management (Foreign Currency accounts by a person resident
in India) Regulations 2015,
(c) Jointly with a relative who is a person resident outside India, provided
there is no outflow of funds from India.
(2) A person resident in India may acquire immovable property outside India, by
way of Inheritance or gift from a person resident in India who has acquired
such property in accordance with the foreign exchange provision in force at
the time of such acquisition.
(3) A Company incorporated in India having overseas offices, may acquire

Immovable property outside India for its business and for residential purposes
of its staff, in accordance with the direction issued by the Reserve Bank of
India from time to time.
(ii) In the light of above discussions in 1(c), it is quite clear that Mr. Mittal, a resident in
India, can join his daughter who is a resident outside India, in acquiring a flat in
Australia.
(c) (i) Initiation of corporate insolvency resolution process by financial creditor
Section 7 of Insolvency and Bankruptcy Code deals with initiation of corporate

insolvency resolution process by a financial creditor. The process can be
explained as under:
(1) Filing of application before the Adjudicating Authority for initiating corporate
insolvency resolution process
A financial creditor either by itself or jointly with other financial creditors may
file an application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority when a default
has occurred.
For this purpose, a default includes a default in respect of a financial debt
owed not only to the applicant financial creditor but to any other financial
creditor of the corporate debtor.
(2) Form and manner of making application
The application shall be in such form and manner and accompanied with
such fee as may be prescribed.
(3) Enclosures to application
Following documents and information shall be furnished along with the

application:
(a) Record of the default recorded with the information utility or such other
record or evidence of default as may be specified.
(b) The name of the resolution professional proposed to act as an interim
resolution professional.
(c) Any other information as may be specified by the Board.
(4) Duty of Adjudicating Authority to ascertain the existence of a default
The Adjudicating Authority shall, within 14 days of the receipt of the

application, ascertain the existence of a default from the records of an
information utility or on the basis of other evidence furnished by the financial
creditor.
(5) Admission of application by the Adjudicating Authority
The Adjudicating Authority may, by order, admit such application, if it is

satisfied that -
(a) a default has occurred;
(b) the application for initiating corporate insolvency resolution process is
complete; and
(c) no disciplinary proceedings are pending against the proposed resolution

professional.
(6) Rejection of application by the Adjudicating Authority
The Adjudicating Authority may, by order, reject such application, if it is

satisfied that -
(a) default has not occurred; or
(b) the application for initiating corporate insolvency resolution process is
incomplete; or
(c) any disciplinary proceeding is pending against the proposed resolution
professional.
Before rejecting the application, the Adjudicating Authority shall give a notice
to the applicant to rectify, within 7 days, the defect in his application.
(7) Commencement of corporate insolvency resolution process
The corporate insolvency resolution process shall commence from the date
of admission of the application by the Adjudicating Authority.
(ii) Qualification for appointment as presiding officer or member of Securities

Appellant Tribunal (Section 15M) - A person, shall not be qualified for appointment
as the Presiding Officer or a Judicial Member or a Technical Member of the
Securities Appellate Tribunal, unless he — (a) is, or has been, a Judge of the
Supreme Court or a Chief Justice of a High Court or a Judge of High Court for at
least seven years, in the case of the Presiding Officer; and (b) is, or has been, a
Judge of High Court for at least five years, in the case of a Judicial Member; or (c)
in the case of a Technical Member— (i) is, or has been, a Secretary or an
Additional Secretary in the Ministry or Department of the Central Government or
any equivalent post in the Central Government or a State Government; or (ii) is a
person of proven ability, integrity and standing having special knowledge and
professional experience, of not less than fifteen years, in financial sector including
securities market or pension funds or commodity derivatives or insurance.
7. (a) Vijay, a director, resigns after giving due notice to the company and he forwards a
copy of resignation in e-form DIR-11 to the Registrar of Companies (RoC) within the
prescribed time. What would be the status of Vijay if the company fails to intimate
about the resignation of Vijay to RoC? 4
(b) Sohan Lal, a farmer, was found involved in embezzlement of opium cultivated by him.
State the punishment that can be awarded to him under the Prevention of Money
Laundering Act, 2002. 3
(c) (i) Explain the concept of Corporate Social Responsibility and its meaning to different
people.
(ii) State the causes and methods adopted for generation of Black Money. 6+3=9
Answer:
7. (a) Resignation of Director (Section 168 of the Companies Act, 2013)
A director may resign from his office by giving a notice in writing to the company. The
Board shall on receipt of such notice take note of the same. The company shall
within 30 days from the date of receipt of notice of resignation from a director,
intimate the Registrar in Form DIR -12 and post the information on its website, if any.
Such director shall also forward a copy of his resignation along with detailed reasons
for the resignation to the Registrar within 30 days from the date of resignation in FORM
DIR-11 along with the prescribed fee. The resignation of a director shall take effect
from the date on which the notice is received by the company or the date, if any,
specified by the director in the notice, whichever is later.
In the present case, Vijay, a director resigns after giving due notice to the company
and he forwards a copy of resignation in e-form DIR-11 to the RoC within the
prescribed time.
If the company fails to intimate about the resignation of Vijay to RoC, even then the
resignation of Vijay shall take effect from the date on which the notice is received by
the company or the date, if any, specified by Vijay in the notice, whichever is later.
(b) Section 4 of the Prevention of Money Laundering Act, 2002 provides for the
punishment for Money-Laundering. Whoever commits the offence of money-
laundering shall be punishable with rigorous imprisonment for a term which shall not
be less than 3 years but which may extend to 7 years and shall also be liable to fine.
But where the proceeds of crime involved in money-laundering relate to any offence
specified under paragraph 2 of, Part A of the Schedule, the maximum punishment
may extend to 10 years instead of 7 years.
Paragraph 2 of Part A of Schedule to the Prevention of Money Laundering Act, 2002,

covers Offences under the Narcotic Drugs And Psychotropic Substances Act, 1985
Whereby, embezzlement of opium by cultivator (section 19) is covered under
paragraph 2 of Part A.
In the present case, Sohan Lai, a farmer, who was involved in embezzlement of opium
cultivated by him shall be liable for the rigorous imprisonment for a term which may
extend to 10 years and shall also be liable to fine.
(c) (i) Corporate Social Responsibility (CSR): It is a concept that organizations, have an
obligation to consider the interests of customers, employees, shareholders,
communities, and ecological considerations in all aspects of their operations. This
obligation is seen to extend beyond their statutory obligation to comply with
legislation. CSR is closely linked with the principles of Sustainable Development,
which argues that enterprises should make decisions based not only on financial
factors such as profits or dividends, but also based on the immediate and long-
term social and environmental consequences of their activities, especially taking
into consideration the needs of future generations. It is an integrated
combination of policies, programs, education, and practices which extend
throughout a corporation's operations and into the communities in which they
operate, about how companies voluntarily manage the business processes to
produce an overall positive impact on society.
CSR can mean different things to different people:

 for an employee it can mean fair wages, no discrimination, acceptable
working conditions etc.
 for a shareholder it can mean making responsible and transparent decisions
regarding the use of capital.
 for suppliers it can mean receiving payment on time.
 for customers it can mean delivery on time, etc.
 for local communities and authorities it can mean taking measures to protect
the environment from pollution.
 for non-governmental organisations and pressure groups it can mean
disclosing business practices and performance on issues ranging from energy
conservation and global warming to human rights and animal rights, from
protection of the rainforests and endangered species to child and forced
labour, etc.
For a company, however, it can simply be seen as responding to the needs and
concerns of people who can influence the success of the company and/or
whom the company can Impact through its business activities, processes and
products.
(ii) Causes and Methods Adopted for Generation of Black Money

(a) Suppression of receipts, inflation of expenditure, etc.
(b) Land and real estate transactions
(c) Corruption
(d) Financial market transactions
(e) Bullion and jewellery transactions
(f) Cash economy and use of counterfeit currency
(g) NPO Sector
(h) Participatory Notes
(i) Trade Based Money Laundering
8. Write short notes on any four of the following: 4x4=16

(a) Types of listing
(b) Guidance on implementation of principles and Core Elements. (National Voluntary
Guidelines 2011)
(c) Disadvantages of the family Businesses over non-family Businesses
(d) Applicability of Insolvency and Bankruptcy Code 2016

(e) Activities not to be considered as CSR Activities
Answer:
8. (a) Types of Listing
Listing of securities falls under 5 groups:

(1) Initial listing: If the shares or securities are to be fisted for the first time by a
company on a stock exchange is called initial listing.
(2) Listing for Public Issue: When a company whose shares are listed on a stock
exchange comes out with a public issue of securities, it has to fist such issue with
the stock exchange.
(3) Listing for Rights Issue: When companies whose securities are listed on the stock
exchange issue further securities to existing share holders on rights basis, it has to
list such rights issues on the concerned stock exchange.
(4) Listing of Bonus Shares: Companies issuing shares as a result of capitalization of
profits through bonus issue shall fist such issues also on the concerned stock
exchange.
(5) Listing for merger or amalgamation: When new shares are issued by an
amalgamated company to the share holders of the amalgamating company,
such shares are also required to be listed on the concerned stock exchange.
(b) Guidance on Implementation of Principles and Core Elements
Successful implementation of the Principles and Core elements require that all of
them need to be integrated and embedded in the core business processes of an
enterprise. This requires, specifically that the following actions are taken:
(a) Leadership: The Chairman/CEO/Owner/Manager should play a proactive role in

convincing the board/Top Management and staff within the business that
adopting these principles is crucial-for success. The board and senior
management need to ensure that the principles are fully understood across the
organization and comprehensively executed.
(b) Integration: These principles and core elements must be embedded in the
Business policies and strategies emanating from the core business purpose of. the
organization. For this to happen, these must align with each businesses internal
values and/or must provide clear business benefits.
(c) Engagement: Building strong relationships and engaging with stakeholders on a
consistent, continuous basis is crucial.
(d) Reporting: Implementation process includes disclosure by companies of their
impact on society an environment to their stakeholders.
(c) Disadvantages of the Family Businesses over Non-Family Businesses
(a) Staff recruitment: External talent can be reluctant to join the family businesses as
they would not enjoy the same freedom that the other businesses offer.
(b) Raising funds for growth: Access to capital is required to grow and evolve.
However, it is difficult to raise the required funds for the family businesses than
non-family businesses.
(c) Family conflicts: Conflict among the family members is the major setback for the
family businesses.
(d) Ownership vs. Management: Separating the ownership from the management
and reaching a consensus on the roles of family members in the business are two
important issues for the family businesses to address.
(d) Applicability of Insolvency and Bankruptcy Code, 2016
The provisions of Insolvency and Bankruptcy Code, 2016 applies to the following, in
relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the
case may be (Section 2 of Insolvency and Bankruptcy Code, 2016).
(a) Companies incorporated under Companies Act

(b) Companies governed under special Act (so far as of Insolvency and Bankruptcy
Code, 2016 is consistent with those special Acts i.e. provisions of Special Act will
prevail over of Insolvency and Bankruptcy Code, 2016)
(c) Limited Liability Partnership (LLP)
(d) Other body corporates as may be notified by Central Government
(e) Partnership firms and individuals.
(e) Activities not to be considered as CSR Activities: The Companies (CSR Policy) Rules,
2014 provides for some activities which are not considered as CSR activities:
(1) The CSR projects or programs or activities undertaken outside India.

(2) the CSR projects or programs or activities that benefit only the employees of the
company and their families.
(3) Contribution of any amount directly or indirectly to any political party under
section 182 of the Act.
(4) Expenses incurred by companies for the fulfillment of any Act/Statute of
regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as
CSR expenditure under the Companies Act.
Suggested Answer_Syl16_Dec2018_Paper_13
FINAL EXAMINATION
GROUP III
(SYLLABUS 2016)

DECEMBER 2018
Paper- 13: CORPORATE LAWS & COMPLIANCE
Time Allowed: 3 Hours Full Marks :100
Answer Question No. 1 which is compulsory carrying 20 marks and answer
any five questions from Question No. 2 to Question No. 8
1. Answer all questions mentioned below. Mark the correct answer (only indicate A or B or C
or D) and give justification.
2 ×10=20
(a) Multiple Choice Questions:
(i) At a general meeting of a company a matter was to be passed by a special
resolution. Out of forty members of the company, twenty voted in favour of the
resolution, five voted against it and five votes were cancelled. The remaining ten
members abstained from voting. The chairman declared resolution as
(A) Passed
(B) Invalid
(C) Cancelled
(D) Accepted
(ii) Payment of Commission on exports made towards equity investment in wholly owned
subsidiary abroad of an Indian Company is
(A) Permissible
(B) Prohibited
(C) Forwarded
(D) Restricted
(iii) All Board members and senior management personnel should affirm compliance
with the Code on annual basis. The annual report of the Company shall contain a
declaration to this effect signed by the
(A) Auditor.
(B) Director.
(C) Managing Director.
(D) CEO.
(iv) The quality of something which enables one to understand the truth easily. In this
context of Corporate Governance, it implies an accurate, adequate and timely
disclosure of relevant information about the operating result etc., of the Corporate
enterprise to the stakeholders. This principle is known as
(A) Transparency
(B) Accountability
(C) Independence
(D) Clarity
(v) SEBI has to be responsive to the needs of the three groups which constitute the
Market. Which of the following does not constitute the Market?
(A) The issuers of securities
(B) The investors
(C) The brokers
(D) The market intermediaries
(vi) Which of the following listing provides arbitrage opportunities to the investors, whereby they
can make profit based on the difference in the prices prevailing in the said
exchanges?
(A) Multiple listing
(B) Initial listing
(C) Listing for right issue
(D) Listing for public issue
(vii) Which of the following is not the objective of Competition Act, 2002?
(A) To prevent practices having adverse effect on competition.
(B) To prevent competition in market
(C) To protect the interest of the consumers
(D) To ensure freedom of trade carried on by the other participant in marketing
India and for matter connected there with or incidental thereto.
(viii)An association of producers, sellers or distributors, traders or service providers who, by
agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of or trade in goods or provision of services is known as
(A) Acquisition
(B) Agreement
(C) Cartel
(D) Pool
(ix) An authorised dealer, money changer, offshore banking or any other persons for the time
being authorized to deal in foreign exchange or foreign securities is known as
(A) Authorised banker
(B) Authorised dealer
(C) Authorised person
(D) Authorised money changer
(x) The process of money laundering generally involves three stages. Which is the second
stage?
(A) Placement
(B) Layering
(C) Integration
(D) Contribution
Answer: 1(a)
(i) (a) Section 114(2). For a valid special resolution, votes cast in favour should be at
least three times the votes cast against the resolution, if any. Abstentions are not to
be taken into account.
Thus, 20 votes being in favour and only 5 votes against the resolution, the resolution
is validity passed.
(ii) (b) According to the rules, drawal of foreign exchange for certain transactions are
prohibited. In respect of certain transactions drawal of foreign exchange is
permissible with the prior approval of Central Government. Payment of
Commission on exports made towards equity investment in wholly owned subsidiary
abroad of an Indian Company is prohibited.
(iii) (d) All Board members and senior management personnel shall affirm Compliance
with the Code on annual basis. The annual Report of the Company shall contain a
declaration to this effect signed by the CEO.
(iv) (a) The quality of something which enables one to understand the truth easily. In
this context of Corporate Governance, it implies an accurate adequate and timely
disclosure of relevant information about the operating result etc. of the Corporate
enterprise to the stakeholders.
(v) (c) In 1995, the SEBI was given additional statutory power by the Government of
India through an amendment to the SEBI Act, 1992 SEBI has to be responsive to the
needs of the three groups which constitute issuers of securities, investors and the
market intermediaries.
(vi) (a) Multiple listing provides arbitrage opportunities to the investors, whereby they
can make profit based on the difference in the prices prevailing in the said
exchanges.
(vii) (b) Keeping in view the economic development of the country, the Competition
Act, 2002 was laid down to provide for an establishment of a commission not to
seek the objective of preventing competition in market.
(viii) (c) Cartel is an association of producers, sellers or distributors, traders or service

providers who, by agreement amongst themselves, limit control or attempt to
control the production, distribution, sale or price of or trade in goods or provision of
services.
(ix) (c) Authorised person is an authorized dealer, money changer, off shore banking
or any other persons for the time being authorized to deal in foreign exchange or
foreign securities.
(x) (b) Layering is the second stage of money laundering
(2)(a) (i) The common seal is a seal used by the Corporation as the symbol of its
incorporation and also a statutory requirement for a company. Comment
(ii) M/s. Kaberi Mutual Benefits Nidhi Ltd. is incorporated as a Nidhi Company
under the Companies Act, 2013. The Board of Directors of the Company have
decided to appoint Mr. Raja (a minor) as a member of the company. Referring
to the applicable provisions of the Companies Act, 2013 read with rules
thereunder, advise them.
(iii) Is it obligatory for a Producer Company to have internal audit of its accounts for
financial year 2016-17?
(iv) A company incorporated outside India having shareholders who are all Indian
citizens. Examine and state whether the above company can be considered
as „Foreign Company‟ under the Companies Act, 2013. 2+2+2+2=8
(b) BET Ltd. incurred loss in business up to current quarter of financial year 2017-18. The
company has declared dividend at the rate of 11%, 16% and 18% respectively in
the immediate preceding three years. In spite of the loss, the Board of Directors of
the company have decided to declare interim dividend @ 15% for the current
financial year. Examine the decision of BET Ltd. stating the provisions of declaration
of interim dividend under the Companies Act, 2013. 4
(c) The Board of Directors of Best Consultants Limited, registered in Kolkata, proposes to
hold the next board meeting in the month of May, 2017. They seek your advice in
respect of the following matters :
(i) Can the board meeting be held in Chennai, when all the Directors of the
Company reside at Kolkata?
(ii) Is it necessary that the notice of the board meeting should specify the nature
of business to be transacted?
Advice with reference to the relevant provisions of the Companies Act, 2013
2+2=4
Answer :2(a)
(i) The common seal acts as the official signature of the company. Prior to the
companies (amendment) Act, 2015, the common seal is a seal used by
corporation as the symbol of its incorporation and also a statutory requirement for
a company. As a departure from this concept, the companies (amendment) Act,
2015 has deleted the requirement of having common seal compulsorily.
After this Amendment, in case a company does not have a common seal, the
Authorisation shall be made by two directors or by a director and a company
secretary, wherever the company has appointed a company secretary.
(ii) According to rules 8(3) of Nidhi rules, 2014, a minor shall not be admitted as a
member of Nidhi. However, deposit may be accepted in the name of a minor, if
they are made by the natural or legal guardian who is a member of Nidhi.
Hence the Board of Directors of the company cannot appoint Mr. Raja (a minor)
as a member of the company.
(iii) Yes as per section 581ZF of the companies Act, 1956, every producer company is
required to have internal audit of its accounts carried out by a chartered
accountant at such intervals and in such manner as may be specified in the
articles.
(iv) A company incorporated outside India, will not be deemed to be a foreign

company even though all the shareholders are Indian citizens, unless it has a
place of business in India.
Answer : 2(b)
Interim Dividend: According to section 123(3) of the Companies Act, 2013, the Board of
Directors of a company may declare interim dividend during any financial year out of the
surplus in the profit and loss account and out of profits of the financial year in which such
interim dividend is sought to be declared.
However, in case the company has incurred loss during the current financial year up to
the end of the quarter immediately preceding the date of declaration of interim
dividend, such interim dividend shall not be declared at a rate higher than the average
dividends declared by the company during the immediately preceding three financial
years.
In the instant case, interim dividend by BET Ltd. shall not be declared at a rate higher than
the average dividends declared by the company during the immediately preceding
three financial years [i.e. (11+16+18)/3=45/3=15%]. Therefore, decision of Board of
Directors to declare 15% of the interim dividend for the current financial year is tenable.
Answer : 2(c)
(i) There is no provision in the Companies Act, 2013 under which the board meetings
must be held at any particular place. The Companies Act lays down the
provisions for holding meetings by video conferencing, sending notices,
procedures at the meeting etc. Therefore, there is no difficulty in holding the
board meeting at Chennai even if all the directors of the company reside at
Kolkata and the registered office is situated at Kolkata provided that the
requirements regarding the holding of a valid board meeting and the other
provisions relating to the signing of register of contracts, taking roll calls, etc. are
complied with.
(ii) Section 173(3) of the Companies act, 2013 provides for the giving of notice of
every board meeting of not less than seven days to every director of the
company. There is no provision in the Act laying down the contents of the notice.
Hence, it may be construed that notice may be interpreted as intimation of the
meeting and does not necessarily include the sending of the Agenda of the
meeting. However, considering the importance of Board Meetings and the
responsibilities placed on the Directors for decisions taken at the meetings, it is
inevitable for them to be properly prepared and informed about the items to be
discussed at the Board Meetings. As a matter of good secretarial practice, the
notice should include full details and particulars of the business to be transacted
at the Board Meetings.
The articles of association of the company may make it mandatory to do so in

almost all cases.
3.(a)(i) Mr. Balu is a CEO in a public company. State whether the limits on managerial
remuneration under section 197 of the Companies Act, 2013 and schedule V apply
to Mr. Balu.
(ii) Mr. X is a Whole Time Director (WTD) in a Super Ltd. He is also Whole Time Director
(WTD) in its subsidiary company. Discuss the validity of Mr. X as WTD in its
subsidiary company. 2+2=4
(b) Mr. Faithful is an auditor of Daga Ltd. While auditing the accounts of the Daga Ltd.
for 2016- 2017, he finds manipulation of fund around Rs. 2 crore committed by the
officers of the company against the Daga Ltd. Examine in the light of the
Companies Act, 2013 the way frauds are required to be reported by Mr. Faithful
and the duty of the Daga Ltd. in relation to reporting of such frauds. 7
(c) Comment with reference to the provisions of the Companies Act, 2013 in respect of
the following:-
(i) Mr. P who is not qualified to be appointed as an independent director is
appointed by the Board of Directors of XYZ Company Limited, for an
independent director, as an alternate director.
(ii) On the request of bank providing financial assistance, the Board of Directors of
PQR Limited decides to appoint on its Board Mr. Peter, as nominee director.
Articles of Association of the Company do not confer upon the Board of Director
any such power. Further, there is no agreement between the company and the
bank for any such nomination. 2+3=5
Answer : 3(a)
(i) Section 197 applies with regard to remuneration of directors including MD/WTD
and Manager. Schedule V provides conditions with regard to appointment and
remuneration of MD/WTD and Manager. Therefore, the provisions related to the
managerial remuneration are not applicable on all KMP‟s i.e. to CEO, CFO or CS
but they are applicable only to MD/WTD and Manager.
So, Section 197 & Schedule V, shall not apply to Mr. Financer.
(ii) As per section 203(2) of the Companies Act, 2013, every whole-time key
managerial personnel of a company shall be appointed by means of a resolution
of the Board containing the terms and conditions of the appointment including
the remuneration.
A whole-time key managerial personnel shall not hold office in more than one
company at the same time except in its subsidiary company [Section 203(3)]. So
accordingly. Mr. X can validly hold the position of Whole time Director in the
subsidiary of Super Ltd.
Answer :3(b)
Reporting of frauds by auditor and other matters : As per section 139 read with rule 13 of
the Companies (Audit and Auditors) Rules, 2014, if an auditor of a company, in the course
of the performance of his duties as auditor, has reason to believe that an offence of
fraud, which involves or is expected to involve individually an amount of rupees one crore
or above, is being or has been committed against the company by its officer or
employees, the auditor shall report the matter to the Central Government.
The auditor shall report the matter to the Central Government as under:-
(i) The auditor shall report the matter to the Board or the Audit Committee, as the case
may be, immediately but not later than two days of his knowledge of the fraud,
seeking their reply or observations within forty-five days;
(ii) On receipt of such reply or observations, the auditor shall forward his report and the
reply or observations of the Board or the Audit Committee along with his comments
(on such reply or observations of the Board or the Audit Committee) to the Central
Government within fifteen days from the date of receipt of such reply or
observations;
(iii) In case the auditor fails to get any reply or observations from the board or the Audit
Committee within the stipulated period of forty-five days, he shall forward his report
to the Central Government along with a note containing the details of his report that
was earlier forwarded to the Board or the Audit Committee for which he has not
received any reply or observations ;
(iv) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed
cover by Registered Post with Acknowledgement Due or by Speed Post followed by
an email in confirmation of the same;
(v) The report shall be on the letter-head of the auditor containing postal address, email
address and contact telephone number or mobile number and be signed by the
auditor with his seal and shall indicate his Membership Number; and
(vi) The report shall be in the form of a statement as specified in Form ADT-4.
Details of each of the fraud reported to the Audit Committee or the Board during the year
shall be disclosed in the Board‟s Report by the company :-
(a) Nature of Fraud with description;
(b) Approximate Amount involved ;
(c) Parties involved, if remedial action not taken; and
(d) Remedial actions taken.
Answer : (c)
(i) According to first proviso to section 161(2) of the Companies Act, 2013, no person
shall be appointed as an alternate director for an independent director unless he is
qualified to be appointed as an independent director under the provisions of this
Act.
In the present case, Mr. P who is not qualified to be appointed as an independent
director is appointed by the Board of Directors of XYZ Company Limited; for an
independent director, as an alternate director. Thus, the said appointment is not
valid.
(ii) According to section 161(3) of the Companies Act, 2013, the Board may appoint any
person as a director nominated by any institution in pursuance of the provisions of
any law for the time being in force or of any agreement or by the Central
Government or the State Government by virtue of its shareholding in a Government
company, subject to the articles of a company.
In the present case, on the request of bank providing financial assistance the Board
of Directors of PQR Limited decides to appoint on its Board Mr. Peter, as nominee
director. Articles of Association of the company do not confer upon the Board of
Directors any such power and further there is no agreement between the company
and the bank. Thus, the appointment of Mr. Peter as nominee director is not valid as
Articles do not confer upon the Board of Directors any such power.
4.(a) ABC Ltd. and DEF Ltd. are wholly owned by Government of West Bengal. As a
policy matter, the Government issued administrative orders for merging DEF Ltd.
with ABC Ltd. in the public interest. State the authority with whom the application
for merger is required to be filed under the provisions of the Companies Act, 2013.
4
(b) Excel Limited is a listed company with a turnover of Rs. 60crores in Financial Year
2016-2017. The Company appoints Ms. R as the Women Director on 1st March,
2017. Ms. R is already a Director in twelve companies including ten Public
Companies. State briefly whether the appointment of Ms. R in Excel Limited is valid
as per provision of the Companies Act, 2013. 4
(c) An Audit Committee of a Public Limited Company constituted under section 177 of
the Companies Act, 2013 submitted its report of its recommendation to the Board.
The Board, however, did not accept the recommendations. In the light of the
situation, analyze whether ;
(i) The Board is empowered not to accept the recommendations of the Audit
Committee.
(ii) If so, what alternative course of action, would be Board resort to ? 3+1=4
(d) State briefly the power of Tribunal in case Auditor acted in a Fraudulent Manner. 4
Answer : 4 (a)
Authority to whom the application for merger is to be madeAccording to Section 237 of
the Companies Act, 2013, where the Central Government is satisfied that it is essential in
the public interest that two or more companies should amalgamate, the Central
Government may, by order notified in the Official Gazette provide for the amalgamation
of those companies into a single company.
Thus, in the given situation of merger between two wholly owned Government companies
in public interest, there is no specific authority with whom the application for merger is
required as the Central Government shall by notification in the Official Gazette, will
provide for the amalgamation of the two said companies into a single company.
Answer: 4(b)
Number of directorships : As per section 165(1) of the Companies Act, 2013, no person
shall hold office as director, including any alternate directorship, in more than 20
companies at the same time.
Out of the limit of 20, the maximum number of public companies in which a person can
be appointed as a director shall not exceed 10. [Proviso to section 165(1)]
Private companies that is either holding or subsidiary company of a public company shall
be included in reckoning the limit of public companies in which a person can be
appointed as a director.
In the instant case, Ms. R was appointed as a women director on 1 st March, 2017 in Excel
Limited. She was already holding directorship in twelve companies including ten public
companies.
As Ms. R was already a director in ten public companies, her appointment in Excel
Limited is not valid as it will lead to her directorship in 11 public companies.
In this case, either she can choose between the companies in which she wishes to
continue to hold the office of director or resign her office as director in the other
remaining companies to maintain the limit of holding of directorship.
Answer : 4(c)
(i) As per Section 177(2) and (3) of the Companies Act, 2013 an audit committee must be
formed within a year of the commencement of the Act or within a year of the
incorporation of a company as the case may be, and will consist of at least 3 directors out
of which the independent directors shall constitute the majority.
Under section 177(8) the Board‟s Report which is laid before a general meeting of the
company under section 134(3) where the financial statements of the company are placed
before the members, must disclose the composition of the audit committee and also
where the Board has not accepted any recommendations of the audit Committee the
same shall be disclosed alongwith the reasons therefor. Therefore, the Board is
empowered not to accept the recommendations of the Audit Committee but only under
genuine circumstances and with legitimate reasons.
(ii) If the Board does not accept the recommendations of the Audit Committee, it shall
disclose the same in its report under section 134(3) placed before a general meeting of the
company.
Answer : 4(d)
Power of Tribunal in case Auditor acted in a Fraudulent Manner. As per sub-section (5) of
the section 140 of the Companies Act, 2013, the Tribunal either suomoto or on an
application made to it by the Central Government or by any person concerned, if it is
satisfied that the auditor of a company has, whether directly or indirectly, acted in a
fraudulent manner or abetted or colluded in any fraud by or in relation to, the company
or its directors or officers, it may, by order, direct the company to change its auditors.
However, if the application is made by the Central Government and the Tribunal is
satisfied that any change of the auditor is required, it shall within fifteen days of receipt of
such application, make an order that he shall not function as an auditor and the Central
Government may appoint another auditor in his place.
It may be noted that an auditor, whether individual or firm, against whom final order has
been passed by the Tribunal under this section shall not be eligible to be appointed as
an auditor of any company for a period of five years from the date of passing of the
order and the auditor shall also be liable for action under section 447 of the said Act.
It is hereby clarified that the case of a firm, the liability shall be of the firm and that of
every partner or partners who acted in a fraudulent manner or abetted or colluded in
any fraud by, or in relation to the company or its director or officers.
5. (a) A group of members of XYZ Limited has filed a petition before the Tribunal alleging
various acts of oppression and mismanagement by the majority shareholders of the
company. The Petitioner group holds 12% of the issued share capital of the company.
During the pendency of the petition, some of the petitioner group holding about 5% of
the issued share capital of the company wish to disassociate themselves from the
petition and they along with the other majority shareholders have submitted before
the Tribunal that the petition may be dismissed on the ground of non-maintainability.
Examine their contention having regard to the provisions of the Companies Act,
2013. 4
(b) An officer of a company was allotted one room for two years in a guest house
owned by the Company at some other city where he used to stay while on tour. It
came to notice of the company that he had not vacated the said room after the
expiry of two years and is holding the unauthorized possession of that room and
has been permitting to stay outsiders in the said room, at a rent of Rs. 500 per day.
The record shows that he had permitted the outsider for 45 days and collected Rs.
22,500 and retained the said amount with him. As per the letter of allotment, there
was no such clause which can be invoked against him for making any recovery
on account of such wrongful occupation.
Analyse in the given situation, whether manager of the company can seek
recovery from the officer of the company under any of the provisions of his
employment or the Companies Act. 5
(c)(i) State briefly the factors to be considered by the Court while deciding the amount
of fine or imprisonment under section 446A of the Companies Act, 2013.
(ii) Asha Ltd., has made default in filing financial statements and annual returns for a
continuous period of 4 financial years ending on 31st March, 2017. The Registrar of
Companies having jurisdiction approached the Central Government to accord
sanction to present a petition to Tribunal (NCLT) for the winding up of the company
on the above ground under section 272 of the Companies Act, 2013.
Examine the validity of the RoC move, explaining the relevant provisions of the
Companies Act, 2013
4+3=7
Answer: 5(a)
The argument of the majority shareholders that the petition may be dismissed on
the ground of non-maintability is not correct. The proceedings shall continue
irrespective of withdrawal of consent by some petitioners. It has been held by the
Supreme Court in Rajmundhry Electric Corporation vs. V.NageswarRao, AIR (1956)
SC 213 that if some of the consenting members have subsequent to the
presentation of the petition withdraw their consent, it would not affect the right of
the applicant to proceed with the petition. Thus, the validity of the petition must
be judged on the facts as they were at the time of presentation. Neither the right
of the applicants to proceed with the petition nor the jurisdiction of Tribunal to
dispose it of on its merits can be affected by events happening subsequent to the
presentation of the petition.
Answer: 5(b)
Penalty for wrongful withholding of property : Section 452 of the Companies Act,
2013 provides for Penalty for wrongful withholding of property. According to the
section :
(1) If any officer or employee of a company –

(a) Wrongfully obtains possession of any property, including cash of the
company; or
(b) having any such property including cash in his possession, wrongfully
withholds it or knowingly applies it for the purposes other than those
expressed or directed in the articles and authorized by this Act, he shall,
on the complaint of the company or of any member or creditor or
contributory thereof, be punishable with fine which shall not be less than
1 lakh rupees but which may extend to 5 lakh rupees.
(2) The Court trying an offence may also order such officer or employee to
deliver up or refund, within a time to be fixed by it, any such property or cash
wrongfully obtained or wrongfully withheld or knowingly misapplied, the
benefits that have been derived from such property or cash or in default, to
undergo imprisonment for a term which may extend to 2 years.
Hence, as per the provisions of the Companies Act, 2013 and not giving any
emphasis on the terms of employment, the manager of the company can
recover possession of the room and the cash wrongfully obtained and the
benefits that have been derived from such property or cash.
Answer: 5(c)
(i) 446A. The court or the Special court, while deciding the amount of fine or
imprisonment under this Act, shall have due regard to the following factors, namely –
a) size of the Company;
b) nature of business carried on by the company;
c) injury to public interest;
d) nature of the default, and
e) repetition of the default
(ii) Validity of RoC‟s action

According to Section 271(d) of the Companies Act, 2013, a Company may, on a
petition under Section 272, be wound up by the Tribunal, if the Company has
made a default in filing with the Registrar its financial statements or annual returns
for immediately preceding five consecutive financial years.
In the instant case, the move by RoC to present a petition to Tribunal for the
winding up of Asha Ltd. is not valid as the Company has made default in filing
financial statements and annual returns for a continuous period of 4 financial
years ending on 31st March, 2017.
6.(a) State briefly the power of SEBI to levy monetary fines and penalties under SEBI Act, 1992.
4
(b) The Board of Directors of M/s. S.K. Limited, a banking company incorporated in India,
for the accounting year ended 31st March, 2018 has transferred 10% of its net profit
during the year to the Reserve Fund Account. A few shareholders of the company
have objected the above act of the Board on the ground that it is violative of the
provisions of the Banking Regulation Act, 1949. The Board of Directors of the
Company in their defense have stated that the company has received an order
dated 30th April, 2018 from the Central Government exempting the company from
the provisions of sub section (1) of section 17 of the Act. It is further informed that on
the date of the Central Government order i.e. 30.04.2018 the paid up capital of the
company was Rs. 200 crores and the amount standing in the Reserve Fund Account
and Share Premium Account was Rs. 100 crores and Rs. 75 crores respectively.
Decide whether the order of the Central Government exempting the company is
justified as per the provisions of the Banking Regulation Act, 1949.
4
(c) (i) All offences under the Companies Act, 2013 are non-cognizable. Comment.
(ii) What are the powers of the Central Government under the Companies Act, 2013
regarding to Appeal against acquittal ?
(iii) The Securities and Exchange Board of India issued an order against a stock
broker to redress the grievances of the investors within the stipulated time. The
stock broker failed to do so, which is an offence under the provisions of the
Securities Contracts (Regulation) Act, 1956.
Decide whether this offence can be compounded after institution of proceedings
against the stock broker.
(iv) Whether a person purchasing goods not for personal use, but for resale can be
considered as a „consumer‟ under the Competition Act, 2002.
2+2+2+2=8
Answer : 6(a)
Power of SEBI to levy monetary fines and penalties under SEBI Act, 1992 : SEBI Act, 1992
empowers SEBI to levy monetary fines and penalties on any person incurring a default
under the Act in the following cases :
(i) Failure to furnish any document, information, books, other documents, return or
report called for by the Board ;
(ii) Failure to maintain books of account and records ;
(iii) Failure by an intermediary to enter into an agreement with his client, redress
the grievances of investors;
(iv) Failure by a person sponsoring or carrying on any collective investment
scheme, including mutual funds, without obtaining certificate of registration ;
(v) Failure by a stock broker to issue contract notes in the form and manner
specified by the stock exchange, failure to deliver any security or failure to
make payment of the amount due to the investor, charging of excess
brokerage ;
(vi) Any person dealing, communicating, counseling on the basis of some price
sensitive information ;
(vii) Failure by a person to disclose the aggregate of his shareholding in a body
corporate before he acquires any shares of that body corporate and failure to
make a public announcement to acquire shares at a minimum price in case of
takeovers.
SEBI also has the power to suspend or cancel the certificate of registration of a stock-
broker, sub-broker, share transfer agent, banker to an issue, trustee of a trust deed,
registrar to an issue, merchant banker, underwriter, portfolio manager, investment
adviser and such other intermediary who may be associated with securities market,
This includes depository, depository participant, custodian of securities, foreign
institutional investor and credit rating agency also.
Answer :6(b)
Reserve Fund: According to Section 17 of the Banking Regulation Act, 1949, every
Banking Company incorporated in India must create a Reserve Fund and transfer a sum
equal to not less than 20% of its net profits. However, the Central Government is
empowered to exempt from this requirement on the recommendation of the RBI. Such
exemption will be allowed only :-
- When the amounts in the reserve fund and the share premium account are not less
than the paid-up capital of the banking company.
- When the Central Govt. feel that its paid-up capital and reserves are adequate to
safe guard the interest of the depositors.
If a banking company appropriates any sum from the Reserve fund or the share premium
account, it must be reported to RBI within 21 days explaining the circumstances leading
to such appropriation.
In the instant case, the total amount in the reserve fund and the share premium account
is Rs. 175 crores which is less than the paid-up capital of the banking company i.e. Rs. 200
crore.
In view of the above the transfer of 10% of its net profits to reserve fund is violative of the
provisions of the Banking Regulation Act, 1949. Moreover, the Order of the Central
Government exempting the company is not justified as per the provisions of the Banking
Regulation Act, 1949.
Answer : 6(c)
(i) As per section 439(1) of The Companies Act, 2013, every offence under the Companies
Act, 2013 except the offences referred to in section 212(6) shall be deemed to be
non-cognizable under the code of criminal procedure.
As per section 212(6), offence covered under section 447 of the Act shall be
cognizable. Hence the given statement in the question is not valid.
(ii) According to section 444 of The Companies Act, 2013, The Central Government may in
any case arising under this Act direct :-
a) Any Company Prosecutor or
b) Authorise any other person either by name or by virtue of his office, to present
an appeal from an order of acquittal passed by any court other than High
Court.
Appeal presented by such prosecutor or other person shall be deemed to
have been validly presented to the appellate court.
(iii) The offence can be compounded after institution of proceedings against the
stock broker as it is clearly stated under section 23N.
(iv) It is not necessary that a person must purchase the goods for personal use in order
to be considered as a “consumer” under Competition Act 2002. Even a person
purchasing goods for re-sale or for any commercial purpose will also be
considered as a “consumer” within the meaning of the section 2(f) of
Competition Act, 2002.
7.(a) Explain the main provisions of clause 49 of the listing agreement with the Stock
Exchanges regarding Corporate Governance. 4
(b) Discuss the National Voluntary Guidelines on “Business should respect the interests
of and be responsive towards all stakeholders, especially those who are
disadvantaged, vulnerable and marginalized.” 4
(c) (i) M/s. Toy Metal Limited had availed credit facilities from Bapi Bank Ltd. The
company made repayment of loan to some extent and not entirely and
accordingly, the bank took recourse under the provisions of section 13(2) of
the SARFAESI Act, 2002. Consequently, possession of the mortgaged property
was taken up and was duly advertised by the Bank. The company also filed
an application under section 17(1) of SARFAESI Act, 2002 before the debts
recovery tribunal which was dismissed by the impugned order. Being
aggrieved the company approached the Court.
Examine in the light of the SARFAESI Act, 2002 whether the company will
succeed in the petition filed before the Court.
(ii) “Money Laundering does not mean just siphoning of fund.” Comment.
(iii) The Insolvency and Bankruptcy Code, 2016 is not applicable to corporates in
finance sector. Explain. 4+2+2=8
Answer: 7(a)
(a) Clause 49, as currently in effect, includes the following key requirements :
a) Board : Independence Boards of directors of listed companies must have a
minimum number of independent directors. Where the chairman is an executive
or a promoter or related to a promoter or a senior official, then at least one half
the board should comprise independent directors ; in other cases, independent
directors should constitute at least one third of the board size.
b) Audit Committees : Listed Companies must have audit committees of the board
with a minimum of three directors, two thirds of whom must be independent; in
addition, the roles and responsibilities of the audit committee are specified in
detail.
c) Disclosure: Listed companies must periodically make various disclosures regarding

financial and other matters to ensure transparency.
d) CEO/CFO Certification of Internal Controls : The CEO and CFO of listed

companies must :
(i) Certify that the financial statements are fair, and

(ii) Accept responsibility for internal controls
e) Annual Reports : Annual reports of listed companies must carry status reports
about compliance with corporate governance norms.
Answer: 7(b)
The principle recognizes that businesses have a responsibility to think and act beyond the
interests of its shareholders to include all their stakeholders.
The principle, while appreciating that all stakeholders are not equally influential or aware,
encourages businesses to proactively engage with and respond to those that are
disadvantaged, vulnerable and marginalized.
Core Elements
(a) Businesses should systematically identify their stakeholders, understand their concerns,
define purpose and scope of engagement and commit to engaging with them.
(b) Businesses should acknowledge, assume responsibility and be transparent about the
impact of their policies, decisions, product & services and associated operations on
the stakeholders.
(c) Businesses should give special attention to stakeholders in areas that are
underdeveloped.
(d) Businesses should resolve differences with stakeholders in a just, fair and equitable
manner.
Answer: 7(c)
(i) According to section 18(1) of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, any person aggrieved, by any
order made by the Debts Recovery Tribunal under sec. 17, may prefer an appeal
along with prescribed fees to the Appellate Tribunal within 30 days from the date of
receipt of the order of Debts Recovery Tribunal.
Further, no appeal shall be entertained unless the Borrower has deposited with the
Appellate Tribunal 50% of the amount of debt due from him, as claimed by the
Secured Creditors, or determined by the Debts Recovery Tribunal, whichever is less.
However, the Appellate Tribunal may, for the reasons to be recorded in writing,
reduce the amount of not less than 25% of debt.
Thus, in the given situation, Toy Metal Limited can appeal to the Appellate Tribunal
(Now to NCLT) by following the above provisions.
(ii) Money laundering is a moving of illegally acquired cash through financial systems
so that it appears to be legally acquired. Thus, Money laundering is not just the
siphoning of fund but it is the conversion of money which is illegally obtained.
(iii) Code not applicable to financial service providers – The Insolvency and
Bankruptcy Code is not applicable to corporates in finance sector. Section 3(7)
of Insolvency and Bankruptcy Code, 2016 states that “Corporate person” shall
not include any financial service provider. Thus, the Code does not cover Bank,
Financial Institutions, Insurance Company, Asset Reconstruction Company,
Mutual Funds, Collective Investment Schemes or Pension Funds.

(i) Persons who are not entitled to initiate insolvency resolution process
(ii) Differential Pricing
(iii) Record of Policies and Claims (Section 14)
(iv) Current account transaction (Section 2j)
(v) Inquiry by the Registrar [(Section 206(4)]
Answer: 8
(i) Persons who are not entitled to initiate Insolvency resolution process
The Code states that a corporate debtor (which includes a corporate applicant in
respect of such corporate debtor) shall not be entitled to make an application to
initiate corporate insolvency resolution process [Section 11 of Insolvency and
Bankruptcy Code, 2016] in the following cases :
(a) when undergoing a corporate insolvency resolution process ; or
(b) having completed corporate insolvency resolution process twelve months
preceding the date of making of the application ; or
(c) or a financial creditor who has violated any of the terms of resolution plan which
was approved twelve months before the date of making of an application under
this Chapter ; or
(d) in respect of him a liquidation order has been made.
Thus, application to initiate insolvency resolution process cannot be filed within 12
months or if there were violation of conditions or where order of liquidation has been
made.
(ii) Differential Pricing
An issuer may offer equity shares and convertible securities at different prices, subject
to the following condition :
(a) the retail individual investors/shareholders or employees entitled for reservation
making an application for equity shares and convertible securities of value not
more than 2 lakh, may be offered equity shares and convertible securities at a
price lower than the price at which net offer is made to other categories of
applicants provided that such difference is not more than 10% of the price at
which equity shares and convertible securities are offered to other categories of
applicants.
(b) in case of a book built issue, the price of the equity shares and convertible
securities offered to an anchor investor cannot be lower than the price offered to
other applicants.
(c) In case of a composite issue, the price of the equity shares and convertible
securities offered in the public issue may be different from the price offered in
rights issue and justification for such price difference should be given in the offer
document.
(d) In case the issuer opts for the alternate method of book building, the issuer may
offer specifies securities to its employees at a price lower than the floor price,
However, the difference between the floor price and the price at which equity
shares and convertible securities are offered to employees should not be more
than 10% of the floor price.
(iii) Record of Policies and claims (Section 14)
Every insurer, in respect of all business transacted by him, shall maintain :
(a) a record of policies, in which shall be entered, in respect of every policy issued by
the insurer, the name and address of the policyholder, the date when the policy
was effected and a record of any transfer, assignment or nomination of which
the insurer has notice.
(b) a record of claims , every claim made together with the date of the claim, the
name and address of the claimant and the date on which the claim was
discharged, or, in the case of a claim which is rejected, the date of rejection and
the grounds thereof.
(c) a record of policies and claims may be maintained in any such form, including
electronic made, as may be specified by the regulations made under this Act.
(d) Every insurer shall, in respect of all business transacted by him, endeavour to issue
policies above a specified threshold in terms of sum assured and premium in
electronic form, in the manner and form to be specified by the regulations made
under this Act.
(iv) Current account transaction- Section 2(j)
„Current account transaction‟ means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing such transaction
includes :
(1) Payments due in connection with foreign trade, other current business, services,
and short-term banking and credit facilities in the ordinary course of business.
(2) Payments due as interest on loans and as net income from investments.
(3) Remittances for living expenses of parents, spouse and children residing abroad
and
(4) Expenses in connection with foreign travel, education and medical care of
parents, spouse and children.
(v) Inquiry by the Registrar [Section 206(4)]

(1) The Registrar may call on the company to furnish in writing any information or
explanation on matters specified in the order within such time as he may specify
therein and carry out such inquiry as he deems fit after providing the company a
reasonable opportunity of being heard, if the Registrar is satisfied :
(a) on the basis of information available with or furnished to him, or
(b) on a representation made to him by any person that the business of a
company is being carried on for a fraudulent or unlawful purpose or not in
compliance with the provisions of this Act, or
(c) the grievances of investors are not being addressed.
(2) Before calling the company to furnish in writing any information or explanations
and carrying out inquiry, the Registrar has to inform the company of the
allegations made against it by a written order.
(3) The Central Government may, if it is satisfied that the circumstances so warrant,
direct the Registrar or an Inspector appointed by it for the purpose to carry out
the inquiry under this sub-section.
(4) It is further provided that where business of a company has been or is being
carried on for a fraudulent or unlawful purpose, every officer of the company
who is in default shall be punishable for fraud in the manner as provided in
section 447.
SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_JUNE2019_PAPER-13
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)
JUNE - 2019
answer any five questions from Question No. 2 to Question No. 8.
C or D and give justification.
Multiple choice questions: 2x10=20
(i) The asset in respect of which no default in repayment of principal or payment of

interest has occurred is known as
(A) Non-performing Asset
(B) Standard Asset
(C) Sub-standard Asset
(D) Doubtful Asset
(ii) A person who fails to get appointed as a director in a general meeting cannot be
appointed as
(A) Additional director
(B) Alternate director
(C) Independent director
(D) Nominee director
(iii) Which of the following is not the correct manner in the event of any change in his
particulars as stated in Form DIR-3, an applicant intimate such change to the Central
Government within a period of 30 days of such change in Form DIR-3?
(A) The applicant shall download Form DIR-6 from the portal.
(B) The form shall be digitally signed by CA or CS or CMA.
(C) The applicant shall submit the fees.
(D) The applicant shall submit the form DIR-6.
(iv) In which of the following principle, every members holds equal rights with other
members of the company in the same class? The scale of rights of members of the
same class must be held evenly for smooth functioning of the company.
(A) Interference
(B) Non-interference
(C) Indifference
(D) Difference
(v) SEBI has three functions rolled into one body. Which of the following is not the function
of SEBI?
(A) Quasi-legislative
(B) Quasi-judicial
(C) Quasi-executive
(D) Quasi-official
(vi) Which of the following is not the condition for issue of IDR?
(A) Issue size should not be more than ` 50 crores.
(B) Minimum application amount should be ` 20,000.
(C) At least 50% of the IDR issued should be allotted to qualified institutional buyers on
proportionate basis.
(D) There will be only denomination of IDR of the issuing company.
(vii)Which of the following FDI in resident entities is not eligible as investee entities?
(A) FDI in an India company
(B) FDI in Partnership
(C) FDI in HUF
(D) FDI in LLP
(viii) For the appointment, reappointment, remuneration and removal of the director of a
banking company, prior approval of ____________ should be obtained.
(A) Chairman
(B) RBI
(C) Managing Director
(D) Finance Secretary
(ix) A Nidhi shall not accept deposit exceeding …….....times of its net owned funds
(A) Ten times
(B) Fifteen times
(C) Twenty times
(D) Twenty five times
(x) Which of the following Committee was formed by SEBI for improving standards of
Corporate Governance of Listed Companies in India?
(A) Naresh Chandra Committee
(B) N.R. Narayan Murthy Committee
(C) Kotak Committee
(D) Kumar Mangalam Birla Committee
Answer:
1.
(i) B Standard Asset Standard Assets means asset In respect of which no
default in repayment of principal or payment of Interest
has occurred or is perceived and which has neither shown
signs of any problem relating to re-payment of principal
sum or interest nor does it carry more than normal risk
attached to the business.
(ii) A Additional A person who falls to get appointed as a director in a

director general meeting cannot be appointed as Additional
director.
(iii) C The applicant While submitting form DIR-6, the applicant does not require
shall submit the to submit fees.
fees
(iv) B Non Interference In the principle of non interference every members holds
equal rights with other members of the company in the
same class. The scale of rights of members of the same
class must be held evenly for smooth functioning of the
company.
(v) D Quasi-official SEBI has three functions rolled into one body. Quasi-
Legislative, Quasi-judicial and Quasi- executive.
(vi) A Issue size should Issue size should not be less than ` 50 crores.
not be more than
` 50 crores
(vii) C FDI in HUF FDI in Indian Company, partnership and LLP are eligible as
investee entities.
(viii) B RBI According to Section 35 (B) prior approval of RBI should,
be obtained for the appointment, reappointment,
remuneration and removal of the director of a banking
company.
(ix) C Twenty times A Nidhi shall not accept deposit exceeding Twenty times
of its Net owned funds as per its last audited financial
statements.
(x) C Kotak Committee SEBI had formed a committee for improving standards
of Corporate Governance of listed Companies in India
under the chairmanship of Uday Kotak.
2. (a) (i) Although Company is an artificial person, it can still own property and enter into
contracts — Comment. 2
(ii) State with reasons whether the following statements are 'True' or 'False'
(I) The liability in respect of offences committed under the Companies Act, 2013
by the officers in default of the transferor Company prior to its merger or
amalgamation shall not continue after such merger or amalgamation.

(II) Only a natural person who is an Indian Citizen shall be eligible to
incorporate a one-person Company. 1+1=2
(iii) State briefly the requirements relating to filing of accounts with the Registrar of
Companies by the Foreign Company in respect of Global Business as well as
Indian Business. 2
(iv) Define the terms 'Mediation' and 'Conciliation'. 1+1=2
(b) Simplex Ltd. has a credit balance of ` 10,00,000 in Securities Premium Reserve. It did
not earn profit during the year and thus was unable to declare dividend. Bapi, the
accountant of the Company, suggested that Securities Premium Reserve of `
10,00,000 may be used for payment of dividend. Comment. 4
(c) Explain the particulars required to be contained in Directors Responsibility Statement

as per provision of the Companies Act, 2013. 4
Answer:
2. (a) (i) It is true that Company is an artificial person as it is created by law. However, like
a natural person a Company may also own property and enter into contracts.
Being an artificial person, Company, enters into contracts through its Board of
Directors (BOD). BOD enters into an agreement with others and indicates
Company's approval through a common seal.
(ii) (a) False - As per Section 240 of the Companies Act, 2013, notwithstanding
anything in any other law for the time being in force, the liability in respect of
offences committed under this Act by the officers in default of the transferor
Company prior to its merger or amalgamation shall continue after such
merger or amalgamation.
(b) False - Only a natural person who is an Indian Citizen and resident in India shall
be eligible to incorporate a one-person Company.
(iii) According to Sec. 381 of the Companies Act, 2013

(1) Every Foreign Company shall in every calendar year,
(a) make out a Balance Sheet and Profit & Loss account in such form,
containing such particulars and including or having attached or annexed
thereto such documents as may be prescribed under Rule 4 & 5 of the
Companies (Regulation of foreign Companies) Rule 2014, and
(b) deliver a copy of those documents to the Registrar.
(iv) 'Mediation' means intervention of some third party in a dispute with the intention
to resolve the dispute.
'Conciliation' means the process of adjusting or settling disputes in a friendly

manner through extra judicial means.
(b) According to section 52 of the Companies Act, 2013, where a company issues shares at a
premium, whether for cash or otherwise, a sum equal to the aggregate 'amount of the
premium received on those shares shall be transferred to a "securities premium
account" and the provisions of this Act relating to reduction of share capital of a
company shall, except as provided in this section, apply as if the securities premium
account were the paid-up share capital of the company.
The securities premium account may be applied by the company—

(a) towards the issue of unissued shares of the company to the members of the company
as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any
issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities, under section 68.
As such dividend cannot be declared.
(c) Contents of Directors Responsibility Statement [Section 134(5) of the Companies Act,
2013]: The Directors' Responsibility Statement referred to in 134(3) (c) shall state that—
1. in the preparation of the annual accounts, the applicable accounting standards had
been followed along with proper explanation relating to material departures;
2. the directors had selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give a true
and fair view of the state of affairs of the company at the end of the financial year and
of the profit and loss of the company for that period;
3. the directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding the
assets of the company and for preventing and detecting fraud and other
irregularities;
4. the directors had prepared the annual accounts on a going concern basis;
5. the directors, in the case of a listed company, had laid down internal financial
controls to be followed by the company and that such internal financial controls are
adequate and were operating effectively.
Here, the term "internal financial controls" means the policies and procedures
adopted by the company for ensuring the orderly and efficient conduct of its
business, including adherence to company's policies, the safeguarding of its assets, the
prevention and detection of frauds and errors, the accuracy and completeness of the
accounting records, and the timely preparation of reliable financial information;
and
(6) the directors had devised proper systems to ensure compliance with the provisions
of all applicable laws and that such systems were adequate and operating
effectively.
3. (a) The Promoters of M/s Soma Limited, a listed public company propose to have the
strength of the Board of Directors as eleven. They also propose to make the Managing
Director and Whole Time Directors as directors not liable to retire by rotation. Advise
on the following matters as per the provisions of the Companies Act, 2013:
(i) How many of the remaining directors will have to retire by rotation every year at
the Annual General Meeting (AGM)?
(ii) For the purpose of increasing the strength, certain nominations were received to
nominate candidates for contesting elections. One of the nominations was
rejected by the directors as it was received after sending the notice of AGM and
that too after the working hours of the last day on which nomination should
have been received. 5
(b) M/s Daga Limited (an unlisted company) without any public deposits as per the
audited financial statements of the company as at March 31st, 2018 gives you the
following informations:
Paid-up Share Capital `20 crores

Gross Turnover `500 crores
Bank Borrowings `50 crores (from a National Bank)
Other Borrowings `30 crores (from a Public Financial Institution)
Mr. Lodha, a Chartered Accountant employed in the finance and audit department of
the company wants to form a Vigil Mechanism for directors and employees of the
company. Advise whether it is mandatory for M/s Daga Limited to formulate a Vigil
Mechanism for directors and employees of the company. 4
(c) (i) DEF Limited is a listed company. The Board of Directors of the company at
their meeting held on 1st November, 2018 approved the proposal to issue bonus
shares in the ratio of 1:1. Such bonus issue is authorized by its Articles of
Association for issue of bonus shares and capitalization of reserves. The
company implemented the bonus issue on 15th November, 2018. Whether the
company has contravened the provisions of Securities Exchange Board of India
(Issue of Capital and Disclosure Requirements) Regulation 2009? 4
(ii) The e-forms rolled out by the Ministry of Corporate Affairs (MCA) under the
provisions of the Companies Act, 2013 and rules framed thereunder are
mandatorily numbered alpha-numeric. Explain this concept. 3
Answer:
3. (a) (i) According to section 152(6)(c) of the Companies Act, 2013, l/3rd of such of the
Directors for the time being as are liable to retire by rotation, or their number is
neither three nor a multiple of three, then, the number nearest to the l/3rd shall retire
from office. Therefor the Directors liable to retire by rotation are 11*2/3 i.e. 7.3 or 8.
(No. of directors to retire at AGM: 8 * 1/3 i.e. 2.67. Hence nearest to 1/3rd is 3).
(ii) According to section 160 of the Companies Act, 2013, a person who is not a
retiring director in terms of section 152 shall, subject to the provisions of this Act, be
eligible for appointment to the office of a director at any general meeting, if he
has, not less than 14 days before the meeting, left at the registered office of the
Company, a notice in writing under his hand signifying his candidature as a director.
In the instant case, one nomination was rejected by the directors as it was
received after sending the notice of AGM and that too after the working hours of
the last day on which nomination should have been received i.e. 14th day. Hence,
the contention of the directors are valid.
(b) Formation of vigil mechanism: According to Section 177(9) of the Companies Act, 2013,
a Vigil mechanism shall be formed in:
(a) Every listed Company, and
(b) Such other prescribed classes of companies.
Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 has
prescribed the following class or classes of companies that shall constitute Vigil
mechanism:
1. The Companies which accept deposits from the public;
2. The Companies which have borrowed money from banks and public
financial institutions in excess of 50 crore rupees.
In the instant case, Daga Ltd. does not have any public deposits. They have
borrowings from banks and public financial institutions of ` 80 Crores which is in
excess of ` 50 crores. Since, the Company had borrowed from banks and Public
Financial Institutions in excess of `50 crores as prescribed in Rule 7(2), the
Company is mandatorily required to form a Vigil Mechanism for directors and
employees of the Company.
(c) (i) Bonus Issue: According to the provisions of Chapter IX of the SEBI (Issue of Capital
and Disclosure Requirements) Regulations, 2009, a listed issuer may issue bonus
shares to its members if it is authorised by its articles of association for issue of
bonus share, Capitalisation of reserves, etc.
An issuer, announcing a bonus issue after the approval of its board of directors
and not requiring shareholders' approval for Capitalisation of profits or reserves for
making the bonus issue, shall implement the bonus issue within fifteen days from the
date of approval of the issue by its board of directors. According to the stated
facts, Board of Directors of DEF Ltd. approved the proposal to issue of bonus
shares in the meeting held on 1st November 2018. This issue of bonus shares, is
without requiring shareholders' approval.
Accordingly, DEF Ltd. implemented the bonus issue within fifteen days from the date
of approval of the issue by its board of directors (i.e. on 15th November 2018). So,
DEF Ltd. is in compliance with the SEBI (ICDR) Regulation, 2009 and thus has not
contravened.
(ii) In order to facilitate easy understanding of the e-forms being rolled out under the
provisions of Companies Act, 2013 and Rules made thereunder, forms under the
Companies Act are mandatorily numbered alpha-numeric. Initial of forms is to be
started with alphabet of two or three letters based on the subject of the Chapter,
followed by serial number of the form. This will define the nature of the forms and
would be easy to recognize.
4. (a) M/s RST and Co., a firm of Chartered Accountants, comprising of three partners
R, S and T are Statutory Auditors of 50 companies as per details given below:
(i) Small Companies — 10
(ii) Private Companies having paid-up share capital of less than `100 Crores — 20
(iii) Private Companies having paid-up share capital of more than ` 100 Crores — 15
(iv) Public Companies — 5
Mr. R signs the Balance Sheet of 10 Small Companies and 10 Private Companies
having paid-up share capital of less than ` 100 Crores. Mr. S signs the Balance Sheet
of 10 Private Companies having paid-up share capital of less than ` 100 Crores and 5
Private Companies having paid-up share capital of more than ` 100 Crores. Mr. T
signs the Balance Sheet of 10 Private Companies having paid-up share capital of
more than ` 100 Crores and 5 Public Companies.
What is the maximum number of audits that the firm as a whole can accept and what
is the maximum number of audits each individual partner can accept? 6
(b) State briefly with reference to the applicable provisions of the Companies Act, 2013
read with rules thereunder whether an unlisted Public Company which is a wholly
owned Subsidiary Company will be required to appoint Independent Directors. 2
(c) (i) PBX Pvt. Ltd. is a company in which there are 6 shareholders. Mr. Bala, who is a
director and also the legal representative of a deceased shareholder holding less
than one tenth of the share capital of the company made a petition to the tribunal
for relief against oppression and mismanagement. Examine under the provisions
of the Companies Act, 2013 whether the petition made by Mr. Bala is valid and
maintainable. 4
(ii) Decide the liability of the person for commission of the act during the course of
inspection, inquiry or investigation under the Companies Act, 2013:
(I) A person who is required to make statement during the course of investigation
pending against its company, is a party to the manipulation of documents
related to the transfer of securities and naming of holders in the register of
members by the company.
(II) An employee of the company publicized among his social networking of
sound financial position of his organization in order to incite the public to
purchase the shares of its company. In actuality, the company was running
in loss. 4
Answer:
4. (a) Ceiling on Number of Audit: As per section 141(3)(g) of the Companies Act, 2013, a
person shall not be eligible for appointment as an auditor if he is in full time
employment elsewhere or a person or a partner of a firm holding appointment as its
auditor, if such person or partner is at the date of such appointment or
reappointment holding appointment as auditor of more than twenty Companies
other than one person companies, dormant Companies, small Companies and
private Companies having paid-up share capital less than `100 crores.
As per section 141(3)(g), this limit of 20 Company audits is per person. In the case of
an audit firm having 3 partners, the overall ceiling will be 3 * 20 = 60 Company audits.
Sometimes, a chartered accountant is a partner in a number of auditing firms. In such
a case, all the firms in which he is partner or proprietor will be together entitled to 20
Company audits on his account. Therefore, maximum number of audits that the firm
M/S. RST & CO. as a whole can accept is 60 and maximum number of audits each
individual partner can accept is 20 i.e. other than one person Companies, dormant
Companies, small Companies and private Companies having paid-up share capital
less than ` 100 crores.
In the given case, CAR is holding appointment in 20 Companies, i.e. 10 small

companies and 10 private Companies having paid up share capital of less than ` 100
crores, whereas CA S is having appointment in 15 Companies i.e. 10 private
Companies having paid up share capital of less than ` 100 crore and 5 private
Companies having paid up share capital of more than `100 crore and CA T is having
appointment in 5 public Companies and 10 private Companies having paid up share
capital of more than ` 100 crores. In aggregate all three partners are having 50
audits.
As per section 141(3)(g) applying the above provisions, an auditor can accept more
appointment as auditor = ceiling limit as per section 141(3)(g) - already holding
appointments as an auditor.
Hence (1) CA R can accept 20 more audits. (2) CA S can accept 20 - 5 = 15 more
audits and (3) CA T can accept 20 — 1 5 = 5 more audits.
As per the facts of the case, M/S. RST & CO. is already having 20 Company audits
and they can also accept 40 more Company audits. In addition, they can also
conduct the audit of one person Companies, small Companies, dormant Companies
and private Companies having paid up share capital less than ` 100 crores.
As per section 141(3)(g) of the Companies act, 2013, M/S. RST &CO. can accept
appointment as an auditor of 40 more Companies as under:

Total number of Audits available to the Firm = 20 * 3 = 60
Number of Audits already taken by all the partners in their = 0 + 5+ 15 = 20
individual capacity
Remaining number of Audits available to the firm = 40
(b) As per section 149(6) read with Rule 4 of the Companies (Appointment and
Qualification of Directors) Rules, 2014, the public Companies of prescribed class shall
require to appoint minimum 2 independent directors. However, vide Notification
number G.S.R. 839(E) dated 5th July 2017 an amendment was issued through the
Companies (Appointment and Qualification of Directors) Amendment Rules, 2017. It
provided that an unlisted public Company which is a joint venture, a wholly owned
subsidiary or a dormant Company will not be required to appoint independent
Directors.
(c) (i) According to section 244 of the Companies Act, 2013, in the case of a Company
having share capital, the following member(s) have the right to apply to the
Tribunal under section 241:
(a) Not less than 100 members of the Company or not less than one-tenth of the
total number of members, whichever is less; or
(b) 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.
Legal heir of the deceased shareholder with minority status is entitled to file the
petition.
In the given case, there are six shareholders. As per the condition (a) above, 10%
of 6 i.e. 1 (round off 0.6) satisfies the condition. Therefore, in the light of the
provisions of the Act, a single member (even the legal representative of a
deceased shareholder) can present a petition to the Tribunal, regardless of the
fact that he holds less than one-tenth of the Company's share capital.
Thus, the petition made by Mr. Bala is valid and maintainable.
(ii) Section 229 of the Companies Act, 2013 states that where a person who is
required to provide an explanation or make a statement during the course of
inspection, inquiry or investigation, or an officer or other employee of a company
or other body corporate which is also under investigation,—
(a) destroys, mutilates or falsifies, or conceals or tampers or unauthorisedly
removes, or is a party to the destruction, mutilation or falsification or
concealment or tampering or unauthorised removal of, documents relating
to the property, assets or affaire of the company or the body corporate;
(b) makes, or is a party to the making of, a false entry in any document
concerning the company or body corporate; or
(c) provides an explanation which is false or which he knows to be false,
-he shall be punishable for fraud in the manner as provided in section 447.
As per the above provision:

(i) With respect to this part of the question, the person shall be liable for
fraud. Since, in the given case, he is a party in the manipulation of
documents relating to the transfer of securities and in the register of members
of the company which is under investigation.
(ii) Employee shall not be liable here, as the said company in which he is an
employee, is not undergoing investigation. Secondly, the person purchasing
the shares can act with due diligence before purchasing shares rather -fully
relying on the publicity made on social networking.
5. (a) Discuss the National Voluntary Guidelines on "Business, when engaged in influencing
public and regulatory policy, should do so in a responsible manner". 4
(b) Referring to the provisions of the Securitisation & Reconstruction of Financial Assets
& Enforcement of Security Interest Act, 2002 state the circumstances under which the
Reserve Bank of India may cancel the certificate of registration granted to a
Securitisation Company. 5
(c) (i) Mr. Z, a director of Southern Highway Tolls Private Limited, is duly authorized by the
Board of Directors to prepare and file returns, report or other documents to the
Registrar of Companies on behalf of the company. Though he filed all the required
documents to Registrar in time, however, subsequently it was found that the filed
documents were false and inaccurate in respect to material particulars (knowing
it to be false) submitted to the Registrar. Discuss the penal provision under the
Companies Act, 2013 in the light of the given situation. 4
(ii) Mr. Ganesh, an operational creditor filed an application for corporate insolvency
resolution process. He does not propose for appointment of an interim resolution
professional in the application. State the provisions given by the code in the
given situation. State the term of such appointed IRP. 3
Answer:
5. (a) Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do
so in a responsible manner.
The principle recognizes that businesses operate within the specified legislative and policy
frameworks prescribed by the Government, which guide their growth and also provide for
certain desirable restrictions and boundaries.
The principle acknowledges that in a democratic set-up, such legal frameworks are
developed in a collaborative manner with participation of all the stakeholders, including
businesses.
The principle, in that context, recognizes the right of businesses to engage with the
Government for redressal of a grievance or for influencing public policy and public
opinion.
The principle emphasizes that policy advocacy must expand public good rather than
diminish it or make it available to a select few.
Core Elements
(a) Businesses, while pursuing policy advocacy; must ensure that their advocacy
positions are consistent with the Principles and Core Elements contained in these
Guidelines.
(b) To the extent possible, businesses should utilize the trade and industry chambers
and asso ciations and other such collective platforms to undertake such policy
advocacy.
(b) Cancellation of Certificate of Registration (Section 4 of the securitisation &

reconstruction of financial assets & enforcement of Security interest Act, 2002).
As per the section 4 of the Securitisation & Reconstruction of Financial Assets &
Enforcement of security Interest Act, 2002, the Reserve Bank may cancel a certificate
of registration granted to a securitization company or a reconstruction company, if
such company-
(i) ceases to carry on the business of securitisation or asset reconstruction; or
(ii) ceases to receive or hold any investment from a qualified institutional buyer; or
(iii) has failed to comply with any conditions subject to which the certificate of
registration has been granted to it; or
(iv) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of
sub-section (3) of section 3; or
(v) falls to –
(a) comply with any direction Issued by the Reserve Bank under the provisions of
this Act; or
(b) maintain accounts in accordance with the requirements of any law or any
direction or order issued by the Reserve Bank under the provisions of this Act;
or
(c) submit or offer for inspection its books of account or other relevant
documents when so demanded by the Reserve Bank; or
(d) obtain prior approval of the Reserve Bank required under sub-section (6) of
section 3.
(c) Penalty for false statements (Section 448 of the Companies Act, 2013)
(i) According to section 448 of the Companies Act, 2013, save as otherwise provided in
this Act, if in any return, report, certificate, financial/statement, prospectus,
statement or other document required by, or for, the purposes of any of the
provisions of this Act or the rules made there under, any person makes a
statement, -
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material,
he shall be liable under section 447.
In the present case, Mr. Z, a director of Southern Highway Tools Private Limited
filed returns, report or other documents to Registrar in time, however,
subsequently it was found that the filed documents were false and inaccurate in
respect to material particulars (knowing it to be false) submitted to the Registrar.
Hence, Mr. Z shall be liable under section 447 for false statements.
(ii) Appointment of IRP: As per Section 16 of the Code where the application for
corporate insolvency resolution process is made by an operational creditor and
no proposal for an interim resolution professional is made in the said application.
The Adjudicating Authority shall make a reference to the Board for the
recommendation of an insolvency professional who may act as an Interim
resolution professional.
The Board shall recommend the name of an insolvency professional to the

Adjudicating Authority against whom no disciplinary proceedings are pending,
within ten days of the receipt of a reference from the Adjudicating Authority.
Period of appointment of IRP: The term of Interim Resolution Professional shall

continue till the date of appointment of the resolution professional under section
22 of the Code.
6. (a) (i) ABC Ltd., is a company which has a net worth of INR ` 200 crores, it manufactures
rubber parts for automobiles. The sales of the company are affected due to low
demand of its products.
The previous year's financial state:

(` in Crore)
March 31, 2019 March 31, March 31, March 31,
(Current year) 2018 2017 2016
Net Profit 3.00 8.50 4.00 3.00
Sales (turnover) 850 950 900 800
Does the company have an obligation to form a CSR Committee since the
applicability criteria is not satisfied in the current financial year? 3
(ii) Explain the concept of KMP (Key Managerial Personnel) as introduced by the
Companies Act, 2013. 2
(b) (i) Mr. Zupi was appointed as a Member of the Competition Commission of India by
Central Government. He has a professional experience in international
business for a period of 12 years, which is not a proper qualification for
appointment of a person as member. Pointing out this defect in the Constitution

of Commission, Mr. P. K. against whom the commission gave a decision, wants
to invalidate the proceedings of the commission. Examine with reference to the
provisions of the Competition Act, 2002 whether Mr. P. K. will succeed. 3
(ii) M/s Samrat is a company engaged in providing services of supplying goods all
over the world through aircrafts. The aircrafts of the said company is registered
and insured in India with the reputed insurance company. Company found that
the insurance policy of one of aircraft which is in Europe had expired. Company
said to his officer to get new insurance policy of that aircraft in Europe. State the
validity of such an act of registration of aircraft in Europe. 3
(c) Explain the responsibilities of banking companies under the Prevention of Money
Laundering Act, 2002. 5
Answer:
6. (a) (i) It has been clarified that 'any financial year' referred to under sub section (1) of
section 135 of the act read with rule 3(2) of companies CSR Rule,2014 implies 'any
of the three preceding financial years'.
A company which meets the net worth, turnover of net profits criteria in any of
the preceding three financial years, but which does not meet the criteria in the
relevant financial year ,will still need to constitute a CSR committee and comply
with provisions of sections 135(2) to(5) read with the CSR rules.
As per the criteria to constitute CSR committee -

1) Net worth greater than or equal to INR 500 Crores: This criterion is not satisfied.
2) Sales greater than or equal to INR 1000 crores: This criterion is not satisfied.
3) Net profit greater than or equal to INR 5 crores: This criterion is satisfied in
financial year ended March 31, 2018.
Hence, the company will be required to form a CSR committee.
(ii) As per the provisions of section 203(1) of the companies Act 2013, every
company belonging to such class or classes of companies as may be prescribed,
shall have the following whole time key managerial personnel.
(a) Managing Director or chief executive officer or manager and in their
absence ,a whole-time Director;
(b) Company secretary; and
(c) Chief financial officer
(b) (i) As per section 15 of Competition Act 2002 any act or proceeding of the
Commission shall not be invalidated merely on the ground of:
(a) any vacancy in, or any defect in the constitution of the Commission; or
(b) any defect in the appointment of a person acting as a Chairperson or as a
member; or
(c) any irregularity in the procedure of the Commission not affecting the merits of
the case.
Here in this case Mr. Zupi should have professional qualification of not less than 15
years as per section 8 of the Act but this disqualification will not invalidate the
proceeding of the Commission.
(ii) Given problem is based on the section 2CB of the Insurance Act, 1938. Said
section deals with the Indian properties not to be insured with foreign insurers.
According to the section, no person shall take out or renew any policy of
insurance in respect of any property in India or any ship or other vessel or aircraft
registered in India with an insurer whose principal place of business is outside
India, without the permission of the IRDAl.
In the given case, act of registration of aircraft of M/s Samrat which is an Indian
property, with an insurer in Europe, is an invalid act.
(c) Section 12 provides for the obligation of Banking Companies, Financial Institutions
and Intermediaries or a person carrying on a designated business or profession.
According to subsection (1), every banking company, financial institution and
intermediary or a person carrying on a designated business or profession shall –
(a) maintain a record of all transactions, including information relating to transactions

covered under clause (b), in such manner as to enable it to reconstruct individual
transactions;
(b) furnish to the Director within such time as may be prescribed, information relating
to such transactions, whether attempted or executed, the nature and value of
which may be prescribed;
(c) verify the identity of its clients in such manner and subject to such conditions, as
may be prescribed;
(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) maintain record of documents evidencing identity of its clients and beneficial
owners as well as account files and business correspondence relating to its
clients.
Every information maintained, furnished or verified, save as otherwise provided under

any law for the time being in force shall be kept confidential.
The records referred to in clause (a) of sub-section (I) shall be maintained for a period
of five years from the date of transaction between a client and the reporting entity.
The records referred to in clause (e) of sub-section (I) 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 Central Government may, by notification, exempt any reporting entity or class of
reporting entities from any obligation under this chapter.
7. (a) (i) Which principle of insurance is related to the following statements?

(I) The cause for loss must be related to the purpose of insurance.
(II) The insured should not be allowed to make any profit by selling damaged
or in the case of lost property being recovered. 1+1=2
(ii) XYZ Ltd. issued prospectus for the subscription of its shares for `500 Crores. The
issue was oversubscribed by 10 times. The company issued shares to all the
applicants on pro-rata basis. Later SEBI inspected the prospectus and found some
misleading statement about the management of the Company in it. SEBI imposed
a penalty of ` 1 Crore and banned its two executive directors for dealing in
securities market for three years.
Identify the function and its type performed by SEBI in above case. 2
(iii) (I) Who shall be the competent authority for all decisions pertaining to arrest as
per the provision of the Companies (Arrests in connection with investigation by
serious Fraud Investigation office) Rules, 2017?
(II) Who is empowered to designate court of session as special courts for trial
of offence of money laundering? 1+1 =2
(iv) Who can initiate insolvency resolution process? 2
(b) Explain how the provisions of the Companies Act, 2013 relating to Audit Committee
will help in achieving some of the objectives of Corporate Governance. 5
(c) State briefly the effect of floating charge on the undertaking or property of the
company when a company is being wound-up. 3
Answer:
7. (a) (i) (a) Principle of Causa Proxima

(b) Principle of Subrogation
(ii) Protective Function

Prohibition of fraudulent and unfair trade practices
(iii) (a) The Director of SFIO shall be the competent authority for all decisions
pertaining to arrest.
(b) Central Government in consultation with the Chief Justice of High Court is
empowered to designate court of session as special courts for trial of offence
of money laundering.
(iv) Where any Corporate debtor commits a default, a financial creditor, an

operation creditor or the corporate debtor itself may initiate corporate insolvency
resolution process in respect of such corporate debtor in the manner as provided
(See 6 of the insolvency and Bankruptcy code, 2016.
(b) Companies, particularly public listed companies raise huge amounts of monies from
the members of the public and public financial institutions. They owe it to all the vast
number of persons and institutions who have reposed their faith in them and have
invested in them, that their faith is rewarded both in terms of annual return and in
terms of wealth appreciation in real terms. In order to achieve this it is vital to have
the highest quality of corporate governance in the conduct of affairs of such
companies. Thus, the role of audit committees have been enhanced, their
responsibilities made more objective and the accountability, has increased
substantially.
In this context the provisions of the Companies Act, 2013 have been framed to
improve corporate governance standards and protect the interests of the public and
the financial institutions who have invested in companies. These provisions may be
highlighted as under:
1. The constitution of Audit Committees under section 177(2) requires the majority
representation from independent directors. In other words, persons from within
the management cannot form a majority in the Committee, thereby making the
functioning of these committees more transparent;
2. The proviso to section 177(2) further requires the majority of members and the
chairperson of the Audit Committees to be persons who can understand financial
statements. This enables a meaningful exercise of the committee's functions by
knowledgeable persons thereby increasing the effectiveness of such
committees.
3. Now the terms of reference or the minimum, scope of work of an Audit
Committee has been laid down in the act itself under section 177(4). By doing this
the vagueness and doubt in the role and functions of such committees has been
removed.
4. The Audit Committee shall have authority to investigate, into any matter in
relation to the areas of its scope of functioning or referred to it by the Board and
for this shall have power to obtain professional advice from external sources and
have full, access to information contained in the records of the company. This
provides the Audit Committee to function with a high degree of effectiveness by
accessing external professional advice and the records of the company.
5. The recommendations of the Audit Committee are binding' on the Board to take
appropriate corrective actions. In case the Board of Director refuses to accept
the recommendations of the Audit Committee, it bound to disclose the same
with the reasons for non acceptance, in Its report to the members of the
company under section. 134 (3) which relates to the Directors Report on Financial
Statements to the members of the company.
It will be seen from the above provisions of the Companies Act, 2013 that efforts have
been made to make such committees more impartial, effective and accountable
which will enable the company to improve the quality of its corporate governance
thereby improving accountability and avoiding financial impropriety.
(c) Effect of floating charge (Section 332)
As per Section 332, when a company is being wound up a floating charge on the
undertaking or property of the company created within the twelve months
immediately preceding the commencement of the winding up, shall, unless it is
proved that the company immediately after, the creation of the charge was solvent,
be invalid, except for the amount of any cash paid to the company at the time of, or
subsequent to the creation of, and in consideration for, the charge, together with
interest on that amount at the rate of five percent, per annum or such other rate as
may be notified by the Central Government in this behalf.
(i) List the quarterly compliances for a listed entity under the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015
(ii) Constitution of the National Financial Reporting Authority
(iii) Acquisition and Transfer of Property in India by a Non-resident Indian or an Overseas
Citizen of India
(iv) Benefits of CSR Programme
(v) Rights and duties of authorised representative of financial creditors
Answer:
8. (i) Quarterly compliances- Listed Entity
A Listed company has to comply with the following quarterly compliances under the
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:
1. Regulation 13(3):- Grievance Redressal Mechanism

The listed entity shall file with the recognized stock exchange(s) on a quarterly
basis, within 21 days from the end of each quarter, a statement giving the
number of investor complaints pending at the beginning of the quarter, those
received during the quarter, disposed of during the quarter and those remaining
unresolved at the end of the quarter.
2. Regulation 27(2):- Other Corporate Governance Requirements

A listed entity shall submit quarterly compliance report on corporate governance
in the format as specified by the Board from time to time to the recognized stock
exchange(s), within 15 days from close of quarter.
3. Regulation 31(1): Holding of Specified Securities and Shareholding Pattern.

A listed entity shall submit a statement showing holding of securities and
shareholding pattern separately for each class of securities:-
(a) One day prior to listing of its securities on the stock exchange(s);
(b) On a quarterly basis, within 21 days from the end of each quarter; and,
(c) Within 10 days of any capital restructuring of the listed entity resulting in a
change exceeding 2 per cent of the total paid-up share capital.
4. Regulation 33(3): Financial Results

The listed entity shall submit quarterly and year-to-date standalone financial
results to the stock exchange within 45 days of end of each quarter, other than
the last quarter.
5. Regulation 32(1): Statement of Deviation(S) Or Variation(S)

A listed entity shall submit to the stock exchange the following statement(s) on a
quarterly basis for public issue, rights issue, preferential issue etc. -
(a) indicating deviations, if any, in the use of proceeds from the objects stated in
the offer document or explanatory statement to the notice for the general
meeting, as applicable;
(b) indicating category wise variation (capital expenditure, sales and marketing, working
capital etc.) between projected utilization of funds made by it in its offer document or
explanatory statement to the notice for the general meeting, as applicable and the
actual utilization of funds.
(ii) The National Financial Reporting Authority shall consist of a chairperson, who shall be
a person of eminence and having expertise in accountancy, auditing, finance or law
to be appointed by the Central Government and such other members not exceeding
fifteen consisting of part-time and full-time members as may be prescribed.
Provided that the terms and conditions and the manner of appointment of the
chairperson and members shall be such as may be prescribed.
Provided further that the chairperson and members shall make a declaration to the
Central Government in the prescribed form regarding no conflict of interest or lack of
independence in respect of his or their appointment.
Provided also that the chairperson and members, who are in full-time employments
with National Financial Reporting Authority shall not be associated with any audit firm
(including related consultancy firms) during the course of their appointment and two
years after ceasing to hold such appointment.
(iii) Acquisition and Transfer of Property in India by a Non-Resident Indian or an Overseas

Citizen of India:-
An NRI or an OCI may –

i. acquire immovable property in India other than agricultural land/farm
house/plantation property.
Provided that the consideration, if any, for transfer, shall be made out of (i) funds
received in India through banking channels by way of inward remittance from
any place outside India or (ii) funds held in any non resident account maintained
in accordance with the provisions of the Act, rules or regulations framed
thereunder.
Provided further that no payment for any transfer of immovable property shall be
made either by traveler's cheque or by foreign currency notes or by any other
mode other than those specifically permitted under this clause.
(b) acquire any immovable property in India other than agricultural land/ farm
house/ plantation property by way of gift from a person resident in India or from
an NRI or from an OCI, who in any case is a relative as defined in section 2(77) of
tie Companies Act, 2013;
(c) acquire any immovable property in India by way of inheritance from a person
resident outside India who had acquired such property (a) in accordance with
the provisions of the foreign exchange law in force at the time of acquisition by
him or the provisions of these Regulations or (b) from a person resident in India;
(d) transfer any immovable property in India to a person resident in India;
(e) transfer any immovable property other than agricultural land/farm house/
plantation property to an NRI or an OCI.
(iv) Benefits of CSR programme
As the business environment gets increasingly complex and stakeholders become

vocal about their expectations, good CSR practices can only bring in greater
benefits, some of which are as follows:
(a) Communities provide the licence to operate: Apart from internal drivers such as
values and ethos, some of the key stakeholders that influence corporate
behaviour include governments (through laws and regulations), investors and
customers. In India, a fourth and increasingly important stakeholder -is the
community and many companies have started realising that the 'licence to
operate' is no longer given by governments alone, but communities that are
impacted by a-company's business operations. Thus, a robust CSR programme
that meets the-aspirations of these, communities not only provides them with the
licence to operate, but also to maintain the licence, thereby precluding the 'trust
deficit'.
(b) Attracting and retaining employees: Several human resource studies have linked
a company's ability to attract, retain and motivate employees with their CSR
commitments. Interventions that encourage and enable employees to
participate are shown to increase employee' morale and a sense of belonging to
the company.
(c) Communities as suppliers: There are certain innovative CSR initiatives emerging
wherein companies have invested in enhancing community livelihood by
incorporating them into their supply chain. This has benefitted communities and
increased their income levels, while providing these companies with an
additional and secure supply chain.
(d) Enhancing corporate reputation: The traditional benefit of generating goodwill,

creating a positive image and branding benefits continue to exist for companies
that operate effective CSR programmes. This allows companies to position
themselves as responsible corporate citizens.
(v) Rights and Duties authorized representative of financial creditors.
(1) Right to participate and Vote on behalf of FC: The authorised representative (AR) under
section 21(6) & 21(6A) or section 24(5) shall have the right to participate and vote in
meetings of the committee of creditors on behalf of the financial creditor (FC) he
represents in accordance with the prior voting instructions of such creditors obtained
through physical or electronic means.
(2) Duty of AR to circulate agenda & minutes to FC: It shall be the duty of the
authorised representative to circulate the agenda and minutes of the meeting of the
committee of creditors to the financial creditor he represents.
(3) AR to act on instruction of FC: The authorised representative shall not act against the
interest of the financial creditor he represents and shall always act in accordance with
their prior instructions:
Provided that if the authorised representative represents several financial creditors, then
he shall cast his vote in respect of each financial creditor in accordance with instructions
received from each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior instructions through
physical or electronic means, the authorised representative shall abstain from voting on
behalf of such creditor.
(4) To ensure recording of instruction by IRP/RP: The authorised representative shall file with
the committee of creditors any instructions received by way of physical or electronic
means, from the financial creditor he represents, for voting in accordance therewith, to
ensure that the appropriate voting instructions of the financial creditor he represents is
correctly recorded by the interim resolution professional or resolution professional, as the
case may be.
SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_Dec2019_PAPER-13
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)
DECEMBER - 2019
answer any five questions from Question No. 2 to Question No. 8.
1. Answer all questions.
(a) Multiple choice questions: 2x10=20
(i) The company shall furnish to the Registrar verification of its registered office
within a period of ___________ from the date of its incorporation.
(A) 30 days
(B) 45 days
(C) 60 days
(D) 90 days
(ii) Out of following which item cannot be exercised by the Board of Directors of
ABC Ltd.?
(A) To diversify the business of the company
(B) To take over a company
(C) To approve amalgamation, merger or the reconstruction
(D) To sell of the whole or substantially the whole of the undertaking of the
company.
(iii) The board may fill any casual vacancy in the office of an auditor within
30 days but where such vacancy is caused by the resignation of an auditor,
such appointment shall also be approved by the company at a general
meeting concerned within ____________ of the recommendation of the Board.
(A) one month
(B) two months
(C) three months
(D) six months
(iv) In case the Comptroller and Auditor General of India does not appoint first
auditor within the stipulated date who will appoint such auditor within next 30
days?
(A) Shareholders
(B) Board of Directors
(C) Managing Directors
(D) Company Secretary
(v) Under which principle of Corporate Governance, it implies the responsibility of

the Chairman, the Board of Directors and the Chief Executive for the use of
company's resources in the best interest of the company and its shareholders?
(A) Independence
(B) Accountability
(C) Transparency
(D) Ethics
(vi) Any person aggrieved by an order of NCLT may prefer an appeal to the
Appellate Tribunal within a period of ___________ from the date on which a copy
of the order of the Tribunal is made available to the person aggrieved.
(A) 120 days
(B) 60 days
(C) 45 days
(D) 30 days
(vii) Which of the following is not the objective of The Prevention of Money
Laundering Act, 2002?
(A) To prevent and control money laundering
(B) To confiscate and seize the property obtained from the laundered money
(C) To generate profit for an individual or a group
(D) To deal with any other issue connected with money laundering in India
(viii) A promise whereby the assured undertakes that some particular thing shall or
shall not be done or that some conditions shall be fulfilled or affirms or negatives
the existence of a particular state of facts. This principle of Insurance is known
as
(A) Warranty
(B) Good faith
(C) Conditions
(D) Indemnity
(ix) Which of the following is not the benefits of CSR Programme?

(A) Mutual trust
(B) Attracting and retaining employees
(C) Communities as suppliers
(D) Enhancing corporate reputation
(x) An agreement or arrangement in writing for transfer of assets, or funds, goods or

services, from or to the corporate debtor is known as
(A) Transfer
(B) Transfer of property
(C) Transaction
(D) Transmission
Answer:
1.
(i) A 30 days (Section 12 of the Companies Act, 2013)
(ii) D As per section 180(i) of the Companies Act, 2013 the Board of Directors has
no power to sell / lease or otherwise dispose of the whole or substantially, the
whole of undertaking of the Company.
(iii) C Three Months. Such appointment shall also be approved by the company at
a general meeting concerned within three months of the recommendations
of the Board.
(iv) B Board of Directors - In case the Comptroller and Auditor General of India
does not appoint first auditor, Board of Directors appoint such auditor within
next 30 days.
(v) B Accountability - Under Accountability principle of corporate governance it
implies the responsibility of the chairman, the Board of Directors and the chief
executive for the use of companies resources in the best interest of Company
and its shareholders.
(vi) C 45 days (Sec. 421 of the Companies Act, 2013)
(vii) C To generate profit for an individual or a group. To generate profit for an
individual or a group is not the objective of the prevention of Money
laundering Act 2002.
(viii) A Warranty - Under the principle of warranty, promise whereby the assured
undertakes that some particular thing shall or shall not be done or that some
condition shall be fulfilled or affirms or negatives the existence of a particular
state of facts.
(ix) A Mutual trust - Mutual trust is not the benefits of CSR Programme.
(x) C Transaction - An agreement or arrangement in writing for transfer of assets, or
funds, goods or services, from or to the corporate debtor is known as
transaction.
2. (a) The Board of Directors of XYZ Company Limited at its meeting declared a dividend
on its paid-up equity share capital which was later on approved by the company's
Annual General Meeting. In the meantime, the directors at another meeting of the
Board decided by passing a resolution to divert the total dividend to be paid to
shareholders for purchase of investments for the company. As a result, dividend was
paid to shareholders after 45 days. Examining the provisions of the Companies Act,
2013, state:
(i) Whether the act of directors is in violation of the provisions of the Act and also the
consequences that shall follow for the above act of directors?
(ii) What would be your answer in case the amount of dividend to a shareholder is
adjusted by the company against certain dues to the company from the
shareholder? 6
(b) (i) An understanding has been reached among the manufacturers of cement to
control the price of cement, but the understanding is not in writing and it is also
not intended to be enforced by legal proceedings.
Examine whether the above understanding can be considered as an 'Agreement'
with the meaning of Section 2(b) of the Competition Act, 2002.
(ii) Soma Nidhi Limited proposes to reappoint Mr. X, a director who has completed a
term of 10 consecutive years as a Director of the Nidhi.
State your views the validity of the above proposals with reference to Nidhi
Rules, 2014 formulated under Companies Act, 2013. 3+3=6
(c) Answer the following in a few words: 1x4=4
(i) Which type of Public Enterprise is established under a Special Act of the
Parliament?
(ii) How can a foreign company access Indian Securities market for raising funds?
(iii) Which type of listing provides arbitrage opportunities to the investor?
(iv) How many times extension of the period of Corporate Insolvency Resolution
process can be granted?
Answer:
2. (a) According to section 124 of the Companies Act, 2013, where a dividend has been
declared by a company but has not been paid or claimed within 30 days from the
date of the declaration to any shareholder entitled to the payment of the dividend,
the company shall, within 7 days from the date of expiry of the said period of 30 days,
transfer the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in that behalf in any scheduled
bank to be called the Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has
been declared by a company but has not been paid or the warrant in respect
thereof has not been posted within 30 days from the date of declaration to any
shareholder entitled to the payment of the dividend, every director of the company
shall, if he is knowingly a party to the default is liable for the punishment under the
said section.
In the present case, the Board of Directors of XYZ Company Limited at its meeting
declared a dividend on its paid-up equity share capital which was later on approved
by the company's Annual Genera! Meeting. In the meantime, the directors at
another meeting of the Board decided by passing a resolution to divert the total
dividend to be paid to shareholders for purchase of investment for the company. As
a result, dividend was paid to shareholders after 45 days.
(i) 1. Since, declared dividend has not been paid or claimed within 30 days from
the date of the declaration to any shareholder entitled to the payment of the
dividend, the company shall, within 7 days from the date of expiry of the said
period of 30 days, transfer the total amount of dividend which remains unpaid
or unclaimed to a special account to be opened by the company in that
behalf in any scheduled bank to be called the Unpaid Dividend Account.
2. The Board of Directors of XYZ Company Limited is in violation of section 127 of

the Companies Act 2013 as it failed to pay dividend to shareholders within 30
days due to their decision to divert the total dividend to be paid to
shareholders for purchase of investment for the company.
Consequences: The following are the consequences for the violation of

above provisions:
(a) Every director of the company shall, if he is knowingly a party to the
default, be punishable with imprisonment which may extend to two years
and shall also be liable for a fine which shall not be less than one
thousand rupees for every day during which such default continues.
(b) The company shall also be liable to pay simple interest at the rate of 18%
p.a. during the period for which such default continues.
(ii) If the amount of dividend to a shareholder is adjusted by the company against

certain dues to the company from the' shareholder, then failure to pay dividend
within 30 days shall not be deemed to be an offence under Proviso to section 127
of the Companies Act 2013.
(b) (i) Agreement

'Agreement' includes any arrangement or understanding or action in concert:
(i) Whether or not, such arrangement, understanding or action is formal or in
writing or
(ii) Whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings. [Section 2(b)].
In view of the above definition of 'agreement', and understanding reached by

the cement manufacturers to control the price of cement will be an 'agreement'
within the meaning of section 2(b) of the Competition Act, 2002 even though the
understanding is not in writing and it is not intended to be enforceable by legal
proceedings.
(ii) According to Rule - 17 of the Nidhi Rules, 2014, the Director of a Nidhi shall hold
office for a term up to ten consecutive years on the Board of Nidhi and he shall be
eligible for re-appointment only after the expiration of two years of ceasing to be
a Director.
Hence, in the instant case Soma Nidhi Limited cannot reappoint Mr. X as a
director for a period of two years after completion of ten consecutive years.
(C) (i) Statutory Corporation

(ii) Through issue of Indian Depository Receipt (ICDRs)
(iii) Multiple listing.
(iv) Shall not be granted more than once.
3. (a) On the ground of conviction for an offence dealing with related party transaction.
Mr. Bat was disqualified to hold the directorship in XYZ Limited. The Board filled up the
vacancy by appointing Mr. Samarth as a director on 3rd April, 2018 which was
subsequently approved by the members in the immediate next general meeting.
Unfortunately, Mr. Samarth expired on 15th May, 2018 after working about 40 days as
a director. The Board now wishes to fill up the said vacancy by appointing Mr. Ball in
the forthcoming meeting of the Board. Advise the Board on the validity of the
following appointments as per the provisions under the Companies Act, 2013:
(i) Appointment of Mr. Samarth in place of Mr. Bat.
(ii) Appointment of Mr. Ball in place of Mr. Samarth. 6
(b) (i) Domen India Limited owes a sum of ` 2,80,000 to S, who assigns this debt to his
two creditors, Mr. R—to the extent of ` 1,40,000 and Mr. M—to the extent of
`1,40,000. Mr. M makes a demand for his money from the company by giving a
legal notice. The company could not meet Mr. M's demand or otherwise satisfy
him till the expiry of four weeks from the date of notice. Mr. M, therefore, moves to
NCLT with an application for initiation of Insolvency and Bankruptcy Code, 2016,
decide whether an application filed by Mr. M can be accepted by NCLT.
(ii) State the matters to be dealt with in the Management Discussion and Analysis
Report as per SEBI guidelines on Corporate Governance. 3+3=6
(c) State whether the following statements are 'True' or 'False' and give reasons therefor:
1x4=4
(i) 'Overseas Citizen of India (OCI)' means a person resident outside India who is a
citizen of India.
(ii) As per the SS-I (Secretarial standards on the meeting of Board), Quorum is not
required to be present throughout the meeting.
(iii) Locked-in securities of Promoter shall not be eligible for pledge with commercial
banks, financial institutions as collateral security.
(iv) 'Asset Reconstruction Company' means a company registered with Reserve Bank
under section 3 for the purposes of carrying on the business of either asset
reconstruction or securitisation.
Answer:
3. (a) Section 161(4) of the Companies Act, 2013 provides that if the office of any director
appointed by the company in general meeting is vacated before his term of office
expires in the normal course, the resulting casual vacancy may, in default of and subject
to any regulations in the articles of the company, be filled by the Board of Directors at a
meeting of the Board which shall be subsequently approved by members in the
immediate next general meeting.
Provided that any person so appointed shall hold office only up to the date up to which
the director in whose place he is appointed would haw held office if it had not been
vacated.
(i) In view of the above provisions, in the given case, the appointment of Mr. Samarth
in place of the disqualified director Mr. Bat was in order. In normal course, Mr.
Samarth could have held his office as director up to the date to which Mr. Bat
would have held the same.
(ii) As per facts, Mr. Samarth expired on 15th May, 2018 and again a vacancy has
arisen in the office of director owing to death of Mr. Samarth who was appointed by
the board and approved by members to fill up the casual vacancy resulting from
disqualification of Mr. Bat Vacancy arising on the Board due to vacation of office by
the director appointed to fill a casual vacancy in the first place, does not create
another casual vacancy as section 161 (4) clearly mentions that such vacancy is
created by the vacation of office by any director appointed by the company in
general meeting. Hence, the Board cannot fill in the vacancy arising from the
death of Mr. Samarth. So cannot appoint Mr. Ball in the office of Mr. Samarth.
The Board may however appoint Mr. Ball as an additional director under section 161
(1) of the Companies Act, 2013 provided the articles of association authorises the
board to do so, in which case Mr. Ball will hold the office up to the date of the next
annual general meeting or the last date on which the AGM should have been held,
whichever is earlier.
(b) (i) Financial creditor can initiate corporate insolvency resolution process himself or
jointly with other financial creditors against corporate debtor on default of
payment of debt of ` 1,00,000/- or more. Assignee of financial debt is also financial
creditor as per section 5 (7) of the IBC, 2016. Mr. M's application can be
accepted by NCLT if Company fails to pay debt within stipulated time. Application
should be supported with a copy of the assignment or transfer agreement and
other relevant documents as may be required to demonstrate the assignment or
transfer.
(ii) Management
A Management Discussion and Analysis Report should form part of the annual
report to the shareholders; containing discussion on the following matters.
1. Opportunities and threats.
2. Segment-wise or product-wise performance.
3. Risks and concerns.
4. Discussion on financial performance with respect to operational performance.
5. Material development in human resource / industrial relations front.
(c) (i) False

‘Overseas Citizen of India (OCI)’
Means a person resident outside India who is registered as an Overseas Citizen of
India Card holder under Section 7(A) of the citizenship Act, 1955. (Foreign
Exchange Management (Acquisition and Transfer of Immovable Property in India)
Regulations, 2018.
(ii) False
As per SS-I (Secretarial Standards on the meeting of the Board) Quorum shall be
present throughout the meeting.
(iii) False
Locked in Securities of Promoter shall be eligible for pledge with Commercial
Banks, financial institutions as Collateral Security [SEBI (ICDR) Regulations 2018]
(iv) False
"Asset reconstruction Company" means a Company registered with Reserve Bank
under Section 3 for the purposes of Carrying on the business of asset
reconstruction or Securitization, or both [Section 2 (ba)]
4. (a) The Articles of Association of a listed company provides for fixed payment of sitting
fee for each meeting of Directors subject to maximum of ` 30,000. In view of the
increased responsibilities of Independent Directors of listed Companies, the Company
proposes to increase the sitting fee to ` 45,000 per meeting. Advise the company
about the requirement under the Companies Act, 2013 to give effect to the proposal.
4
(b) XYZ Limited was incorporated by furnishing false informations. As per the Companies
Act, 2013, state the power of the Tribunal in this regard. 4
(c) Briefly state the compliance requirements under Companies Act, 2013 regarding risk
management policy. 4
(d) Fill in the Blanks: 1x4=4
(i) Under IBC 2016, the resolution plan shall be approved by the Committee of
Creditors by a vote of not less than ______________ per cent of voting share of the
financial creditors.
(ii) Reserve Bank of India may check the condition that the asset reconstruction
company has not incurred any loss in the _____________ preceding financial years.
(iii) Sec. 25 of the Banking Regulation Act, 1949, requires for the maintenance of
assets equivalent to at least ___________% of its demand and time liabilities in
India at the close of business of the last Friday of every quarter.
(iv) According to section 14 of the Banking Regulation Act, 1949, no banking
company shall create any charge upon its _______________ capital, and any such
charge, if created, shall be invalid.
Answer:
4. (a) Section 197(5) of the Companies Act, 2013 provides that a director may receive
remuneration by way of fee for attending the Board/Committee meetings or for any
other purpose as may be decided by the Board, provided that the amount of such
fees shall not exceed the amount as may be prescribed. The Central Government
through rules prescribed that the amount of sitting fees payable to a director for
attending meetings of the Board or committees thereof may be such as may be
decided by the Board of directors or the Remuneration Committee thereof which
shall not exceed the sum of ` 1 lakh per meeting of the Board or committee thereof.
Further, the Board may decide different sitting fee payable to independent and non-
independent directors other than whole-time directors.
From the above, it is clear that fee to independent directors can be increased from
`30,000 to ` 45,000 per meeting by passing a resolution in the Board Meeting and
alternating the Articles of Association by passing Special Resolution.
(b) According to section 7(7) of the Companies Act, 2013:

Incorporation by furnishing of incorrect information: Without prejudice to the
provisions of sub-section (6), where a company has got incorporated by furnishing
any false or incorrect information or representation or by suppressing any material
fact or information in any of the documents or declaration filed or made for
incorporating such company or by any fraudulent action, the Tribunal may, on an
application made to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the management of the
company including changes, if any, in its memorandum and articles, in public
interest or in the interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section,—

(i) the company shall be given a reasonable opportunity of being heard in the
matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the
company, including the obligations, if any, contracted or payment of any liability.
(c) Companies Act, 2013 has introduced various provisions relating to ease of doing
business while ensuring the governance and transparency are maintained in the way
the business is conducted. One of the key compliance requirement introduced
towards the governance and transparency is the introduction of Risk Management as
a policy and process in the Companies Act, by which the board and audit
committee have been vested with specific responsibilities in assessing the robustness
of risk management policy, process and systems.
 Sec 134 (3) There shall be attached to (Financial) statements laid before a
company in general meeting, a report by its Board of Directors, which shall

include -
 a statement indicating development and implementation of a risk management
policy for the company including identification therein of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the company:
 Sec 177 (4) Every Audit Committee shall act in accordance with the terms
of reference specified in writing by the Board which shall, inter alia, include,-
 evaluation of internal financial controls and risk management systems;
Hence as per Companies Act, 2013 it is mandatory for the Companies to

development and implementation of a risk management policy and Audit
Committee shall evaluate the risk management systems.
(d) (i) 66%

(ii) 3 (three)
(iii) 75%
(iv) unpaid
5. (a) One of the Objects Clauses of the Memorandum of Association of Info Company
Limited conferred upon the company, power to sell its undertaking to another
company with identical objects. Company's Articles also conferred upon the
directors powers to sell or otherwise deal with the property of the company. At an
Extraordinary General Meeting of the company, members passed an ordinary
resolution for the sale of its assets on certain terms and authorized the directors to
carry out the sale. Directors refused to comply with the wishes of the members where
upon it was contended on behalf of the members that they were the principals and
directors being their agents, were bound to give effect to their (members') decisions.
Examining the provisions of the Companies Act, 2013, answer the following:
Whether the contention of members against the non-compliance of members'
decision by the directors is tenable.
Whether it is possible for the members to usurp the powers, which by the Articles are
vested in the directors by passing a resolution in the general meeting. 6
(b) Runway Infrastructure Limited entered into a contract with Royal forgings (a
partnership firm), in which wife of Mr. Patrick, a director of the Runway Infrastructure
Limited is a partner. The contract is for supply of certain components by the firm for a
period of three years with effect from 1st September, 2018 on credit basis. Explain the
requirements under the Companies Act, 2013, which should have been complied with
by Runway Infrastructure Limited before entering into contract with Royal forgings.
What would be your answer in case Royal forgings is a private limited company in
which wife of Mr. Patrick is holding shares? 5
(c) (i) Is it mandatory to obtain Regulatory approvals for scheme of compromise/

arrangements as per section 230(5) of the Companies Act, 2013? Explain.
(ii) You, an individual shareholder found that the Directors representing the majority
of shareholders perform an illegal or ultra vires act for the company. What is the
action you may take to restrain such an act? 3+2
Answer:
5. (a) Powers of Board: In accordance with the provisions of the Companies Act, 2013, as
contained under Section 179(1), the Board of Directors of a Company shall be
entitled to exercise all such powers and to do all such acts and things, as the
Company is authorized to exercise and do:
Provided that in exercising such power of doing such act or thing, the Board shall be
subject to the provisions contained in that behalf in this Act, or in the memorandum
or articles, or in any regulations not inconsistent therewith and duly made there under
including regulations made by the Company in general meeting.
Provided further that the Board shall not exercise any power or do any act or thing
which is directed or required, whether under this Act or by the members or articles of
the Company or otherwise to be exercised or done by the Company in general
meeting.
Section 180 (1) of the Companies Act, 2013, provides that the powers of the Board of
Directors of a Company which can be exercised only with the consent of the
Company by a special resolution. Clause (a) of Section 180 ( 1 ) defines one such
power as the power to sell, lease or otherwise dispose of the whole or substantially the
whole of the undertaking of the company or where the Company owns more than
one undertaking of the whole or substantially the whole or any of such undertakings.
Therefore, the sale of the undertaking of a Company can be made by the Board of
Directors only with the consent of members of the Company accorded vide a special
resolution.
Even if the power is given to the Board by the memorandum and articles of the
Company, the sale of undertaking must be approved by the shareholders in general
meeting by passing a special resolution.
Therefore, the correct procedure to be followed is for the Board to approve the sale
of the undertaking clearly specifying the terms of such sale and then convene a
general meeting of members to have the proposal approved by a special resolution.
In the given case, the procedure followed is completely incorrect and violative of the
provisions of the Act. The shareholders cannot on their own make out a proposal of
sale and pass an ordinary resolution to implement it though the directors.
The contention of the shareholders is incorrect in the first place as it is not within their
authority to approve a proposal independently of the Board of Directors. It is for the

Board to approve a proposal of sale of the undertaking and then get the members to
approve it by a special resolution. Accordingly, the contention of the members that
they were, the principals and directors being t h e i r agents were bound to give effect
to the decisions of the members is not correct.
Further, in exercising their powers the directors do not act as agent for the majority of
members or even all the members. The members therefore, cannot by/resolution
passed by a majority or even unanimously supersede the powers of the directors or
instruct them how they shall exercise their powers. The shareholders have, however,
the power to alter the Articles of Association of the Company in the manner they like
subject to the provisions of the Companies Act, 2013.
(b) The contract for supply of components entered into between Runway Infrastructure -
Limited and Royal forgings, a partnership firm (in which wife of Mr. Patrick, a director
of the company is a partner) attracts Section 184,188 and 189 of the Companies Act
2013.
As per Section 188, company cannot enter into contract with firm for supply or
purchase of goods or material where director of company or his relative is partner of
firm without approval of Board of directors at board meeting. As per Section 184,
interested directors must disclose his interest at board meeting at which said business
is to be discussed. Interested directors should not take part in the discussion or voting
at board meeting. If he does vote, his vote shall not be counted. In case of Private
limited Company interested director can participate in the board meeting after
disclosure of interest.
As per Section 189, prescribed particulars of the contract must be entered into the
Register of Contract in which directors are interested in Form MBP-4. Every entry made
in Register should be authenticated by Company Secretary of company or any other
person authoriasd by Board. After each entry in the register, it shall be placed before
the next board meeting and shall be signed by all the directors present thereat
Based upon discussion of the above provisions:

If the value of the contract or transaction is exceeded than limit specified, prior
approval of shareholders is required to be obtained. Question does not suggest value
of transaction. Assuming that it is within limits specified under the Act consent of
shareholders is not required.
If Royal forgings is a private limited company: The provision of Section 188 are
applicable to it As the directors wife (i.e. Patrick's wife) is member of Royal forgings
private limited.
Section 184 is not applicable as Mr. Patrick, director of runway Infrastructure Limited is
neither director nor holding any shares in Royal Forgings Private Limited. Shares held
by Mr. Patrick's wife are not to be considered. Hence the provisions of Section 184 are
not attracted.
(c) (i) Notice to be sent to the regulators seeking their representations Section 230(5)
states that a notice under Sub-Section (3) along with all the documents in such
form as may be prescribed shall also be sent to the Central Government, the
income-tax authorities, the Reserve Bank of India, the Securities and Exchange
Board, the Registrar, the respective stock exchanges, the Official Liquidator, the
Competition Commission of India established under Sub-Section (1) of Section 7
of the Competition Act, 2002, if necessary, and such other sectoral regulators or
authorities which are likely to be affected by the compromise or arrangement
and shall require that representations, if any, to be made by them shall be made
within a period of thirty days from the date of receipt of such notice, failing
which, it shall be presumed that they have no representations to make on the
proposals.
(ii) The majority of shareholders have no right to confirm an illegal or ultravires

transactions of the company. In such case an individual shareholder has right to
restrain the company by an order or injunction of the court from carrying out an
ultravires acts.
6. (a) Referring to the provisions of the Securities Contracts (Regulation) Act, 1956, state
how a recognized stock exchange may delist the securities and how an appeal may
be filed by an aggrieved investor against the decision of stock exchange for delisting
of securities. 4
(b) What is the suggested framework for Business Responsibility Report? Explain. 4
(c) The Management of Gangotri Ltd. was taken by LBV Bank Ltd. (secured creditor)
complying the provisions of SARFAESI Act, 2002 who appointed two Directors. The
Board of Directors of Gangotri Ltd., duly authorized by its Articles, appointed two
Alternate Directors and the majority of the Directors made a declaration required for
voluntary liquidation proceedings. A special resolution requiring the Company to be
liquidated voluntarily by appointing an insolvency professional to act as the
Liquidator was passed at the general meeting of the Company. The Board of Directors
and the Shareholders passed the resolutions without the approval/consent of
Directors appointed by LBV Bank Ltd. Discuss the validity of the above resolutions
under SARFAESI Act, 2002. Does an unsecured Creditor have recourse to this Act? 4
(d) During investigations conducted on the affairs of a company in the public interest, the
inspector observed that the Directors of the company had been acting on the
instructions of the holding company and he proceeded to investigate the holding
company. Is Inspector permitted to do so under the provisions of the Companies Act,
2013? 4
Answer:
6. (a) According to section 21A of the Securities Contracts (Regulation) Act, 1956 the
delisting of securities may take place in the following manner-
(1) A recognized stock exchange may delist the securities, after recording the reasons
thereto, from any recognized stock exchange on any of the ground/s as may be
prescribed under this Act.
Provided that the securities of a company shall not be delisted unless the company
concerned has been given a reasonable opportunity of being heard.
(2) A listed company or an aggrieved investor may file an appeal before the Securities
Appellate Tribunal against the decision of the recognized stock exchange delisting
the securities within fifteen days from the date of the decision of the recognized stock
exchange delisting the securities and the Provisions of section 22B to 22E of this Act,
shall apply as far as may be, to such appeals.
Provided that the Securities Appellate Tribunal may, if it is satisfied that the company
was prevented by sufficient cause from filing the appeal within the said period,
allow it to be filed within a further period not exceeding one month.
(B) Business Responsibility Report - Suggested Framework
This report may be presented in three parts as detailed below:

Part - A of the report includes basic information and data about the operations of the
business entity so that the reading of the report becomes more contextual and
comparable with other similarly placed businesses.
Part - B of the report incorporates the basic parameters on which the business may
report their performance. Efforts have been made to keep the reporting simple
keeping in view the fact that this framework is equally applicable to the small
businesses as well. The report may be prepared in a free format with the basic
performance indicators being included in the same. In case the business entity has
chosen not to adopt or report on any of the Principles, the same may be stated
along with, if possible, the reasons for not doing so.
Part-C of the report incorporates two important aspects on Business" Responsibility

reporting. Part C - 1 is a disclosure on by the business entity on any negative
consequences of its operations on the social, environmental and economic fronts.
The objective is to encourage the business to report on this aspect in a transparent
manner so that it can channelize its efforts to mitigate the same. Part C - 2 is aimed at
encouraging the business to continuously improve its performance in the area of
Business Responsibility.
(c) Management of borrower taken by the secured creditor (Section 15 of the SARFAESI
Act, 2002): Where the management of the business of a borrower, being a company is
taken over by (he secured creditor then, notwithstanding anything contained in the
said Act or in the memorandum or articles of association of such borrower -
(a) it shall not be lawful for the shareholders of such company or any other person to
nominate or appoint any person to be a director of the company;
(b) no resolution passed at any meeting of the shareholders of such company shall be
given effect to unless approved by the secured creditor;
Accordingly, in the given situation in the question, appointment of alternate directors

by the BoD of Gangotri Ltd. though authorised by its Articles, is not valid, and the
special resolution so passed by majority for voluntary liquidation passed at general
meeting shall not be given effect due to lack of consent of LBV Bank Ltd.
An unsecured creditor doesn't have recourse to this Act.
(d) Investigation into affairs of related companies: Section 219 of the Companies Act,
2013, provides for power of Inspector to conduct investigation into the affairs of
related companies etc., if an inspector appointed under section 210 or section 212 or
section 213 to investigate into the affairs of a company considers it necessary for the
purposes of the investigation, to investigate also the affairs of
(a) any other body corporate which is, or has at any relevant time been the
company's subsidiary company or holding company, or a subsidiary company of its
holding company;
(b) any other body corporate which is, or has at any relevant time been managed by
any person as managing director or as manager, who is, or was, at the relevant
time, the managing director or the manager of the company;
(c) any other body corporate whose Board of Directors comprises nominees of the
company or is accustomed to act in accordance with the directions or
instructions of the company or any of its directors; or
(d) any person who is or has at any relevant time been the company's managing
director or manager or employee, he shall, subject to the prior approval of the
Central Government, investigate into and report on the affairs of the other body
corporate or of the managing director or manager, in so far as he considers that the
results of his investigation are relevant to the investigation of the affairs of the
company for which he is appointed.
Therefore, the inspector shall subject to the prior approval of the Central
Government, investigate into and report on the affairs of the other body corporate or
of to Managing Director or Manager, in so far as he considers that the results of his
investigation are relevant to the investigation of the affairs of the Company for which
he is appointed. In view of above, the Inspector is permitted to investigate the holding
company.
7. (a) What is meant by Corporate Governance? State the major 'characteristics' of good
corporate governance. 4
(b) Match the following items in Column 'A' with items shown in Column 'B': 1x4=4
Column 'A' Column 'B'
(i) Penalty under Sec. 15D of SEBI Act, (a) Not less than ` 1 lakh and may
1992 for certain defaults in case of extend ` 1 crore.
Mutual Funds.
(ii) Penalty under Sec. 15F of SEBI Act, (b) Not less than `5 lakh but which may
1992 for failure to issue Act, 1992 for extend to `25 crore or three times
failure to issue the amount of profits made out of
insider trading, whichever is higher.
(iii) Penalty under Sec. 15HA of SEBI Act, (c) Not less than `1 lakh and may
1992 for fraudulent and unfair trade extend to `1 lakh per day for
practices. continuous failure subject to a
maximum of `1 crore.
(iv) Penalty under Sec. 15HB for (d) Not less than `1 lakh.
contravention where no separate
penalty has been provided.
(c) State some of the devices by which trade based money laundering is done. 4
(d) Mr. Daksh, an Indian National desires to obtain foreign exchange for the following
purposes: 4
(i) Payment to be made for securing health insurance from a company abroad.
(ii) Payment of commission on exports under Rupee State Credit Route.
Advise whether he can get foreign exchange and if so, under what condition?
Answer:
7. (a) Corporate Governance: Simply stated, 'Governance' means the process of decision
making and the process by which decisions are implemented. The term corporate
governance is understood and defined in various ways. Corporate governance can be
defined as the formal system of accountability and control for ethical and socially
responsible organisational decisions and use of resources and accountability relates to
how well the content of workplace decisions is aligned with the organisations strategic
direction. Control involves the process of auditing and improving organisation decisions
and actions. Good corporate governance has the following major characteristics:
(i) Participatory
(ii) Consensus oriented
(iii) Accountable
(iv) Transparent
(v) Responsive
(vi) Effective and efficient
(vii) Equitable and inclusive and
(viii) Follows the rule of law.
(b)
Column 'A' Column 'B'
(i) Penalty under Sec. 15D of SEBI Act, (c) Not less than `1 lakh and may
1992 for certain defaults in case of extend to `1 lakh per day for
Mutual Funds. continuous failure subject to a
maximum of `1 crore.
(ii) Penalty under Sec. 15F of SEBI Act, (d) Not less than `1 lakh.
1992 for failure to issue Act, 1992 for
failure to issue
(iii) Penalty under Sec. 15HA of SEBI Act, (b) Not less than `5 lakh but which may
1992 for fraudulent and unfair trade extend to `25 crore or three times
practices.
the amount of profits made out of

insider trading, whichever is higher.
(iv) Penalty under Sec. 15HB for (a) Not less than ` 1 lakh and may
contravention where no separate extend ` 1 crore.
penalty has been provided.
(c) (1) 'Over-Invoicing' and 'Under-Invoicing' of Goods and Services: Money laundering
through the over-invoicing and under-invoicing of goods and services, which is
one of the oldest methods of fraudulently transferring value across borders,
remains a common practice today. The key element of this technique is the
misrepresentation of the price of the good or service in order to transfer additional
value between the importer and exporter. Over-invoicing of exports is one of the
most common trade-based money laundering techniques used to move money.
This reflects the fact that the primary focus of most customs agencies is to stop the
importation of contraband and ensure that appropriate import duties are
collected.
(2) Multiple-Invoicing of Goods and Services: Another technique used to 'launder'
funds involves issuing more than one invoice for the same trade transaction. By
invoicing the same good or service more than once, a money launderer or
terrorist financier is able to justify multiple payments for the same shipment of
goods or delivery of services. Unlike over-invoicing and under-invoicing, it should
be noted that there is no need for the exporter or importer to misrepresent the
price of the good or service on the commercial invoice.
(3) Over-Shipment and Under-Shipment of Goods and Services: In addition to
manipulating export and import prices, a money launderer can overstate or
understate the quantity of goods being shipped or services being provided. In
the extreme, an exporter may not ship any goods at all, but simply collude with
an importer to ensure that all shipping and customs documents associated with
this so called "phantom shipment" are routinely processed. Banks and other
financial institutions may unknowingly be involved in the provision of trade
financing for these phantom shipments.
(4) Falsely Described Goods and Services: In addition to manipulating export and
import prices, a money launderer can misrepresent the quality or type of a good
or service. For example, an exporter may ship a relatively inexpensive good and
falsely invoice it as a more expensive item or an entirely different item. This
creates a discrepancy between what appears on the shipping and customs
documents and what is actually shipped. The use of false descriptions can also
be used in the trade in services, such as financial advice, consulting services and
market research.
(d) Any person may sell or draw foreign exchange to or from an authorized person if such
sale 'or drawal is a current account transaction. However, the Central Government
may in public interest and in consultation with the RBI, impose such reasonable
restrictions for current account transactions as may be prescribed (Section 5). The
Central Government has framed Foreign Exchange Management (Current Account
Transactions) Rules, 2000.
The Rules stipulate some prohibitions and restrictions on drawal of foreign exchange
for certain purposes. In the light of provisions of these rules, the answer to the given
problem is as follows:
(i) Drawl of foreign exchange for securing health insurance from a company abroad
does not fall under any of the Schedules I. II or III. Therefore, such a transaction is
permitted without any restriction or condition.
(ii) Rule 3 read with Schedule I of Foreign Exchange Management (Current Account
Transactions) Rules, 2000 prohibits payment of commission on exports under
Rupees State Credit Route (except commission upto 10% of invoice value of
exports of tea and tobacco). Therefore, payment of commission on exports under
Rupee State Credit Route is prohibited unless such commission is paid for export
of tea and tobacco, and the commission does not exceed 10% of invoice value
of exports.
(i) Functions of Winding up committee
(ii) Duties of Interim resolution Professionals
(iii) Sufficiency of assets with reference to Sec. 64V of the Insurance Act, 1938
(iv) "Unpublished Price sensitive information" under Regulation (2n) of Part F of SEBI
(Prohibition of Insider Trading) Regulation, 2015
(v) The OECD Guidelines on corporate governance of state owned enterprises
Answer:
8. (i) Functions of winding up committee

Section 277(5) states that the Company Liquidator shall be the convener of the
meetings of the winding up committee which shall assist and monitor the liquidation
proceedings in following areas of liquidation functions, namely:
(a) taking over assets.
(b) examination of the statement of affairs.
(c) recovery of property, cash or any other assets of the company including
(d) benefits derived therefrom.
(e) review of audit reports and accounts of the company.
(f) sale of assets.
(g) finalization of list of creditors and contributories.
(h) compromise, abandonment and settlement of claims.
(i) payment of dividends, if any. and
(j) any other function, as the Tribunal may direct from time to time.
(ii) Duties of interim resolution professional

The interim resolution professional shall perform the following duties - Section 18(1) of
Insolvency and Bankruptcy Code, 2016.
(a) collect all information relating to the assets, finances and operations of the
corporate debtor for determining the financial position of the corporate debtor,
including information relating to— (i) business operations for the previous two
years (ii) financial and operational payments for the previous two years (iii) list of
assets and liabilities as on the initiation date; and (iv) such other matters as may
be specified.
(b) receive and collate all the claims submitted by creditors to him, pursuant to the
public announcement made under Sections 13 and 15.
(c) constitute a committee of creditors.
(d) monitor the assets of the corporate debtor and manage its operations until a
resolution professional is appointed by the committee of creditors.
(e) file information collected with the information utility, if necessary; and
(f) take control and custody of any asset over which the corporate debtor has
ownership rights as recorded in the balance sheet of the corporate debtor, or
with information utility or the depository of securities or any other registry that
records the ownership of assets.
(g) perform such other duties as may be specified by the Board.
(iii) Sufficiency of assets (Section 64V)

Every insurer and re-insurer shall at all times maintain an excess of value of assets over
the amount of liabilities of, not less than fifty per cent of the amount of minimum
capital as stated under section 6 and arrived at in the manner specified by the
regulations. An insurer or re-insurer, as the case may be, who does not comply with
shall be deemed to be insolvent and may be wound-up by the court on an
application made by the Authority. The Authority shall by way of regulation made for
the purpose, specify a level of solvency margin known as control level of solvency on
the breach of which the Authority shall act in accordance with without prejudice to
taking of any other remedial measures as deemed fit.
Thus, the amendment Act incorporates enhancements in the Insurance Laws in

keeping with the evolving insurance sector scenario and regulatory practices across
the globe. The amendments will enable the Regulator to create an operational
framework for greater innovation, competition and transparency, to meet the
insurance needs of citizens in a more complete and subscriber friendly manner. The
amendments are expected to enable the sector to achieve its full growth potential
and contribute towards the overall growth of the economy and job creation.
(iv) Regulation 2(n): "Unpublished price sensitive information"

"unpublished price sensitive information" means any information, relating to a
company or its securities, directly or indirectly, that is not generally available which
upon becoming generally available, is likely to materially affect the price of the
securities and shall, ordinarily including but not restricted to, information relating to
the following:
(i) financial results;
(ii) dividends;
(iii) change in capital structure;
(iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business

and such other transactions;
(v) changes in key managerial personnel; and
(vi) material events in accordance with the listing agreement.
(v) The OECD guidelines focused on the following areas:

(1) Rationales for State Ownership
The state exercises the ownership of SOEs in the interest of the general public. It
should carefully evaluate and disclose the objectives that justify state ownership
and subject these to a recurrent review.
(2) The State's Role as an Owner
The state should act as an informed and active owner, ensuring that the
governance of SOEs is carried out in a transparent and accountable manner,
with a high degree of professionalism and effectiveness.
(3) State-Owned Enterprises in the Marketplace
Consistent with the rationale for state ownership, the legal and regulatory
framework for SOEs should ensure a level playing field and fair competition in the
marketplace when SOEs undertake economic activities.
(4) Equitable Treatment of Shareholders and other Investors
Where SOEs are listed or otherwise include non-state investors among their
owners, the state and the enterprises should recognise the rights of a!!
shareholders and ensure shareholders'- equitable treatment and equal access to
corporate information.
(5) Stakeholder Relations and Responsible Business
The state ownership policy should fully recognise SOEs’ responsibilities towards
stakeholders and request that SOEs report on their relations with stakeholders. It
should make clear any expectations the state has in respect of responsible
business conduct by SOEs.
(6) Disclosure and Transparency
State-owned enterprises should observe high standards of transparency and be
subject to the same high quality accounting, disclosure, compliance and auditing
standards as listed companies.
(7) The Responsibilities of the Boards of State-Owned Enterprises
The boards of SOEs should have the necessary authority, competencies and
objectivity to carry out their functions of strategic guidance and monitoring of
management. They should act with integrity and be held accountable for their
actions.
FINAL EXAMINATION
GROUP - III
(SYLLABUS 2016)
DECEMBER - 2021
Paper -13 Corporate Laws & Compliance
Section: A - MCQ 20X1=20

Q.1 Which of the following export documents is known as the Document of Title?
Ans 1. Mate‟s receipt
2. Bill of exchange
3. Bill of lading
4. Proforma invoice
Q.2 It is not compulsory for private Ltd companies to

Ans 1. All of these.
2. Conduct statutory meetings.
3. Issue prospectus.
4. Maintain an index of its members.

Q.3 Public deposits cannot exceed
Ans 1. 50% of share capital and free reserve.
2. None of these.
3. 25% of share capital and free reserve.
4. 10% of share capital and free reserve.
Q.4 As per section 36(4) of Insolvency and Bankruptcy code ,2016,which of the following
assets
will not form a part of liquidation assets:
Ans 1. Assets of any Indian or foreign subsidiary of the corporate debtor.
2. Assets subject to the determination of ownership by the court.
3. Tangible assets,whether moveable or immoveable.
4. All proceeds of liquidation as and when they are realised.
Q.5 Providing fair compensation and safe working conditions,is related to social
responsibilities
towards:
Ans 1. Shareholders.
2. Employees.
3. Customers.
4. Community.
Q.6 "METRO” is which form of enterprise
Ans 1. Private limited company
2. PPP
3. Government company
4. Public limited company
Q.7 Which of the following instruments is also known as ‘Hybrid security’?

Ans 1. Preference share.
2. Debentures
3. Public deposit
4. Equity shares
Q.8 Which of the following is not the feature of LLP?

Ans 1. The registration of LLP is not compulsory.
2. Compulsory to maintain accounts and get them audited.
3. All partners have limited liability.
4. No mutual agency.
Q.9 Which of the following FDI in resident entities is not eligible as investee entities?
Ans 1. FDI in H.U.F
2. FDI in an Indian company.
3. FDI in partnership.
4. FDI in LLP
Q.10 Rule means the enforcement of rules in the society legally.

Ans 1. Application.
2. Implementation
3. Making
4. Following
Q.11 Which of the following is a motive for merger?

Ans 1. Economics of scale.
2. Surplus fund
3. Tax shelter
4. None of these.
Q.12 More instability in currency is called as
Ans 1. Country risk.
2. Liquidity risk
3. Currency risk.
4. Financial risk.
Q.13 Which of the following can never be dishonoured

Ans 1. None of these
2. Bank draft
3. Cheque
4. Both (a) and (b)
Q.14 A Nidhi shall not accept deposits exceeding times of its net owned funds
Ans 1. Fifteen times
2. Ten times
3. Twenty times
4. Twenty five times

Q.15 The ethical issues relating to customers include.
Ans 1. Price of the product.
2. Quality of the product.
3. All of these.
4. Safety in handling product.
Q.16 Principle of indemnity is not applicable to

Ans 1. Life insurance
2. Marine insurance
3. Fire insurance.
4. None of these
Q.17 The process of money laundering generally involves three stages.Which is the second
stage?
Ans 1. Placement.
2. Integration.
3. Layering.
4. Contribution.
Q.18 Which of the following is not a motive for setting up a joint venture?
Ans 1. None of these.
2. Diversification of risk.
3. Tax shelter
4. Economics of scale.
Q.19 The holders of GDRs do not carry which of the following right?
Ans 1. Voting right.
2. Dividends
3. All of these.
4. Capital appreciation
Q.20 In the case of a meeting of the Board of directors or of a committee of the board,the
Minutes
shall also contain.
Ans 1. The names of the directors present at the meeting.
2. Both.
3. In the case of each resolution passed at the meeting, the names of the directors, if
any,dissenting from or concerning with the resolution.
4. None of these
Section : B - SAQ 20X1=20
Q.1 Which document helps to avoid and solve any ambiguity,or conflict between
exporter and
importer?
Answer:
Indent
Q.2 The Companies Act, 2013 is administered by which authority?
Answer:
The Companies Act 2013 is administered by the Central Government through the Ministry Of Corporate Affairs, (MCA)
and offices of Registrar of Companies.
Q.3 In between the winding up and dissolution, can the company be sued in the Court
of Law?
Answer:
Yes, because the legal status of the company continues.
Q.4 A company got registered with an illegal object.Can the registration be questioned?
Answer:
No, The registration can not be questioned if the Registrar has already issued the certificate of registration.
Q.5 Is the power to invest the funds of the company the prerogative of the board of
directors?
Answer:
Yes
Q.6 What is the full form of RTGS?
Answer:
Real time gross settlement.
Q.7 Can the company keep any of the books of account at any other place in India other
than the
registered office of the company?
Answer:
Yes, Subject to intimation to the Registrar, within seven days of the Board decisions.
Q.8 What are three main target groups that can be distinguished in governance
concepts?
Answer:
Government, citizens and business/interest groups.

Q.9 State whether shareholders of the company may declare interim dividend.
Answer:
No
Q.10 State which of the following terms are not defined in the companies Act,2013:
i) The word amalgamation
ii) The words oppression and mismanagement
Answer:
Both
Q.11 Financial statement with respect to small company may not include cash flow
statement. Do
you agree?
Answer:
Yes
Q.12 State whether public deposit may be accepted in joint name exceeding three?
Answer:
No
Q.13 Name the organisation formed by passing a special act.
Answer:
Statutory Company
Q.14 State whether the LLP Act, 2008 provides any facility for conversion of a LLP into
private
limited company.
Answer:
The LLP Act, 2008 does not provide any facility for conversion of LLP into a private limited company.
Q.15 Who defines trade based money laundering?
Answer:
Financial Action task force
Q.16 Fill in the blanks:

Public deposits can be invited by companies for a period of months to
years.
Answer:
Six‐three
Q.17 When two or more firms come together to create a new business entity that is
legally separate
and distinct from its parents, it is known as .
Answer:
Joint Venture
Q.18 A person who is indebted to a company in excess of Rs.5 lakh can be appointed as
an
auditor of that company.
Answer:
No
Q.19 State the effect if the resolution plan is rejected by NCLT
Answer:
If the resolution plan is rejected by the adjudicating authority. Liquidation process will commence.
Q.20 Can a person resident in India, possess foreign coins without no restriction?
Answer:
Yes
Section : C
(12X4= 48 Marks)
One LAQ
Q.1 Insincere, limited on 22nd May, 2020. Mortgaged one of the freehold land of the (6 Marks)
company in the
favour of the bank, from which Mr Daman,a director of the company had taken a
housing loan for his
residential purpose since Insincere Ltd. had been running in losses and was unable
to honour the
liabilities due towards the other creditors.The Board of directors of the company
was aware of the
financial crisis faced by the insincere Ltd. and of creation of a mortgage in order to
give preference to
Mr.Daman over other creditors.
On 23rd September, 2020, some creditors of the company filed a petition for the
winding up before
tribunal. It passed an order for the winding up of the company on 5th
November,2020. Discuss on the
nature of the transaction of mortgage created with bank in the given circumstances
in the light of the
companies Act,2013.
Answer:
Section 328 (1) states that when 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 six months of making winding up
application,the Tribunal, if satisfied that such transaction is a fraudulent preference may order as it may think fit forrestoring
the position to what it would have been if the company had not given that preference.
Sub‐Section(2) states that if the Tribunal is satisfied that there is a preference transfer of property, movable or immovable, or any
delivery of goods, payment, execution made, taken or done by or against a company within six months before making winding up
application, the Tribunalmay order as it may thinkfit and may declare such transactioninvalid and restore the position.
In the question, the company had created a legal mortgage on 22nd May 2020 and the creditors made a petition for winding up of
the company on 23rd September 2020, so the above transaction of creation of legal mortgage on the freehold land of the
company falls within the ambit of section 328 of the Act.
Therefore, creation of mortgage of the freehold land of the company is the transaction covered under the fraudulent preference
since the mortgage is created 6 months preceding the date of making of winding up petition and therefore the Tribunal may order
as it may think fit and may declare such transaction on creation of mortgage as invalid and restore the position.
Q.2 Perpetual Limited is an asset reconstruction company (ARC) under the SARFAESI
Act,2002.
(4 Marks)
During the financial year 2020-2021. Mr Param, one of the directors of the company
in urgent need of
money transferred 10% of his shareholding to Mr Shariff (Another director of the
company), which
increased Mr Shariff’s shareholding to 20%. Perpetual Ltd also appointed Mr Vikram
as CEO for
managing the overall operations and resources of the company. However, for the
said purposes,
Perpetual limited did not take approval of the Reserve Bank of India. RBI cancelled
the certificate of
Registration granted to Perpetual Limited. Perpetual Ltd. contended that the
decision of the RBI is
inappropriate as transfer of shareholding and appointment of CEO is not a
substantial change in
management. Discuss the validity of decisions of the RBI in the light of the
applicable law
Answer:
As per Section 3(6) of the SARFAESI ACT 2002. Every asset reconstruction company, shall obtain prior approval of the Reserve
Bank for any substantial change in its management including appointment of any director on the board of directors of the asset
reconstruction company or managing director or chief executive officer thereof or change of location of its registered office or
change in its name.
Provided that the decision of the Reserve Bank whether the change in management of a securitisation company or a
reconstruction company is a substantial change in its management or not shall be final.
Explanation—For the purposes of this section, the expression”substantial change in management” means the change in the
management by way of transfer of shares or change affecting the sponsorship in the company by way of transfer or shares or
amalgamation or transfer of the business of the company.
In the above question, there has been change in shareholding of directors which falls under the “substantial change in
management”including appointment of CEO and the decision of the Reserve Bank as to whether the change in management of
the asset reconstruction company is a substantial change in management or not, shall be final.
Therefore, the decision of the Reserve Bank shall be final and will be held valid
Q.3 Identify the form of public sector enterprise in the following cases. (2 Marks)
1) It is under the control of the Concerned Minister of the department.
2) Private individuals can also become shareholders.
Answer:
1) Departmental Undertaking
2) Government company
Two LAQ
Q.1 Bharti Limited, a company listed on Bharat Stock Exchange Limited(A recognised (5 Marks)
Stock Exchange
to India)had been incurring losses continuously during the preceding 3 years, but
its net worth has not
become negative till date.The Stock Exchange decided to delist the securities of the
company after
giving an opportunity of being heard to the company. Mr. Binay, (the investor) who
holds equity shares
up to 10% of the total equity share capital of the company, has suffered heavy
losses due to delisting
of securities by the Stock Exchange.You have been hired by Mr. Binay to consult
him regarding the
security laws.Examine the given situation and mention the various grounds of
delisting under SCRA
and the remedies available to Mr. Binay in the light of the securities contract
(Regulation)Act,1956[SCRA].
Answer:
As per Section 21A of the Securities Contracts (Regulation) Act, 1956 read with Rule 21 of the Securities Contract (Regulation)
1957, a recognised stock exchange may delist the securities, after recording the reasons therefor from any recognised stock
exchange on any of the ground or grounds as may be prescribed under this Act.
Provided that the securities of a company shall not be delisted unless the company concerned has been given a reasonable
opportunity of being heard. Alisted company or an aggrieved investor may file an appeal before the Securities Appellate
Tribunal against the decision of the recognised stock exchange delisting the securities within fifteen days from the date of the
decision of the recognised stock exchange delisting the securities,
Following are the grounds namely

(a) the company hasincurred lossesduring the preceding three consecutive years and it has negative net worth.
(b) trading in the securities of the company has remained suspended for a period of more than six months.
(c) the securities of the company have remained infrequently traded during the preceding three years,
(d) the company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions
of the Act or the Securities and Exchange Board of India Act,1992 or the Depositories Act.1996 or
rules,regulations,agreements made thereunder.as the case may be and awarded a penalty of not less than rupees one crore or
imprisonment of not less than three years.
(e) the addresses of the company or any of its promoter or any of its directors,are not known or false addresses have been
furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, or
(f) shareholding of the company held by the public has come below the minimum level applicable to the company as per the
listing agreement under the Act and the company has failed to raise public holding to the required level within the time specified
by the recognised stock exchange. In the above question, the net worth of the company has not become negative.
Therefore,either the company or Mr, Binay may file an appeal before the Securities Appellate Tribunal against the decision of
the recognised stock exchange within 15 days from the date of the decision.
Q.2 Earth Developers Private Limited, a Bengaluru based company is regular in filing its
annual return
(4 Marks)
as well as financial statements and has four directors but so far no managing
director has been
appointed.Due to the manifold increase in the construction work undertaken by the
company in the
last two years, it is urgently felt that a managing director needs to be
appointed.Accordingly, Mr
Pranav was appointed as MD by the Board of Directors at its meeting, specifying
the terms and
conditions including monthly remuneration, payable to him. Enumerate on the
requirement and validity
of an appointment of Mr. Pranav in the given scenario, in the context of relevant law.
Answer:
Section 196(4) requires that the terms and conditions of appointments of aManaging Director and the remuneration
payable to him shall be approved by the Board of Directors at a meeting which shall be subject to approval by a
resolution at the next general meeting of the company and by the Central Government in case such appointment is at
variance to the conditions specified in Part I of the Schedule V.
Therefore, there is no requirement regarding the approval of appointment of Mr.Pranav as MDin the Earth Developers
Private Limited, at the immediate next general meeting of the shareholders. Therefore his appointment as MD inthe
Earth DevelopersPrivate Limited is valid.
Q.3 A claim for loss by fire must satisfy the certain conditions.what are those (3 Marks)
conditions?
Answer:
Aclaim for loss by fire must satisfy the following two conditions,
(i) there must be actual loss, and
(ii) fire must be accidental and non‐intentional. The property must be damaged or burnt by fire.If the property is
damaged by heat or smoke without ignition,it will not be covered under the word &#39,fire&#39, and the loss will not be
recoverable from the insurer.
Three LAQ
Q.1 What is an overseas direct investment?Differentiate between automatic route and (5 Marks)
approval route to
direct investment.
Answer:
Direct investment outside India /overseas direct investment means investments, either under the Automatic Route or the
Approval Route by way of
I. contribution to the capital or subscription to the Memorandum of a foreign entity or
II. purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange,
signifying a long‐term interest in the foreign entity.(JV or WOS).
Difference between Automatic Route and Approval Route for direct investment Automatic route for direct investment
or financial commitment outside India:
An Indian Party has been permitted to make investment/undertake financial commitment in overseas Joint Ventures (JV)/
Wholly Owned Subsidiaries (WOS), as per the ceiling prescribed by the Reserve Bank.
With effect from july 03, 2014, it has been decided that any financial commitment (FC) exceeding USD 1 (one) billion (for its
equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC of the Indian
Party is within the eligible limit under the automatic route [i.e. , within 400% of the net worth (Paid up capital + Free Reserves)
as per the last audited balance sheet].
Approval route for direct investment or financial commitment outside India:

(i) Prior approval of the Reserve Bank would be required in all other cases of direct investment (or financial commitment)
abroad.
(ii) Reserve Bank would, inter alia, take into account the following factors while considering such applications:
(a) Prima facie viability of the JV/WOS outside India,
(b) Contribution to external trade and other benefits which will accrue to India through such investment (or financial
commitment),
(c) Financial position and business track record of the Indian Party and the foreign entity, and
(d) Expertise and experience of the Indian Party in the same or related line of activity as of the JV/WOS outside India.
Therefore, under the approval route (proposals not covered by the conditions under the automatic route) prior approval of the
Reserve Bank would be required. For which a specific application in Form ODI with the documents prescribed therein is
required to be made through the Authorised Dealer Category‐ 1 Banks
Q.2 State on the nature of liability caused on an offence committed under the
prevention of Money (5 Marks)
Laundering Act, 2002.
Answer:
Money Laundering basically is knowingly dealing with proceeds of crime directly or indirectly. The Act provides both for civil
and criminal liability. Criminal liability under the Prevention of Money Laundering Act Crime which results in tainted money is a
separate offence under various laws as specified in Schedule to Prevention of Money Laundering Act. These offences are
punishable under those Acts. The punishment is to the person/s who is/are involved in actually committing that offence.
The offence as specified in Section 4 of the Prevention of Money Laundering Act is a separate offence. The punishment under
section 4 of Prevention of Money Laundering Act is not only to those who are actually involved in dealing with
tainted money but also on those who are knowingly involved, directly or indirectly, in dealing with proceeds of crime.
This is a criminal offence, which will be tried by special courts designated for this purpose under Section 2 (Z) of the
Prevention of Money Laundering Act. The trail will be both for charges under the specific Act which is a crime and also
offence of money laundering under Prevention of Money Laundering Act. However it is not „joint trial‟
Civil Liability i.e. confiscation of tainted property
In addition to criminal liability, the property involved in money laundering can be
attached and frozen by Central Government and later confiscated.
Q.3 State when an act or omission is an offence . (2 Marks)
Answer:
An Act or omission is an offence only if it is made punishable by any law for the
time being in force and not otherwise.
Four LAQ
Q.1 Delegare Limited incorporated in Singapore desires to establish a place of business (6 Marks)
at Mumbai.You
being a practicing Chartered Accountant have been appointed by the company as
liaison officer for
compliance of legal formalities on behalf of the company.Examining the provisions
of the Companies
Act, 2013,state the documents which are required to be furnished on behalf of the
company, on the
establishment of a place of business at Mumbai.
Answer:
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:
(i) 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. If the instruments are not in the English Language, a certified translation thereof in the
English Language.
(ii) the full address of the registered or principal office of the company,
(iii) A list of the directors and the secretary of the company containing such particulars as prescribed under the Companies
(Registration of Foreign Companies) Rules, 2014,
(iv) The name and address or the names and addresses 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
(v) The full address of the office of the company in India which is deemed to be its principal place of business in India
(vi) Particulars of opening and closing of a place of business in India on earlier occasion or occasions,
(vii) Declaration that none of the directors of the company or the authorised representative in India has ever been convicted or
debarred from formation of companies and management in India or abroad and
(viii) 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.
Q.2 Everlasting Ltd. went into liquidation.XYZ Bank Ltd. the secured creditor, decided to (3 Marks)
realise its
security interest by informing liquidator of such security interest and identify
assets subject to which
such security interest has to be realised. Liquidator denied the XYZ bank Ltd.to
enforce its
security interest as said secured creditor is not a part of committee of
creditors.Throw a light on the
stated situation and examining on the validity of the stand taken by the liquidator.
Answer:
As per Provisions laid down in Section 52 of the Insolvency and Bankruptcy Code, 2016,an option is given to secured creditor
to realise its security interest by informing liquidator in respect of such security interest and identify assets subject
to which such security interest has to be realised. Therefore, it is not mandatory under Code proceedings for financial creditor
to be a part of CoC (Committee of Creditors) to enforce its security interest. Hence, application filed by Financialcreditor was to
be accepted.
Therefore the stand taken by the liquidator on his denial to the XYZ Bank Ltd., to enforce its security interest on the account
that secured creditor is not a part of the Committee of creditors, is not valid.
Q.3 Who can initiate the insolvency resolution process? (3 Marks)
Answer:
Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself
may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided‐
Section 6 of Insolvency and Bankruptcy Code, 2016.
Five LAQ
Q.1 Explain the principles of corporate governance. (5 Marks)
Answer:
Principles of Corporate Governance

Transparency
Transparency means the quality of something which enables one to understand the truth easily. In the context of corporate
governance, it implies an accurate, adequate and timely disclosure of relevant information about the operating results etc.of the
corporate enterprise to the stakeholders.
Accountability
Accountability is a liability to explain the results of one‟s decisions taken in the interest of others. In the context of corporate
governance, accountability implies the responsibility of the Chairman, the Board of Directors and the chief executive
for the use of company‟s resources (over which they have authority) in the best interest of company and its stakeholders.
Independence
Good corporate governance requires independence on the part of the top management of the corporation i.e, the Board of
Directors must be strong non partisan body; so that it can take all corporate decisions based on business prudence. Without
the top management of the company being independent; good corporate governance is only a mere dream.
Q.2 State briefly the Evaluation of MOU (4 Marks)

Answer:
Evaluation of MOU
Performance of MOU signing PSEs is evaluated with reference to their MOU targets twice in a year. First the performance is
evaluated on the basis of provisional results and secondly on the basis of audited data. The performance evaluation exercise is
also carried out in an extensive manner. As mentioned earlier this performance evaluation exercise is not carried out purely
through a mechanical procedure. In fact, at the end of the year the review meetings are held which provides an opportunity to
consider the proposals to adjust the criteria values for factors which were not predicated and could not have been predicted by
either party. Thus, the MOU evaluation is finalized on the basis of the actual performance and the PSEs are graded as
`EXCELLENT`, `VERY GOOD`, `GOOD`, `FAIR` & `POOR`. Some portion of the Performance Related Pay (PRP) is linked to
MOU Rating.
Q.3 State briefly various factors which have persuaded businessmen to consider their (3 Marks)
social
responsibilities.
Answer:
The various factors which have persuaded businessmen to consider their social responsibilities are :
(i) Threat of public regulation
(ii) Pressure of labour movement
(iii) Impact of consumer consciousness
(iv) Development of social standards of business
(v) Development of business education
(vi) Relationship between social interest and business interest
(vii) Development of professional, managerial class
Six LAQ
(4X3=12 Marks)
Q.1 Write short note on Allotment of corporate identity number(CIN) (3 Marks)
Answer:
Allotment of Corporate Identity Number (CIN) on and from the date mentioned in the certificate of incorporation, the registrar
shall allot to the company a Corporate Identity Number which shall be distinct Identity for the company and which shall also be
included in the certificate.
Q.2 Write short note on Boards report in case of OPC.[Section 134(4)] (3 Marks)
Answer:
Board’s report in case of OPC [Section 134(4)]

In case of a one person company, the report of the Board of Directors to be attached to the financial statement under this section
shall mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or
disclaimer made by the auditor in his report.
Q.3 Write short note on SEBI Code of corporate governance relating to board of (3 Marks)
directors.
Answer:
SEBI code of corporate governance relating to the Board of Directors

The Board of Directors of the company shall have an optimum combination of executive and non executive directors. The number
of independent directors would depend on whether the chairman is executive ornon executive. In case of non executive chairman
atleast 1/3rd of the Board should comprise Independent directors, and in case of executive chairman atleast half of the board
should comprise independent directors.
Q.4 Write short note on Policy on preservation of documents as per part-D SEBI (Listing (3 Marks)
obligations and disclosure
requirement) rules 2015
Answer:
Policy on preservation of documents

As per part D‐SEBI (Listing obligationand disclosure requirements) RULE 2015
‐To be approved by BOD
‐Classified under two categories
‐Documents to be preserved permanently and to be preserved for minimum 8 years.
Q.5 Write short note on Replacement of resolution professional by Committee of (3 Marks)

creditors.
Answer:
Replacement of resolution professional by committee of creditors

Committee of creditors can change the resolution professional. They have to forward new name to Adjudicating Authority who will
appoint another resolution professional after getting approval from Board‐ Section 27 of Insolvency and Bankruptcy Code 2016
Section : D - Case Study Question
Q.1 Mr. Vikram, a Director of M/S Tubelight Limited has made default in filing of annual . (3+3+2+4=12 Marks)
.accountsaccounts and
annual returns with the Registrar of Companies for a continuous period of 3
financial years ending on
31st March 2016. Examine the validity of the following under the Companies Act,
2013.
i) Whether Mr.Vikram can continue to be a Director of M/S Tubelight Limited

(defaulting company) and also M/S Green light Limited where he is also a Director.
ii) State Whether he can be reappointed as Director in these two companies.
iii) What would be your answer be in case Mr. Vikram is a nominee Director of a
Public Financial Institution ?
iv) what would be your answer in case the defaulting company (i,e. M/S Tubelight
Limited) is a private
limited company ?
Answer:
Disqualifications for Appointment of Director

According to Section 164 (2) of the Companies Act 2013 a person who is or has
been a director of a company which
(A) has not filed the financial statements or annual returns for any continuous three financial years or
(B) has failed to repay the deposits accepted by it or pay interest thereon due date or redeem its debentures on
due date or pay interest due thereon or pay any dividend declared and such failure continues for one year or
more. Shall not be eligible to be reappointed as a director of that company or appointed in other company for a
period of five years from the date on which
the said company fails to do so. Further, pursuant to Section 167(1) (a) of the companies act 2013, the office of
a director shall become vacant in case he incurs any of the disqualification specified in Section 164. The
company joint reading of both the Sections i.e. 164(2) and 167 (1)(a),we may decide the case as under
i) In the first case Mr.Vikram cannot continue to be director of the defaulting company namely M/s Tubelight Ltd. whereas in Green
light Ltd., he can continue as a director because that company is not defaulting company.
ii) Further, Mr Vikram is a Director of Tubelight Ltd. and Green Light Ltd. Tube Light Ltd did not file financial statements for a
continuous period of three financial years ending 31 march 2016. This failure constitute a disqualification under Section 164(2)
and consequently Mr Vikram will not be eligible for reappointment in Tubelight Ltd. and Green light Ltd for a period of five
years from the date on which the said company incurs the default.
iii) In case Mr.Vikram is a nominee director of a Public Financial Institution then in such case section 164 is not applicable.
iv) In case Tubelight Ltd is a Private Ltd Company. According to Section 164(3) a private company may by its articles provide
for any disqualifications for appointment as a director in addition to those specified in sub section (1) and (2) of Section 164
Thus in this case the answer would be same as above i.e. Mr Vikram has to vacate his office of directorship from TubelightLtd
and Green light Ltd and cannot be reappointed in both the companies for a period of 5 years from the date on which the said
company incurs the default.
Answer to Q. no.: 1 2×10=20

(i) (D)
(ii) (B)
(iii) (C)
(iv) (C)
(v) (B)
(vi) (C)
(vii) (A)
(viii) (D)
(ix) (D)
(x) (D)
[Any FIVE from Question No. 2 to 8]

16X5=80 Marks
6 Marks
2(a) The minimum amount that the Company is required to withdraw from free reserves is Rs 4,37,500.
2 Marks
(b) According to Section 387(1) (a) (iv) of the Companies Act, 2013, no person shall issue, circulate
or distribute in India any prospectus offering to subscribe for securities of a company incorporated
or to be incorporated outside India, whether the company has or has not established, or when
formed will or will not establish, a place of business in India. unless the prospectus is dated and
signed, and contains particulars with respect to the date on which and the country in which the
company would be or was incorporated. Hence, in the instant case, issue of prospectus by Blue
Berry Limited is not valid as it did not state the Country in which it is incorporated.
2 Marks
(c) According to proviso to Section 581ZK of the Companies Act, 1956, any loan or advance by a
Producer Company to any director or his relative shall be granted only after the approval by the
Members in general meeting.
In the instant case, the proposal to advance a loan of 10,000 to Mr. X, a director of the XYZ
Producer Company Limited by the Board of Directors will be valid only after the approval by the
Members in general meeting is taken for granting of such loan.
3 Marks
(d) Period within which amount representing the export value shall be realized & repatriated as per
Section 7 of the FEMA, 1999 read with Foreign Exchange Management (Export of Goods and
Services) Regulations, 2015: The amount representing the full export value of goods/software/
services exported shall be realized and repatriated to India within nine months from the date of
export, provided:
(a) that where the goods are exported to a warehouse established outside India with the permission
of the Reserve Bank, the amount representing the full export value of goods exported shall be
paid to the authorized dealer as soon as it is realized and in any case within fifteen months
from the date of shipment of goods;
(b) Extension of Period: Further that the Reserve Bank, or subject to the directions issued by that
Bank in this behalf, the authorized dealer may, for a sufficient and reasonable cause shown,
extend the period of nine months or fifteen months, as the case may be.
Sunita Garments Limited may be advised as above.
1
3 Marks
(e) As per the provisions of Section 12 of the Competition Act, 2002, the Chairman and other Member
of CCI shall not, for a period of two years from the date on which he ceased to hold office, accept
any employment in or connected with the management or administration of any enterprise, which
has been a party to a proceeding before the Commission. However, these provisions will not apply
to any appointment in a Government Company or the Central Government or any State Goverment
or local authority or any Corporation established by or under any Central or State or Provincial Act.
(I) In view of the aforesaid, Mr. Jaydev cannot join Arnab Limited for a period of two years starting
from 1st April, 2019.
(II) However, there is no bar for him to join National Milk Products Limited, since it is a Government
Company
4 Marks
3 (a) Under section 173 (3) of the Company Act, 2013 a meeting of the Board shall be called by giving
not less than seven days‟ notice in writing to every director at his address registered with the
company and such notice shall be sent by hand delivery or by post or by electronic means.
Section 173 (4) further provides that every office of the company whose duty is to give notice under
this section and who fails to do so shall be liable to a penalty of Rs. 25,000/-
In the given case, as no notice was served on Mr. K and Mr. L who are the directors of R R Limited,
every officer responsible for such default in serving notice shall be punishable with fine of Rs.
25,000/- as required by Section 173 (4). Neither the Companies Act, 2013 nor the Companies
(Meetings of the Board and its Powers) Rules, 2014 lay down any specific provision regarding the
validity of a resolution passed by the Board of Directors in case notice was not served to all the
directors. The Companies Act, 2013 clearly provide for the notice to be sent to every directors. The
Supreme Court, in the case of Parmeshwari Prasad vs. Union of India (1974) has held that the
resolutions passed in the board meeting shall not be valid, since notice to all the Directors was not
given in writing. Hence, even though the directors concerned knew about the Board meeting, the
meeting shall not be valid and resolutions passed thereat also shall not be valid.
4 Marks
(b) (i) According Section 12A of the Insolvency and Bankruptcy Code, 2016 read with Regulation
30A of the IBBI (Insolvency Resolution process for Corporate persons) Regulations, 2016, the
Adjudicating Authority may allow the withdrawal of application admitted under Section 7 or
Section 9 or Section 10, on an application made by the applicant with the approval of ninety per
cent voting share of the Committee of Creditors, in such manner as may be specified. Thus, the
application can be withdrawn if approval of ninety per cent, voting share of the Committee of
Creditors is obtained. Hence, Mr. VS cannot deny Mr. MS for filing of withdrawal application only
on the basis that committee of creditors has been constituted.
(ii) Before Constitution of Committee of CreditorsThe applicant shall make an application for
withdrawal to the Adjudicating Authority through the interim resolution professional. The
resolution professional shall submit such withdrawal application to the Adjudicating Authority on
behalf of the applicant, within three days of receipt of request. Further, the final approval of such
withdrawal shall be by way of an order passes by the Adjudicating Authority. Thus, if Committee of
Creditors is not constituted Mr. MS shall apply to the Adjudicating Authority (NCLT, Delhi)
through the Interim Resolution Professional, for withdrawal. Hence, the answer will not differ and
Mr. VS cannot deny Mr. MS to file a withdrawal application with NCLT, Delhi.
(iii) The final approval of such withdrawal shall be by way of an order passed by the Adjudicating
Authority i.c. NCLT, Delhi.
2
4 Marks
(c) Section 244 of the Companies Act. 2013 provides the right to apply to the Tribunal for relief
against oppression and mis-management. This right is available only when the petitioners hold the
prescribed limit of shares as indicated below.
(i) In the case of company having a share capital, not less than 100 members of the Company or
not less than one tenth of the of the total number of its members whichever is less or any
member or members holding not less than one tenth on the issued share capital of the
company, provided that the applicant(s) have paid all calls and other dues on the shares.
(ii) In the case of company not having share capital, not less than one-fifth of the total number
of its members.
Since the group of shareholders do not number 100 or hold 1/10thof the issued share capital or
constitute 1/10th of the total number of members, they have no right to approach the Tribunal for
relief.
However, the Tribunal may, on an application made to it waive all or any of the requirements
specified in (i) or (ii) so as to enable the members to apply under section 241. As regards obtaining
relief from Tribunal, continuous losses cannot, by itself, be regarded as oppression (Ashok Betelnut
co. P. Ltd. Vs. M.K. Chandrakanth). Similarly, failure to declare dividents or payment of low
dividends also does not amount to oppression. (Thomas Veddon V.J. (v) Kuttanad Robber Co.Ltd.)
Thus, the shareholders may not succeed in getting any relief from Tribunal.
4 Marks
(d) As per the provisions of section 10(1) of the Securities Contract (Regulation) Act. 1956(SCRA),
the Securities and Exchange Board of India (SEBI), may either on a request in writing received by it
in this behalf from the governing body of a recognized stock exchange or on its own motion, if it is
satisfied after consultation with the governing body of the stock exchange that it is necessary or
expedient so to do and after recording its reasons for so doing, make bye laws for all or any of the
matters specified in section 9 or amend any bye laws made by such stock exchange under that
section.
As per provisions of section 10(2) of SCRA. Where in pursuance of this section any bye laws have
been made or amended, the bye laws so made or amended shall be published in the Gazette of India
and also in the official Gazette of the state in which the principal office of the recognized stock
exchange is situate and on the publication thereof in the Gazette of India, the bye laws so made or
amended shall have effect as if they had been made or amended by the recognized stock exchange
concerned.
As per the provisions of 10(4) of the SCRA, the making or the amendment or revision of any bye
laws under this section shall in all cases be subject to the condition of previous publication:
Provided that if the SEBI is satisfied in any case that in the interest of the trade or in the public
interest any bye laws should be made, amended or revised immediately, it may by order in writing
specifying the reasons there for, dispense with the condition of previous publication.
In term of the proviso to section 10(4) as stated above, it can be concluded that the act of the SEBI
is valid and accordingly it should be advised to the stock exchange.
3
4(a)
10 Marks
Sr. Reason for such Query Action that may be taken in response to the
No query
1 A State Government Guaranteed advance has Interest income recognized on such advance
to be treated as NPA even if it remains would be reversed and would be taken to
overdue for more than 90 days and in case of income only when it is realized.
NPA, for the purpose of income recognition,
interest on such advance should not be taken
to income unless interest is realized.
2 Accounts for which an adhoc limit has not It‟s treatment In the books would be changed
been reviewed for 180 days from the date of from performing asset to a non-performing
such ad hoc sanction, should be considered as asset from the date when such change in the
NPA. treatment was required.
3 In case of sale of NPA, Where the sale is for The entry for reversal of the excess provision
a value higher than the NBV, the auditor is would be cancelled in the books and such
required to ensure that no profit is excess provision would be retained to meet
recognized, and the excess provision has not the shortfall/ loss that may arise because of
been reversed but retained to meet the the sale of other non-performing financial
shortfall/ loss that may arise because of the assets.
sale of other non-performing financial assets.
4 Additional temporary limit may be The terms of additional temporary limit in
sanctioned, for a maximum of 20% of the case of such account would be revised to
existing limit and 90 days maximum tenure. 20% of the existing limit and for 90 days
maximum tenure.
5 Net position in respect of each of the foreign The net “position” of the branch in relation
currencies should be generally squared and to each foreign currency should be squared
should not be uncovered by a substantial off and get covered by a substantial amount.
amount.
6 Marks
(b) (i) The Tribunal had passed an order pursuant to subsection (4A) of section 242 of the Companies
Act,2013, as the case had been referred to it by the central Government to decide whether Mr. Sujay
was fit and proper person or not
As per section sub- sections (1A) and (1B) of the 243 of the Companies Act, 2013, the person
who is not a fit and proper person pursuant to subsection (4A) of
section 242, shall not hold the office of a director or any other office connected with the conduct
and management of the affairs of any company for a period of five years from the date of the said
decision:
Provided that the Central Government may, with the leave of the Tribunal, permit such person to
hold any such office before the expiry of the said period of five years. Notwithstanding anything
contained in any other provisions of this Act, or any other law for the time being in force, or any
contract, memorandum or articles, on the removal of a person from the office of a director or any
other office connected with the conduct and management of the affairs of the company, that person
shall not be entitled to, or be paid, any compensation Conclusion: Here, Mr. sujay was not entitled
for such compensation for early termination of his office, despite of the terms of the contract, as his
termination was pursuant to order of Tribunal passed under subsection (4A) of section 242 of the
companies Act, 2013.
(ii) As discussed aforesaid, as per sub-section (1A) to the Companies Act, 2013, Mr. sujay was not
entitled to hold the office of a director or any other office connected with the conduct and
management of the affairs of any company for a period of five years from the date of the said
decision.
4
The decision was given by the Tribunal on 20th June, 2021 and so till 20th June, 2026, Mr. Sujay
was not entitled to hold such office except with the permission of the Central Government accorded
by the leave of Tribunal. Conclusion: If Mr. Sujay had been appointed as a non-executive director
in other company without the permission of the Central Government, then he and every other
director of such other company who is Knowingly a party to such contravention, shall be liable to
punishment as per the provisions of sub-section (3) to Section 243, as Follows:- Any person (i.e.
Mr. Sujay) who Knowingly acts as a managing director or other director or manager of a company
in contravention of clause (b) of sub-section (1) or sub-section (1A), and every other director of the
company who is Knowingly a party to such contravention, shall be punishable with fine which may
extend to five lakh rupees.
5 Marks
5 (a) (i) As per the explanation given under section 186 of the Companies Act, 2013, an investment
company means a company whose principal business is the acquisition of shares, debentures or
other securities and a company will be deemed to be principally engaged in the business of
acquisition of shares, debentures or other securities, if its assets in the form of investment In shares,
debentures or other securities constitute not less than fifty per cent of its total assets, or if its income
derived from investment business constitutes not less than fifty per cent as a proportion of its gross
income.
Facts: In light of the above explanation, the assets of XYZ Ltd. in form of Investment in shares or
debentures is less than fifty percent of the total assets of the company and also the income derived
from the investment business is less than fifty percent of the total Income of the company. Hence,
either of the two conditions need to be satisfied to make an investment company and, in this case,
neither of this condition is satisfied. So, XYZ Ltd. cannot be an Investment company for the
purpose of Section 186.
(ii) As per section 186 (5) of the Companies Act, 2013, no investment shall be made or loan or
guarantee or security given by the company, unless the resolution sanctioning it is passed at a
meeting of the Board with the consent of all the directors present at the meeting and the prior
approval of the public financial institution concerned where any term loan is subsisting. is obtained.
So, in this case the Board of Directors of XYZ Ltd. while considering the proposal for making the
investment in ABC Ltd. has not complied with the provision of section 186(5) of the Companies
Act, 2013, where the consent of all the directors present at the meeting is required. The resolution of
the board of directors therefore is not valid and has no legal effect.
5 Marks
(b) According to section 5 of the Prevention of Money Laundering Act, 2002, where the Director or any
other officer (not below the rank of Deputy Director authorized by the Director), has reason to
believe (the reason for such belief to be recorded in writing), on the basis of material in his
possession, that-
(i) any person is in possession of any proceeds of crime; and
(ii) Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner
which may result in frustrating any proceedings relating to confiscation of such proceeds
of crime under this Chapter,
he may, by order in writing, provisionally attach such property for a period not exceeding 180 days
from the date of the order, in such manner as may be prescribed. Provided further that, any property
of any person may be attached under this section if the Director or any other officer not below the
rank of Deputy Director authorised by him has reason to believe (the reasons for such belief to be
recorded in writing), on the basis of material in his possession, that if such property involved in
money-laundering is not attached immediately under this Chapter, the non-attachment of the
property is likely to frustrate any proceeding under this Act.
Computation of period of attachment:
Provided also that for the purposes of computing the period of 180 days, the period during which
the proceedings under this section is stayed by the High Court, shall be excluded and a further
5
period not exceeding 30 days from the date of order of vacation of such stay order shall be counted.
No effect on the right to enjoy the property: This section shall not prevent the person interested in
the enjoyment of the immovable property attached from such enjoyment. Here, "person interested",
in relation to any immovable property, includes all persons claiming or entitled to claim any interest
in the property. In the given case, Mr. Beta, son of Mr. Bemaan can occupy the flat during the
period of provisional attachment if he claims to have any interest in the said property.
6 Marks
(c) (i) Regulation 17A(1) of the SEBI (LODR) Regulations, 2015 provides that a person shall not be a
director in more than eight listed entities with effect from April 1, 2019 and not in more than seven
listed entities with effect from April 1, 2020. Ava can continue of having directorship in 8 listed
entities up to 31st March 2020 only, but from 1st April, 2020 the number of directorships in listed
entities have been reduced to 7 from 8.
(ii) Regulation 17A(2) of the SEBI (LODR) Regulations, 2015 provides that any person who is serving
as a WTD/MD in any listed entity shall serve as an independent director in not more than 3 listed
entities.
Hence Ava, besides holding the position of WTD, can serve as an Independent Director maximum
up to 3 listed companies only.
(iii) Regulation 18(1)(d) of the SEBI(LODR) Regulations, 2015 provides that the chairperson of the
audit committee shall be an independent director and he/she shall be present at Annual general
meeting to answer shareholder queries. Since, Ava is an independent director with a CA
qualification; hence she can be the Chairperson of Audit Committee of Board.
8 Marks
6 (a) Rule 8: CSR Reporting: Rule 8 of the CSR Rules provides that the companies, upon which the
CSR Rules are applicable shall be required to incorporate in its Board's report an annual report on
CSR containing the following particulars:
 A brief outline of the company's CSR Policy, including overview of projects or programs
proposed to be undertaken and a reference to the web-link to the CSR policy and projects
or programs;
 The composition of the CSR Committee;
 Average net profit of the company for last three financial years;
 Prescribed CSR Expenditure (2% of the amount of the net profit for the last 3 financial
years);
 Details of CSR Spent during the financial year;
 In case the company has failed to spend the 2% of the average net profit of the last three
financial year, reasons thereof;
 A responsibility statement of the CSR Committee that the implementation and monitoring
of CSR Policy, is in compliance with CSR objectives and Policy of the company.
 In case of a foreign company, the balance sheet shall contain an annual report on CSR
 Every company having average CSR obligation of Rs 10 Crore or more in the three
immediately preceding financial years, shall undertake impact assessment, through an
independent agency. of their CSR projects having outlays of Rs1 Crore or more, and
which have been completed not less than one year before undertaking the impact study.
 The impact assessment reports need to be placed before the Board and shall be annexed to
the annual report on CSR.
6
4 Marks
(b) Applicability of Provisions related to Cost Records and Audit: The provisions relating to cost
records and audit are governed by section 148 of the Companies Act, 2013 read with the
Companies, (Cost Records and Audit) Rules, 2014.The audit conducted under this section shall be
in addition to the audit conducted under section 143. Rule 3 of the Companies (Cost Records and
Audit) Rules, 2014 provides the classes of companies, engaged in the production of goods or
providing services, required to include cost records in their books of account. However, the
requirement for cost audit under these rules shall not be applicable to a company which is covered
under Rule 3, and,
(i) whose revenue from exports, in foreign exchange, exceeds 75 per cent of its total revenue; or
(ii) which is operating from a special economic zone.
(iii)which is engaged in generation of electricity for captive consumption through Captive
Generating Plant.
In the given case, Electro Ltd. is engaged in generation of electricity for captive consumption
through Captive Generating Plant. Therefore, Electro Ltd. is not required to conduct cost audit as it
is falling under the exemption criteria. Hence, the opinion of statutory auditor of the company
regarding non-applicability of cost audit is correct and the management should follow the same.
1×4=4 Marks
(c) (i) Going concern
(ii) Holders
(iii) Sixty Months
(iv) One
1X4= 4 Marks
7(a) (i) False
(ii) False
(iii)False
(iv) False
6 Marks
(b) Duties of resolution professional before initiation of pre-packaged insolvency resolution
process 54B.
(1) 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
of section 54A, namely:-
(a) prepare a report in such form as may be specified, confirming whether the corporate debtor
meets the requirements of section 54A, and the base resolution plan conforms to the
requirements referred to in clause (c) of sub-section (4) of 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.
(2) The duties of the insolvency professional under sub-section (1) shall cease, if,-
(a) the corporate debtor fails to file an application for initiating pre-packaged insolvency
resolution process within the time period as stated under the declaration referred to in clause
(f) of subsection (2) of section 54A; or
(b) the application for initiating pre-packaged insolvency resolution process is admitted or
rejected by the Adjudicating Authority, as the case may be.
(3) The fees payable to the insolvency professional in relation to the duties performed under sub-
section (1) shall be determined and borne in such manner as may be specified and such fees shall
form part of the prepackaged insolvency resolution process costs, if the application for initiation
of pre-packaged insolvency resolution process is admitted.
7
6 Marks
(c) Section 230(1) of the Companies Act, 2013 provides that where a compromise or arrangement
is proposed- (a) between a company and its creditors or any class of them; or (b) between a
company and its members or any class of them, The Tribunal may, on the application of the
company or of any creditor or member of the company, or in the case of a company which is being
wound up. of the liquidator, "appointed under this Act or under the Insolvency and Bankruptcy
Code, 2016, as the case may be," order a meeting of the creditors or class of creditors, or of the
members or class of members, as the case may be, to be called, held and conducted in such manner
as the Tribunal directs. Here the term, arrangement includes a reorganisation of the company's share
capital by the consolidation of shares of different classes or by the division of shares into shares of
different classes, or by both of those methods. Any compromise or arrangement needs the order of
sanction by the Tribunal and the Tribunal may on an application made by the company, order the
company to call the meeting of the shareholders, pass such resolution in the meetings and then
forward the minutes to the Tribunal for its order. The order of the Tribunal shall be filed with the
Registrar by the company within a period of thirty days of the receipt of the order.
The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such
creditors or class of creditors, having at least ninety per cent. value, agree and confirm, by way of
affidavit, to the scheme of compromise or arrangement.
8 (Any FOUR of the following) 4X4=16 Marks

(a) Advantages of XBRL 4 Marks
XBRL offers major benefits at all stages of business reporting and analysis. The benefits are seen in
automation, cost saving, faster, more reliable and more accurate handling of data, improved analysis
and in better quality of information and decision making. XBRL enables producers and consumers
of financial data to switch resources away from costly manual processes, typically involving time
consuming comparison, assembly and re-entry of data. They are able to concentrate effort on
analysis, aided by software which can validate and process XBRL information. XBRL is a flexible
language, which is intended to support all current aspects of reporting in different countries and
industries. Its extensible nature means that it can be adjusted to meet particular business
requirements, even at the individual organization level. All types of organizations can use XBRL to
save costs and improve efficiency in handling business and financial information. Because XBRL is
extensible and flexible, it can be adapted to a wide variety of different requirements. All participants
in the financial information supply chain can benefit, whether they are preparers, transmitters or
users of business data. XBRL is set to become the standard way of recording, storing and
transmitting business financial information. It is capable of use throughout the world, whatever the
language of the country concerned, for a wide variety of business purposes. It will deliver major cost
saving and gains in efficiency, improving processes in companies, governments and other
organisations.
(b) Different Models of E-Governance 4 Marks

1. Government to Citizen (G2C) The goal of government to customer/citizen (G2C) e-
governance is to offer a variety of ICT services to citizens in an efficient and economical
manner and to strengthen the relationship between government and citizens using technology.
There are several methods of government-to-customer e-governance. Two-way
communication allows citizens to instant message directly with public administrators and cast
remote electronic votes (electronic voting) and instant opinion poll. Transactions such as
payment of services, such as city utilities, can be completed online or over the phone.
Mundane services such as name or address changes, applying for services or grants, or
transferring existing services are more convenient and no longer have to be completed face to
face.
8
2. Government to Employees (G2E) E-Governance to Employee partnership (G2E) is one of
four main primary interactions in the delivery model of E-Governance. It is the relationship
between online tools, sources, and articles that help employees maintain communication with
the government and their own companies. E-Governance relationship with Employees allows
new learning technology in one simple place as the computer. Documents can now be stored
and shared with other colleagues online. E-governance makes it possible for employees to
become paperless and makes it easy for employees to send important documents back and
forth to colleagues all over the world instead of having to print out these records or fax G2E
services also include software for maintaining personal information and records of
employees.
3. Government to Government (G2G) It is an electronic sharing of data and/or information
system between government agencies, departments or organizations. The goal of G2G is to
support e-government initiatives by improving communication, data access and data sharing.
4. Government to Business (G2B) It is an online non-commercial interaction between local and
central government and the commercial business sector with the purpose of providing
businesses information and advice on e-business „best practices‟. G2B is also refers to the
conduction through the Internet between government agencies and trading companies. Public
issue and share transfer records is mandatory to be kept in electronic form.
4 Marks
(c) Liquidation Estate The liquidation estate shall comprise all liquidation estate assets as follow,
except those specified in Section 36(4) of Insolvency and Bankruptcy Code, 2016 [Section 36(3) of
Insolvency and Bankruptcy Code, 2016]
(a) Any assets over which the corporate debtor has ownership rights, including all rights and
interests therein as evidenced in the balance sheet of the corporate debtor or an information
utility or records in the registry or any depository recording securities of the corporate debtor
or by any other means as may be specified by the Board, including shares held in any
subsidiary of the corporate debtor.
(b) Assets that may or may not be in possession of the corporate debtor including but not limited
to encumbered assets.
(c) Tangible assets, whether movable or immovable.
(d) Intangible assets including but not limited to intellectual property, securities (including shares
held in a subsidiary of the corporate debtor) and financial instruments, insurance policies,
contractual rights.
(e) Assets subject to the determination of ownership by the court or authority.
(f) Any assets or their value recovered through proceedings for avoidance of transactions in
accordance with this Chapter.
(g) Any assets of the corporate debtor in respect of which a secured creditor has relinquished
security interest.
(h) Any other property belonging to or vested in the corporate debtor at the insolvency
commencement date, and
(i) All proceeds of liquidation as and when they are realised.
4 Marks
(d) Register and Records generally prepared in respect of Claims by Insurance Companies: The
following register and records are generally prepared in respect of claims-
(i) Claims Intimation Register;
(ii) Claims Paid Register;
(iii) Claims Disbursement Bank Book;
(iv) Claims Dockets, normally containing the following records;
9
Claim intimation, claim form, particulars of policy, survey report, Photograph showing damage,
repairer‟s bills, letter of subrogation, police report, fire service report, claim settlement note, claim
satisfaction note, salvage report, salvage disposal note, claims discharge voucher etc;
(v) Report of quality assurance team and
(vi) Salvage register.
The Claim Account is debited with all the payments including repair charges, fire fighting expenses,
police report fees, survey fees, amount decreed by the Courts, travel expenses, photograph charges,
etc. The provision for claims incurred but not reported is not made at Branch/Divisional Office level
but at the Head Office level.
4 Marks
(e) According to the Companies (CSR Policy) Amendment Rules, 2021, the administrative overheads
should not exceed five percent of the total CSR expenditure of the company for the financial year.
The CSR amount may be spent by a company for the creation or acquisition of a capital assets,
which shall be held by the following firms:
 A company established under section 8 of the Act
 Registered Public Trust or Registered Society, having charitable objects and CSR Registration
Number
 Beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities A
public authority
______________________________
10
1.
(i) (D)
(ii) (C)
(iii) (B)
(iv) (D)
(v) (D)
(vi) (A)
(vii) (C)
(viii) (A)
(ix) (B)
(x) (B)
2. (a)
i) Inspection
ii) Interim finance
iii) Insolvency Professional Agency
iv) Associate company
2. (b)
As per section 182 of the Companies Act, 2013 a company shall not make a political contribution unless the
following conditions satisfied:
a) The company is not a Government company.
b) The company has been in existence for 3 or more financial years.
c) The aggregate amount of political contribution in a financial year shall not exceed 7.5% of average
net profits during immediately preceding 3 financial years.
d) The Board shall make a political contribution only by passing a resolution at a Board meeting.
e) The company shall disclose in its profit and loss account the amount of political contribution and
the name of political party or person to whom such amount has been contributed.
Applying the provisions of section 182 of Companies Act 2013 to the given problem, Amar Cement Limited
is not prohibited from making political contribution since it has been in existence for more than 3 financial
years. Amar Cement Limited has made an average net profits of Rs. 8 lakhs during immediately preceding 3
financial years. Accordingly, it can make a maximum political contribution of Rs.60,000 (being 7.5% of Rs.
8 Lakhs). Accordingly, the proposal of the Board of directors to make a donation of Rs. 50,000 to a
political party is valid. Such political contribution shall be made by passing a resolution at a Board meeting
only.
2. (c)
An additional directors holds office upto the date of next annual general meeting (Section 161(1) of the
Companies Act, 2013). However, he is not a „retiring director‟ as per Explanation to Section152(7). As per
Explanation to Section 152(7), „retiring director‟ means a director retiring by rotation. Therefore, an
additional director may be appointed as a regular director in the annual general meeting only if the
conditions prescribed under section 160 are complied with.
The opening words of section 2(54) of the Companies Act, 2013 defines a „managing director‟ as
„Managing director means a director who…….‟. Thus, the definition suggests that a managing director has
to be a director first. If a managing director. In the given case, Mr. X will hold office upto the date of next
annual general meeting. Since, he will cease to be a director, he will also vacate the office of managing
director. Further, even if the annual general meeting is not held, he will cease to be an additional director on
the last day, on which the annual general meeting ought to have been held (Section 161(1) of the Companies
1
Act, 2013).However, If a notice is given of the candidature of Mr. X under section 160 and at the annual
general meeting he is appointed as a director, he shall continue as a managing director.
2. (d)
As per section 2(42) of the Companies Act 2013 foreign company means any company or body corporate
outside India which-
a. Has a place of business in India by itself or through an agent, physically or through an electronic
mode; and
b. Conducts any business activity in India in any other manner.
The answer to the given problem is as follows:
i. A Share transfer office or share registration office constitutes a place of business (Section 386 of the
Companies Act, 2013). However, a body corporate incorporated outside India does not become a
foreign company merely by having a place of business in India. It becomes a foreign company only
if it carries on business in India. Thus, the company incorporated outside India having a share
registration office at Mumbai shall be a foreign company only if it carries on business in India.
ii. In this case, Indian citizens have formed the company outside India. Since, the company has not
established any place of business in India, and the company does not conduct any business activity in
India in any other manner, the company cannot be said to be a foreign company. The fact that Indian
citizens have formed a company in a foreign country is immaterial in deciding whether the company
is a foreign company or not.
3. (a)
Remedy against order of SEBI:
ABC Limited was penalized by the SEBI. The following remedies are available to the Company:
i. Appeal to the Securities Appellate Tribunal: Section 15 T of the SEBI Act, 1992 provides that any
person aggrieved by an order of the Board may prefer an appeal to the Securities Appellate Tribunal.
Such appeal shall be filed within 45 days from the date on which a copy of the order of the Board
was received. However, the Tribunal may entertain an appeal after the expiry of the said period if it
is satisfied that there was sufficient cause for not filing it within the said period of limitation.
ii. Appeal to the Supreme Court: Section 15Z of the SEBI Act, 1992 provides that any person aggrieved
by the decision or order of the SAT may file an appeal to the Supreme Court within 60 days from the
date of communication of the decision or order on any question of law arising out of such order. The
Supreme Court may entertain such appeal even after the expiry of said period of limitation for a
future period not exceeding sixty days, if there was reasonable cause for such delay.
3. (b)
Removal of Member of Competition Commission: Section 11(2) of the Competition Act, 2002 empowers
the Central Government to remove, by an order, a member of the competition commission of India from his
office if such member has become physically or mentally incapable of acting as a member. However,
provisions of Section 11(3) of the said Act put some restrictions on such power of the Central Government.
According to this Section, the Central Government has to make a reference to the Supreme Court of India
under the two conditions-where the member has acquired such financial or other interest as is likely to affect
prejudicially his functions as a Member, or where a member has abused his position as to render his
continuance in office prejudicial to the interest. As the ground of removal mentioned in the question does
not fall under these two categories, thus, the Central Government can remove a member of the Competition
Commission of India without referring the matter to the Supreme Court for Inquiry In view of the above, the
action of the Central Government as in order and removal of member is valid.
2
3. (c)
Overriding preferential payments (Section 326)
Section 326 (1) notwithstanding anything contained in this Act or any other law for the time being in force,
in the winding up of a company:
a) Workmen‟s dues, and
b) Debts due to secured creditors to the extent such debt rank under clause (iii) of the proviso to section
(1) of Section 325 paripassu with such dues, shall be paid in priority to all other debts.
In case of the winding up of a company, the sums towards wages or salary referred to in sub-clause (i) of
clause (b) of sub-section (3) of Section 325, which are payable for a period of two years preceding the
winding up order or such other period as may be prescribed, shall be paid in priority to all other debts
(including debts due to second creditors), within a period of thirty days of sale of assets and shall be subject
to such charge over the security of secured creditors as may be prescribed. Sub-Section (2) states that the
debts payable under the proviso to Sub-Section(1) shall be paid in full before any payment is made to
secured creditors and thereafter debts payable under that Sub-Section shall be paid in full, unless the assets
are insufficient to meet them, in which case they shall abate in equal proportions preferential payments.
3. (d)
1. Intermediary not be director {Section 48 A (1)}No insurance agent or intermediary or insurance
intermediary shall be eligible to be or remain a director in insurance company.
2. Transitional period of 6 months for existing Directors {first proviso to section 48 A (1)}
Any director holding office at the commencement of the Insurance Laws (amendment) Act 2015
shall not become ineligible to remain a director by reason of this section until the expiry of 6 months
from the date of commencement of the said Act.
Intermediary may be director with permission of authority {Second proviso to section 48 A (1)}
The Authority may permit an agent or intermediary or insurance intermediary to be on the Board of an
insurance company subject to such conditions or restrictions as it may impose to protect the interest of
policyholders or to conflict of interest.
4. (a)
Section 144 of the Companies Act, 2013 prescribes certain services not to be rendered by the auditor. An
auditor appointed under this Act shall provide to the company only such other services as per approved by
the Board of Directors or the audit committee, as the case may be, but which shall not include any of the
following services (whether such services are rendered directly or indirectly to the company or its holding
company or subsidiary company), namely:
i. Accounting and book keeping services
ii. Internal audit
iii. Design and implementation of any financial information system
iv. Actuarial services
v. Investment advisory services
vi. Investment banking services
vii. Rendering of outsourced financial services
viii. Management services ; and
ix. Any other kind of services as may be prescribed.
Further section 141(3)(i) of the Companies Act, 2013 also disqualify a person for appointment as an auditor
of a company who is engaged as on the date of appointment in consulting and specialized services as
provided in section 144.
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4. (b)
Compounding of Certain offences (Section 441)
This Section contains the provision as to compounding of offence. In terms of this Section, subject to the
code of Criminal Procedure, 1973 any offence punishable under this Act not being an offence punishable
with imprisonment only and fine may either before or after the institution of any prosecution be
compounded by:
a. The Tribunal, or
b. Where the maximum amount of fine which may be imposed for such offence does not exceed five
lakh rupees, by the Regional Director or any officer authorized by the Central Government, on
payment or credit, by the company or as the case may be the officer to the Central Government of
such sum as that Tribunal or the Regional Director or any officer authorized by the Central
Government as the case may be specify.
4. (c)
STR (Suspicious Transaction Reports)
The Prevention of Money laundering Act, 2002 and the Rules made there under require every banking
company to furnish details of suspicious transactions whether or not made in cash. Suspicious transaction
means a transaction whether or not made in cash which, to a person acting in good faith:
a. Gives rise to a reasonable ground of suspicious that it may involve the proceeds or crime, or
b. Appears to be made in circumstances of unusual or unjustified complexity, or
c. Appears to have no economic rationale or bona fide purpose.
4. (d)
The concept of shareholders democracy in the present day corporate world denotes the shareholders‟
supremacy in the governance of the business and affairs of corporate sector either directly or through their
elected representatives. Democracy means the rule of people, by people and for people. In that context the
shareholders democracy means the rule of shareholders, by the shareholders, and for the shareholders in the
corporate enterprise, to which the shareholders belong. Precisely it is a right to speak, congregates and
communicates with co-shareholders and to learn about what is going on in the company.
5. (a)
Section 7 of Insolvency and Bankruptcy Code deals with initiation of corporate insolvency resolution
process by a financial creditors. The Process can be explained as under:
1. Filing of application before the Adjudicating Authority for initiating corporate insolvency resolution
process
A financial creditor either by itself or jointly with other financial creditors may file an application for
initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating
Authority when a default has occurred.
For this purpose, a default includes a default in respect of a financial debt owed not only to the
applicant financial creditor but to any other financial creditor of the corporate debtor.
2. Form and manner of making application
The application shall be in such form and manner and accompanied with such fee as may be
prescribed.
3. Enclosures to application
Following documents and information shall be furnished along with the application:
a. Record of the default recorded with the information utility or such other record or evidence of
default as may be specified.
b. The name of the resolution professional proposed to act as an interim resolution professional.
c. Any other information as may be specified by the Board.
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4. Duty of Adjudicating Authority to ascertain the existence of a default
The Adjudicating Authority shall, within 14 days of the receipt of the application, ascertain the
existence of a default from the records of an information utility or on the basis of other evidence
furnished by the financial creditor.
5. Admission of application by the Adjudicating Authority
The Adjudicating Authority may, by order, admit such application, if it is satisfied that-
a. A default has occurred
b. The application for initiating corporate insolvency resolution process is complete; and
c. No disciplinary proceeding are pending against the proposed resolution professional.
6. Rejection of application by the Adjudicating Authority
The Adjudicating Authority may, by order, reject such application, if it is satisfied that-
a. Default has not occurred; or
b. The application for initiating corporate insolvency resolution process is incomplete; or
c. Any disciplinary proceeding is pending against the proposed resolution professional.
Before rejecting the application, the Adjudicating Authority shall give a notice to the applicant to
rectify, within 7 days, the defect in his application.
7. Commencement of corporate insolvency resolution process
The corporate insolvency resolution process shall commence from the date of admission of the
application by the Adjudicating Authority.
5. (b)
The difference between the title, FERA and FEMA of legislations
In view of the stated change, the title of the legislation has rightly been changed from „Foreign Exchange
Regulation Act‟ to „Foreign Exchange Management Act. The main change that has been brought is that
FEMA is a civil law, whereas the FERA was a criminal law. In simple word, for contravention of provision
under the FEMA arrest and imprisonment would not be resorted whereas it was the norm under the previous
act. Drastic tenor of FERA can be gauged from the fact that it provided for imprisonment for violation of
even very minor offenses. In FERA, the presumption was upon the accused to defend himself as he was
deemed guilty, whereas in FEMA the onus is upon the Enforcement Directorate to prove the guilt of the
accused. In other words the stringent stipulations under FERA have been relaxed in FEMA.
5. (c)
● At least 1 ID to be director of unlisted Indian material subsidiary
● Audit committee to review the Financial Statement
● Minutes of Board meetings to be placed before Board of the holding company
● Statement of all significant transactions and arrangements entered into by the unlisted subsidiary to
be placed before Board of the holding company
● SR will be required in case of-
1. Disposal of shares resulting in reduction of its shareholding to less than 50% or cessation of control
over the subsidiary.
2. Selling, disposing and leasing of assets amounting to more than 20% of the assets of the material
subsidiary on an aggregate basis during a financial year.
6. (a)
According to section 185 of the Companies Act, 2013, no company shall, directly or indirectly, advance any
loan, including any loan represented by a book debt, to any of its directors or to any other person in whom
the director is interested or give any guarantee or provide any security in connection with any loan taken by
him or such other person.
Thus, Mr. X is not allowed for loans of INR 50 Lacs against guarantee by the company ABC Ltd.
5
6. (b)
Referring to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 state the circumstances under which the Reserve Bank of India may cancel the
certificate of registration granted to a Securitisation Company.
Cancellation of Certificate of Registration (Section 4 of the securitization of financial assets and
enforcement of Security Interest Act, 2002).
As per the section 4 of the Securitisation& Reconstruction of Financial Assets and Enforcement of security
Interest Act, 2002, the Reserve Bank may cancel a certificate of registration granted to a securitization
company or a reconstruction company, if such company-
i. Ceases to carry on the business of securitization or asset reconstruction; or
ii. Ceases to receive or hold any investment from a qualified institutional buyer; or
iii. Has failed to comply with any conditions subject to which the certificate of registration has been
granted to it; or
iv. At any time fails to fulfill any of the conditions referred to in clauses (a) to (g) of sub-section (3) of
section 3; or
v. Fails to-
a. Comply with any direction issued by the Reserve Bank under the provisions of this Act;
b. Maintain accounts in accordance with the requirements of any law or any direction or order issued
by the Reserve Bank under the provisions of this Act;
c. Submit or offer for inspection its books of account or other relevant documents when so demanded
by the Reserve Bank;
d. Obtain prior approval of the Reserve Bank required under sub-section (6) of section 3.
6. (c)
(i) Under section 244 of the Companies Act, 2013, in the case of a company having share capital, the
following member(s) have the right to apply to the Tribunal under section 241:
Not less than 100 members of the company or not less than one-tenth of the total numbers of
members whichever is less or any member or members holding not less than one tenth of the issued
share capital or the company provided the applicant(s) have paid all the calls and other sums due on
the share. In the given case, since the absence of any information regarding number of shareholders,
whether condition (a) stated above is satisfied or could not be ascertained. If the condition relating to
the number of members as per (a) stated above is satisfied then only a single member can present a
petition to the Tribunal regardless of the fact that he holds less than one tenth of the company's share
capital.
(ii) Does the scheme of compromise or arrangement require approval of preference shareholders?
The term „member‟ includes preference shareholders also. Further, preference shareholders are a
class of members and their rights may be affected differently in the proposed scheme of
arrangement. Hence their approval is also required.
If the Court / Tribunal directs separate meeting of preference shareholders and equity shareholders,
then the scheme should be approved by requisite majority in both such meetings held as per
directions of the Court / Tribunal.
6. (d)
Lokvani Project in UP. It is a Public-Private Partnership project to provide a single window, self sustainable
e-Governance solution with regards to handling of grievances, land record maintenance and providing a
mixture of essential services. This project is known as Lokvani Project in UP.
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7. (a)
Section 223 of the Companies Act, 2013 deals with Inspector‟s report. The following provisions are
applicable in respect of the Inspector‟s report on investigation:
(i) Submission of interim report and final report [Sub section (1)]: An inspector appointed under this
Chapter (Chapter XIV – inspection, Inquiry and investigation) may, and if so directed by the Central
Government shall, submit interim report to that Government, and on the conclusion of the
investigation, shall submit a final reports to the Central Government.
(ii) Report to be writing or printed [Sub section (2)]: Every report made under sub section (1) above
shall be in writing or printed as the Central Government may direct.
(iii) Obtaining copy or report [Sub-section (3)]: A copy of the above report may be obtained by making
an application in this regard to the Central Government.
(iv) Authentication of report [Sub-section (4)]: The report of any inspector appointed under this Chapter
shall be authenticated either-
a) by the seal, if any, of the company whose affairs have been investigated; or
b) by a certificate of a public officer having the custody of the report, as provided under section 76 of
the Indian Evidence Act, 1872, and such report shall be admissible in any legal proceeding as
evidence in relation to any matter contained in the report.
(v) Exceptions: [Sub section (5)] Nothing in this section shall apply to the report referred to section 212
of the Companies Act, 2013.
7. (b)
“Corporate governance is about Stakeholder’s satisfaction”.
Corporate governance is about stakeholder‟s satisfaction: The term “Corporate Governance” is not easy to
define. The term governance relates to a process of decision making and implementing the decision in the
interest of all stakeholders, it basically relates to enhancement of corporate performance and ensure proper
accountability for management in the interest of all stakeholders. It is a system through which an
organization is guided and directed. On the basis of this definition, the core of objectives of Corporate
Governance are focus, predictability, transparency, participation, accountability, efficiency and
effectiveness and satisfaction of stakeholders.
7. (c)
Section 2 (ac) of Securities Contract Regulation Act, 1956 [as amended by Finance Act, 2015] explains
Derivatives as follows:
“Derivative” Includes:
1. A security derived from a debt instrument, share, loan, whether secured or unsecured. Risk
instrument or contract for differences or any other form of security.
2. A contract which derives its value from the prices, or index of prices, of underlying securities.
3. Commodity derivatives, and‟
4. Such other instruments as may be declared by the Central Government to be derivatives.
7. (d)
Assets which will not form part of liquidation assets - As per Section 36(4) of Insolvency and
Bankruptcy Code, 2016, the following shall not be included in the liquidation estate. These shall not be used
for recovery in the liquidation.
a) Assets owned by a third party which are in possession of the corporate debtor. Including. (i) assets
held in trust for any third party (ii) bailment contracts (iii) all sums due to any workman or employee
from the provident fund, the pension fund and the gratuity fund (iv) other contractual arrangements
which do not stipulate transfer of title but only use of the assets and (v) such other assets as may be
notified by the Central Government in consultation with any financial sector regulator.
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b) Assets in security collateral held by financial services providers and are subject to netting and setoff
in multi-lateral trading or clearing transactions.
c) Personal assets of any shareholder or partner of a corporate debtor as the case may be provided such
assets are not held on account of avoidance transactions.
d) Assets of any Indian or foreign subsidiary of the corporate debtor, or
e) Any other assets as may be specified by the Board, including assets which could be subject to set-off
on account of mutual dealings between the corporate debtor and any creditor.
8. (a)
Appointment of resolution professional by COC
The Committee of Creditors (COC), may in the first meeting, by a majority vote of not less than sixty six
per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution
professional as a resolution professional (section 22(2) of Insolvency code, 2016).
If they decide to continue interim resolution professional, subject to a written consent from the interim
resolution professional in the specified form they will inform its decision to the interim resolution
professional, the corporate debtor and the Authority (section 22(3)(a) of Insolvency Code, 2016).
However, if they decide to replace the interim resolution professional the CoC shall file application before
the Adjudicating Authority for the appointment of Resolution Professional, along with a written consent
from the proposed resolution professional in the specified form (section 22(3)(b) of Insolvency Code, 2016).
The Adjudicating Authority (NCLT) shall inform name of proposed new Resolution Professional to IBBI.
The resolution professional can be appointed only with approval of Board (IBBI). Till then, interim
resolution professional will continue.
8. (b)
Lock-in of Specified Securities held by promoters
In a public issue, the equity shares and convertible debentures held by promoters are locked-in for the /
period stipulated below:
1. Minimum promoters‟ contribution is locked-in for period of 3 years from the date of commencement
of commercial production or date of allotment in the public issue, whichever is later.
2. Promoters‟ holding in excess of minimum promoters‟ contribution is locked-in for a period of 1 year.
However, excess promoters‟ contribution in a further public offer is not subject to lock-in.
However, excess promoters‟ contribution in a further public offer is not subject to lock-in.
8. (c)
Difference between Mediation and Conciliation
The meaning of these words as understood in India appears to be similar. “Mediation” is a way of settling
disputes by a third party who helps both sides to come to an agreement, which each considers acceptable.
Mediation can be „evaluative‟. „conciliation‟, is a procedure like mediation but the third party, the
conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible
solutions to help achieve a settlement. The difference lies in the fact that the „conciliator‟ can make
proposals for settlement, „formulate‟ or „reformulate‟ the terms of a possible settlement while a „mediator‟
would not do so but would merely facility a settlement between the parties.
From the very wording it appears that the „Mediation and Conciliation Panel‟ as contemplated under Section
442 (as the name suggests will adopt dual approach of „Mediation‟ as well as „Conciliation‟ in setting the
disputes.
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8. (d)
Types of Listing
Listing of securities falls under 5 groups:
1. Initial listing: If the shares or securities are to be fisted for the first time by a company on a stock
exchange is called initial listing.
2. Listing for Public Issue: When a company whose shares are listed on a stock exchange comes out
with a public issue of securities, it has to first such issue with the stock exchange.
3. Listing for Rights Issue: When companies whose securities are listed on the stock exchange issue
further securities to existing shareholders on rights basis, it has to list such rights issues on the
concerned stock exchange.
4. Listing of Bonus Shares: Companies issuing shares as a result of capitalization of profits through
bonus issue shall fist such issues also on the concerned stock exchange.
5. Listing for merger or amalgamation: When new shares are issued by an amalgamated company to
the shareholders of the amalgamating company, such shares are also required to be listed on the
concerned stock exchange.
8. (e)
Activities not to be considered as CSR Activities
Companies (CSR Policy) Rules, 2014 provides for some activities which are not considered as CSR
activities:
1. The CSR projects or programs or activities undertaken outside India.
2. The CSR projects or programs or activities that benefit only the employees of the company and their
families.
3. Contribution of any amount directly or indirectly to any political party under section 182 of the Act.
4. Expenses incurred by companies for the fulfillment of any Act / Statute of regulations (such as
Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies
Act
____________________________
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SECTION - A
1.
(i) (D) Either A or B.
(ii) (C) one third of the total number of Directors or two whichever is higher.
(iii) (A) Board of Directors.
(iv) (B) any Director
(v) (B) special Resolution and Central Government (C.G.) approval.
(vi) (C) 60
(vii) (D) Trespass
(viii) (D) National Small Industries Corporations.
(ix) (C) 100
(x) (B) „Capitalized expenses‟ have been completely written off.
SECTION - B
2(a)
(i) Yes, the ROC has the power to order for an inquiry as he deems fit after providing the company a
reasonable opportunity of being heard, into the affairs of the company if he is satisfied on a
representation made to him by any person that the business of a company is being carried on for a
fraudulent or unlawful purpose or not in compliance with provisions of this Act. [Section 206(4) of
the Companies Act, 2013]
(ii) Procedure followed by ROC: The Registrar may, after informing the company of the allegations
made against it by a written order, call on the company to furnish in writing any information or
explanation on matters specified in the order within such time as he may specify therein and carry
out such inquiry as he deems fit after providing the company a reasonable opportunity of being
heard.
(iii) The inquiry can be pursued by the ROC in case the complaint is withdrawn by same group of
shareholders subsequent to the order for inquiry in terms of section 206(4).
(iv) Yes, the Central Government may, if it is satisfied that the circumstances so warrant, direct the
Registrar for the purpose to carry out inquiry under section 206(4).
2(b)
AB Limited, a listed company, being managed by a Managing Director proposes to pay the following
managerial remuneration:
(i) Commission at the rate of 5% of the net profits to its Managing Director, Mr. M. Part(i) of the
Second Proviso to Section 197(1) of the companies Act 2013, provides that except with the
approval of the company in general meeting by a special resolution, the remuneration payable to
any one managing director or whole time director or manager shall not exceed 5% of the net profits
of the company and if there is more than one such director then remuneration shall nor exceed 10%
of the net profits to all such directors and manager taken together. In the present case, since the AB
Limited is being managed by a Managing Director, the commission at the rate of 5% of the net
profit to Mr. M, the Managing Director is allowed and no approval of company in general meeting
is required.
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(ii) The directors other than the Managing Director are proposed to be paid monthly remuneration of
rupees Rs.50,000/- and also commission at the rate of 1% of net profits of the company subject to
the condition that overall remuneration payable to ordinary directors including monthly
remuneration payable to each of them shall not exceed 2% of the net profit of the company: Part (ii)
of the Second Proviso to Section 197(1) provides that except with the approval the company in
general meeting by a special resolution, the remuneration payable to directors who are neither
managing directors nor whole time directors shall not exceed- (A) 1% of the net profits of the
company, if there is a managing or whole-time director or manager. (B) 3% of the net profits in any
other case. In the present case, the maximum remuneration allowed to directors other than
managing or whole-time directors is 1% of the net profits of the company because the company is
managed by a managing director. Hence, if the company wants to fix directors‟ remuneration at not
more than 2% of the net profit of the company, the approval of the company in the general meeting
is required by passing a special resolution.
2(c)
(i) Principle 1: Business should conduct and govern themselves with integrity and in a manner is
ethical, transparent and accountable. The principle ensures ethical behaviour in all operations,
functions and processes, and is the basis of businesses that are guiding their governance of
economic, social and environmental responsibilities. It considers that businesses are an integral part
of society and they will hold themselves accountable for the effective adoption, the implementation
and making of disclosures on their performance.
(ii) Principle 2: Businesses should provide goods and service in a manner that is sustainable and safe.
The principle emphasises that businesses have to focus on safety and resource-efficiency in the
design and manufacture of their products. These products have to be manufactured in such a way,
by which it creates value by minimising and mitigating its adverse impacts in the environment and
society through all stages of its life cycle, from design to final disposal. This principle encourages
businesses to understand every material sustainability issue across their product life cycle and value
chain.
3(a)
The argument of the majority shareholders that the petition may be dismissed on the ground of non-
maintainability is not correct. The proceedings shall continue irrespective of withdrawl of consent by
some petitioners. It has been held by the Supreme Court in Rajmundhry Electric Corporation vs. V.
Nageswar Rao, AIR (1956) SC 213 that if some of the consenting members have subsequent to the
presentation of the petition withdraw their consent, it would not affect the right of the applicant to
proceed with the petition. Thus, the validity of the petition must be judged on the facts as they were at the
time of presentation. Neither the right of the applicants to proceed with the petition nor the jurisdiction of
Tribunal to dispose it of on its merits can be affected by events happening subsequent to the presentation
of the petition.
3(b)
(i) According to Rule 4(1) of the Companies (Appointment and Qualifications of Directors) Rules,
2014, the following class or classes of companies shall have at least 2 directors as independent
directors:
(1) the Public Companies having paid up share capital of 10 crore rupees or more; or
(2) the Public Companies having turnover of 100 crore rupees or more; or
(3) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits,
exceeding 50 crore rupees. In the present case, PQR Limited is an unlisted public company
having a paid-up capital of Rs. 20 crore as on 31st March, 2022 and a turnover of Rs. 150 crore
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during the year ended 31st March, 2022. Accordingly, as per stated Rules is must have at least 2
directors as independent directors.
(ii) According to Section 149(4) of the Companies Act, 2013, every listed public company shall have at
least one-third of the total number of directors as independent directors. The Explanation to Section
149(4) specifies that any fraction contained in such one-third numbers shall be rounded off as one.
In the present case, PQR Limited is a listed company and the total number of directors is 13. Hence,
in this case, PQR Limited must have atleast 5 directors (1/3 of 13 is 4.33 rounded as 5) as
independent directors. Explanation to Rule 4 of the Companies (Appointment and Qualifications of
Directors) Rules, 2014 clarifies that for the purpose of this Rule the paid up share capital or
turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last
date of latest audited financial statements shall be taken into account. In the present case, it is
mentioned that paid up capital of PQR Limited is Rs. 20 crore as on 31st March, 2022 and turnover
is Rs. 150 crore during the year ended 31st March, 2022. It is therefore assumed that 31st March
2022 is the last date of the latest audited financial statement.
3(c)
(i) Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute dividend
on time. One of such situation is where a shareholder has given directions to the company regarding
the payment of the dividend and those directions could not be complied with but the non-
compliance was not communicated to him. In the given situation, the company has failed to
communicate to the shareholder Mrs. AB about non-compliance for her direction regarding
payment of dividend. Hence, the penal provisions under section 127 will be applicable.
(ii) Section 127, inter-alia, provides that no offence shall be deemed to have been committed where the
dividend could not be paid by reason of operation of law. In the present case, the dividend could not
be paid because it was not allowed to be paid by the court until the matter was resolved about
succession. Hence, there will not be any liability on the company and its directors, etc.
3(d)
Applicability of Insolvency and Bankruptcy Code, 2016 The Insolvency and Bankruptcy Code, 2016
applies to whole of India. The provision of Insolvency and Bankruptcy code, 2016 applies to the
following, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy as the case may
be (Section 2 of Insolvency and Bankruptcy Code, 2016)
(a) Companies incorporated under Companies Act, or
(b) Under Special Act
(c) Limited Liability Partnership (LLP)
(d) Other body corporate as may be notified by Central Government
(e) Partnership firms and individuals
(f) Personal guarantors to corporate debtors
(g) Partnership firms and proprietorship firms; and
(h) Individuals, other than persons referred to in clause (e).
4(a)
(I)
(i) Yes. The decision to merge is in order. Companies are free to merge with consent of shareholders
and by following the procedures prescribed under law. However, it will not fall under special
category mergers under section 233 of the Act. Yes, a scheme is necessary.
(ii) Yes, the scheme has to be approved by 3/4th majority of shareholders in value.
(iii)The dissenting shareholders have to accept the decision of the majority.
(iv) Yes, It requires approval of NCLT. Since the transferee company is listed, SEBI regulations
have to be complied with, wherever applicable.
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(II) MD of the company need to know and understand and comply with the following.
(i) As per section 173(1) Next board meeting shall have to be held within 120 days of the previous
meeting Therefore next Board meeting cannot be held in June. There shall be another meeting to be
held when financial statements are ready.
(ii) Rule 4 of Companies (meeting of Board and its powers) Rules prohibits approval of annual
financial statements through video meetings.
4(b)
1. Section 135 of the Act provides for the applicability of the CSR provision on corporate. Subsection
(1) lays down that every company having
● Net worth of Rs 500 crores or more; or
● Turnover of Rs 1000 crores or more; or
● Net Profit of Rs 5 crores
Therefore, ABC Tyres Ltd. comes under CSR obligation.
2. Yes, the CSR Committee is required to be formed as it comes under the purview of Section 135 of
the Act.
3. Other obligations are spending the amount within the financial year. The details have to be disclosed
in the Board‟s Report as annexure. Form CSR 1 needs to be filed.
4. The unspent amount will have to be transferred to a special account..
5. If a project is taken up and the full amount is not spent, the amount shall be kept separately for
financing which will be called an “ongoing project”.
5(a)
The following steps need to be taken by the Management of a Listed Company to prevent insider trading
which can also be referred as Institutional Mechanism to counter Insider trading:
a) The Chief Executive Officer shall put in place adequate and effective system of internal control for
compliance.
b) The Audit Committee shall review compliance with the provision of these regulations at least once in
a financial year and shall verify that the systems for internal control are adequate and are operating
effectively.
c) Every listed company shall formulate policies and procedures for inquiry in case of leak or suspected
leak of unpublished price sensitive information which shall be approved by the Board of directors
and accordingly initiate appropriate inquiries in time and inform the Board promptly of the status.
d) The listed Company shall formulate whistle- blower policy and make employees aware of such
policy to enable employees to report instances of leak of unpublished price sensitive information.
e) If an inquiry has been initiated by a listed Company in case of leak of unpublished price sensitive
information or suspected leak of unpublished price sensitive information, the relevant intermediaries
and fiduciaries shall co-operate with the listed company in connection with such an inquiry.
5(b)
Abuse of Dominant Position
a) when a party directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of
goods or service; or Price in purchase or sale (including predatory price) of goods or service; or
b) Indulges in practice or practices resulting in denial of market access; or
c) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.
“dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in
India, which enables into-
(i) Operate independently of competitive forces prevailing in the relevant market; or
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(ii) affect its competitors or consumers or the relevant market in its favour.
“predatory price” means the sale of goods or provision of services, at a price which is below the cost, as
may be determined by regulations, of production of the goods or provision of services. The basic motive
behind such a move is to reduce competition or eliminate the competitors.
6(a)
(i) FDI has been notified to be prohibited in the following sector
● Lottery Business including Govt/Private Lottery, online Lottery
● Gambling and betting including casinos
● Chit funds (except for investment made by NRIs and OCIs on a non-repatriation basis.
● Nidhi Companies
● Trading in transferable development rights
● Real Estate business or Construction of Farm businesses
● Manufacturing of Cigars, Cheroots, cigarillos and cigarettes of tobacco
● Atomic Energy and railway operations / Activities or sectors not open for private sector investments
● Any investment by a person who is a citizen of Bangladesh or Pakistan or is entity incorporated in
Bangladesh or Pakistan requires prior Central Govt. Approvals.
(ii) The provision of FEMA 1999 allows the domestic borrowers to park the funds under external
Commercial Borrowings to be parked until they become ready to be utilized and are listed as below:
● Parking of ECB proceeds abroad ECB proceeds meant only for foreign currency expenditure can
be parked abroad pending utilization. Until their final utilization, these funds can be utilized in few
specified liquid assets.
● Parking of ECB proceeds domestically ECB proceeds meant for INR expenditure should be
repatriated immediately for credit to their rupee Accounts with Authorized Dealer cateory 1 banks in
India. The domestic borrower can park the proceeds with a category 1 AD through creation of
deposits for a period maximum upto 12 months.
6(b)
(i) Non-performing Asset: “Non-performing asset” means an asset or account of a borrower which has
been classified by a bank or financial institution as sub standard, doubtful or loss asset. (a) in case
such bank or financial institution is administered or regulated by any authority or body established
constituted or appointed by any law for the time being in force, in accordance with the directions or
guidelines relating to assets classifications issued by such authority or body. (b) in any other case, in
accordance with the directions or guidelines relating to assets classifications issued by the Reserve
Bank of India.
(ii) Qualified buyer: “Qualified institutional buyer” means a financial institution, insurance company,
state financial corporation, state industrial development corporation, trustee or asset reconstruction
company which has been granted a certificate of registration under sub-section(4) of section 3 or any
asset management company making investment on behalf of mutual fund or a foreign institutional
investor registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or
regulations made thereunder, or any other body corporate as may be specified by the Board.
(iii) Securitisation : “Securitisation” means acquisition of financial assets by any asset reconstruction
company from any originator, whether by raising of funds by such asset reconstruction company
from qualified buyers by issue of security receipts representing undivided interest in such financial
assets or otherwise.
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7(a)
Digital MSME Scheme The digital MSME is a Govt scheme for the MSME that was launched for
promoting information and communication technology (ICT) in the MSME Sector by adopting ICT tools
and applications in the production and business process of MSMEs. The services that will be available for
MSMEs through various service providers include:
● ERP
● Accounting
● Manufacturing Design
● Regulatory Compliance including GST
The digital MSME Scheme is aimed at creating awareness supporting developments and e-platforms,
thereby creating literacy, training and promoting digital marketing in MSME sectors. Emergency Credit
Line Guarantee Scheme (ECLGS) The ECLGS was launched by the Govt of India as a special scheme,
considering the Covid-19 crisis. The scheme aims to provide 100% guarantee coverage to banks and
NBFCs to enable them to extend emergency credit facilities to business enterprises / MSMEs in view of
Covid-19 to meet their additional term loan or additional working Capital requirements.
Recently, the Govt extended the ECLGS to 31st March 2023 with purpose to provide relief to MSMEs.
100% Guarantee coverage for the additional funds sanctioned under the emergency credit line scheme.
The scheme is attractive enough with a moratorium of period of 12 months on Principal amount with
interest capped at 9.25% for the Banks and 14% for the NBFCs.
7(b)
(i) The Process of Money Laundering used by launderers is as follows:
Placement: Under this the Launderer introduces large chunks of illegal funds by breaking it into
smaller less conspicuous sums and depositing the same in Bank accounts or by purchasing Bank
drafts and following which the money is deposited in some other accounts at different locations.
Layering: The launderer then engages in a series of conversion and funds movement within the
banking system so as to hide them or distance themselves from the criminal sources of funds.
Integration: The launderer then reaches the third stage wherein the illegal funds are totally mixed
up with legitimate economy and he is ready to invest the funds into real Estate, business ventures,
luxury assets etc.
(ii) Cyber crimes under IPC and special laws.
a) Sending threatening messages by email-Sec 503 IPC
b) Sending defamatory messages by email- 499 IPC
c) Forgery of electronic records – 463 IPC
d) Bogus websites, cyber frauds – Sec 420 IPC
e) Email abuse – Sec 500 IPC
SECTION - C
8(a)
(i) The auditor under section 139 may be removed from his office before the expiry of his term only by
a special resolution of the Company and after obtaining prior approval of the Central Government
by making an application in E-form- ADT-2 and shall be accompanied with the prescribed fees. The
above stated application shall be made to the Central Govt within 30 days of the resolution passed
by the Board of Directors. The Company shall hold the General Meeting within 60 days of receipt
of approval of the Central Govt for passing the special resolution. The Auditor concerned shall be
given an opportunity of being heard. If the Auditor is removed, then a new Auditor has to be
appointed by the Board due to the casual vacancy caused thereafter in the next General meeting
called.
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(ii) If the Auditor has resigned form the company, He shall file within a period of 30 days from the date
of resignation, a statement in the form ADT 3 with the Company and the concerned Registrar. The
Auditor shall indicate the reasons and other facts as may be relevant with regard to his resignation
in his statement.
(iii) If the Auditor gives a qualified Report, the same has to be replied by the Board of Directors as
annexure to Board‟s Reports and shall be circulated and placed in AGM.
8(b)
(i) Note for Directors Our Company, Fast Technology, is an unlisted Company and SEBI regulations
do not apply. However, the Company has to comply with FEMA, 1999 regulations in respect of
issue of share to Foreign Investors. As per existing FDI regulations, No Govt. approval is required.
Nor our Company requires relevant approvals from RBI. The Investment is within the limit. Once
we receive the remittance in respect of Shares, we need to intimate RBI as per laid down procedure.
(ii) The Share certificates have to issued in dematerialized mode. There is no restriction on repatriation
of dividend to the Foreign investor which will be subject to withholding taxes as per Indian tax
laws.
The shares shall have same voting and other associated rights.
__________________________
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PAPER - 13: CORPORATE LAWS AND COMPLIANCE
SUGGESTED ANSWERS
SECTION – A
1.
(i) (A)
(ii) (D)
(iii) (A/B/C/D) Any
(iv) (A)
(v) (C)
(vi) (A)
(vii) (B)
(viii) (B)
(ix) (B)
(x) (C)
SECTION – B
2. (a)
According to section 19 of the Companies Act, 2013 a company shall not hold any shares in its holding
company either by itself or through its nominees. Also, holding company shall not allot or transfer its shares
to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void.
Following are the exceptions to the above rule-
(a) where the subsidiary company holds such shares as the legal representative of a deceased member of the
holding company, or
(b) where the subsidiary company holds such shares as a trustee, or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the
holding company but in this case, it will not have a right to vote in the meeting of holding company.
In the given case, one of the shareholders of holding company has transferred his shares in the holding
company to a trust where the shares will be held by subsidiary company. It means now subsidiary will hold
shares in the holding company. But it will hold shares in the capacity of a trustee therefore; we can conclude
that in the given situation M can hold shares in S.
2. (b)
As per the Companies (Acceptance of Deposit) Rules, 2014 any amount received from a person who, at the
time of the receipt of the amount, was a director of the company or a relative of the director of the Private
Company is exempted under the deposit rules. However in such case the director of the company or relative of
the director of the private company, as the case may be, from whom money is received, furnishes to the
company at the time of giving the money, a declaration in writing to the effect that the amount is not being
given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company
shall disclose the details of money so accepted in the Board's report.
Hence the company can accept deposit from Mr. K as he is the Director of the company with No limit on the
amount of deposit, further he need to give declaration on the same
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2. (c)
According to first proviso to section 161(2) of the Companies Act, 2013, no person shall be appointed as an
alternate director for an independent director unless he is qualified to be appointed as an independent director
under the provisions of this Act.
(i) In the present case, Mr. A who is not qualified to be appointed as an independent director is appointed
by the Board of Directors of UK Limited, for an independent director, as an alternate director. Thus, the
said appointment is not valid.
(ii) According to section 161(3) of the Companies Act, 2013, the Board may appoint any person as a
director nominated by any institution in pursuance of the provisions of any law for the time being in
force or of any agreement or by the Central Government or the State Government by virtue of its
shareholding in a Government company, subject to the articles of a company
In the present case, on the request of bank providing financial assistance the Board of Directors of ABC
Limited decides to appoint on its Board Mr. P, as nominee director. Articles of Association of the company do
not confer upon the Board of Directors any such power and further there is no agreement between the
company and the bank. Thus, the appointment of Mr. Pas nominee director is not valid as Articles do not
confer upon the Board of Directors any such power.
2. (d)
(i) According to Section 177(8) of the Companies Act, 2013, the Board's Report shall, under the provisions
of Section 134 (3) which is laid before the general meeting where the financial statements of the
company are placed before the members, disclose the composition of the Audit Committee and where
the Board has not accepted any recommendations of the Audit Committee, the same shall also be
disclosed along with the reasons therefor. Hence, the Board is empowered not to accept the
recommendations of the Audit Committee but only under genuine circumstances and supported by
legitimate reasons for non-acceptance.
(ii) If the Board does not accept the recommendations of the Audit Committee, it shall disclose the same in
its report under section 134 (3) which is placed before the general meeting of the company.
3. (a)
No, BT is ineligible for applying for fresh start process.
Reason: Section 80(2)(c) of the Code provides a Fresh Start Process for individuals under which they will be
eligible for a debt waiver of up to INR 35,000. The individual will be eligible for the waiver subject to certain
limits prescribed under the Code.
Section 80 of the Insolvency and Bankruptcy Code, 2016 provides that a debtor who is unable to pay his debt
and fulfills the conditions as mentioned in sub-section (2) of section 80 shall be entitled to make an
application to the Debt Recovery Tribunal (DRT) for a fresh start process for discharge of his qualifying debt.
Section 79(19) of the Code defines the meaning of Qualifying Debt. It means amount due, which includes
interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated
sum either immediately or at certain future time but does not includes
 an excluded debt,
 a debt to the extent it is secured, and
 any debt which has been incurred three months prior to the date of the application for fresh start process
3. (b)
As per Section 3(11) of the IBC, 2016, the term 'debt means a liability in respect of a claim which is due from
any person and includes a financial debt and operational debt. A financial debt means a debt along with
interest, if any, which is disbursed against the consideration for the time value of money and includes money
2
borrowed against the payment of interest. The interest, if any, will be included in the financial debt. Interest is
not compulsory as per the meaning of Financial Debt Therefore, interest free loan given by RS is a financial
debt and RS is a Financial Creditor
The rejection of the application on this ground, is not valid
3. (c)
Right to apply for oppression and mismanagement: As per the provisions of Section 244 of the Companies
Act, 2013, in the case of a company having share capital, members eligible to apply for oppression and
mismanagement shall be lowest of the following:
100 members, or
1/10th of the total number of members, or
Members holding not less than 1/10th of the issued share capital of the company. The share holding pattern of
STD Limited is given as follows:
Rs. 5,00,00,000 equity share capital held by 500 members
The petition alleging oppression and mismanagement has been made by some members as follows
(i) No. of members making the petition - 80
(ii) Amount of share capital held by members making the petition Rs. 10,00,000 The petition shall be valid
if it has been made by the lowest of the following:
100 members, or
50 members (beng 1/10th of 500); or
Members holding Rs. 50,00,000 share capital (being 1/10th of Rs. 5,00,00,000)
As it is evident, the petition made by 80 members meets the eligibility criteria specified under section 244 of
the Companies Act, 2013 as it exceeds the minimum requirement of 50 members in this case therefore, the
petition is maintainable.
The consent to be given by a shareholder is reckoned at the beginning of the proceedings. The withdrawal of
consent by any shareholder during the course of proceedings shall not affect the maintainability of the petition
[Kajamundhry Electric Corporation Vs. V. Nageswar Rao AIR]
3. (d)
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 less of office, or as consideration for retirement from
office, or in connection with such loss or retirement Here, in the given instance Mr. R the whole time director
was forced to be removed from office 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.
4. (a)
As per section 233 (1), notwithstanding the provisions of section 230 and section 232, a scheme of merger or
amalgamation may be entered between,
 2 or more small companies
 a holding company and its wholly-owned subsidiary company. If 100% of its share capital is held by the
holding company, except the shares held by the nominee or nominees to ensure that the number of
3
members of the subsidiary company is not reduced below the statutory limit as provided in section 187
such other classes or classes of companies as may be prescribed.
The provisions given for fast track merger in the section 233 are in the optional nature and not a compulsion
to the company. If a company wants to make an application for merger as per section 232, it can do so.
Hence, here the Company Secretary of the STU Limited has erred in the law and his contention is not valid as
per law. The company shall have an option to choose between normal process of merger and fast track
merger.
4. (b)
Issue of written notice by an adjudicating officer: Rule 3 of the Companies (Adjudication of Penalties) Rules,
2014 read with section 454 of the Companies Act, 2013, states that before adjudging penalty, the adjudicating
officer shall issue a written notice in the specified manner-
 to the company and
 to officer of the company who is in default or
 any other person, as the case may be to show cause, within such period as may be specified in the notice
(not being less than fifteen days and more than thirty days from the date of service thereon), why the
penalty should not be imposed on it or him.
Accordingly, the company and its officers shall be presented before the Adjudicating Authority on or before
30th August 2023 (being not more than 30 days from the date of service of notice thereon).
4. (c)
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 FRC
Limited, a foreign company, for closure of one of its branch of Chennai office
(i) Wrt. 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 FRC Limited has amended its Memorandum of Association on 1st of June 2022
and closed its branch office of Chennai. This altered document is required to be delivered to Registrar
by FRC Limited within 30 days i.e. latest by Ist of July 2022
(ii) Wrt compliance procedure as regards to closure of Chennai 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, FRC Limited still has Bangalore as a place of business in India So. It will
continue the submission of documents to the Registrar even after the closure of the Chennai office.
4. (d)
Every appeal under Under section 421 sub-section (1) of the Companies Act, 2013 (i,e appeal to AT against
order of Tribunal) shall be filed within a period of 45 days from the date on which a copy of the order of the
Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees,
as may be prescribed
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Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of 45 days
from the date aforesaid, but within a further period not exceeding 45 days (Condonation of delay), if it is
satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period. It is to
be understand that it is solely at the discretion of the Tribunal whether to provide extension or not by such
number of days which shall however not exceed 45 days
In this case order passed is not valid, as the Tribunal has to pass an order within 3 months from date of
application and if not possible in 3 months then extension may be possible (if valid reason) for further 90
days, latest by 15th September, 2023.
5. (a)
Price manipulation in the shares of KLM Ltd. can be considered as fraudulent and unfair trade practices
relating to the securities market. In this case SEBI may exercise the following powers under section 11(4) of
securities and Exchange Board of India Act, 1992
(i) Suspend the trading of any security (in this case the securities of KLM Ltd.) in a recognized stock
exchange
(ii) Restrain persons (in this case KLM Ltd.) from accessing the securities market. It can also prohibit any
person associated with the securities market (i.e. brokers who have indulged in price manipulation) to
buy, sell or deal in the securities market.
SEBI may issue the above orders for reasons to be recorded in writing SEBI shall, either before or after
passing such orders give an opportunity of hearing to company and brokers concerned (proviso 2 to Section
11(4)) SEBI may also appoint an adjudicating officer who may levy penalty under section 15 HA after
holding an enquiry in the prescribed manner. According to section 15HA if any person indulges in fraudulent
and unfair trade practices relating to securities, he shall be leviable to a penalty which shall not be less than
five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made
out of such practices, whichever is higher.
Prohibition on manipulation and deceptive practices: Further according to section 12A, no person shall
directly or indirectly indulge in following (ie) (a) using in manipulative or deceptive device in connection with
purchase, sale or securities listed (b) Employ any scheme or device to defraud in connection with dealing in
securities which are listed (c) engage in an act which would operate as fraud or deceit upon any person in
connection with dealing in securities which are listed. SEBI may impose a penalty which shall not be less than
one lakh rupees but which may extend to one crore rupees. (Section 15 HB).
5. (b)
The first proviso to 123 (1) of the Companies Act, 2013 provides that a company may, before the declaration
of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may
consider appropriate to the reserves of the company. Therefore, under the Companies Act, 2013 the amount
transferred to reserves out of profits for a financial year has been left at the discretion of the company acting
vide its Board of Directors. Therefore the company is free to transfer any part of its profits to reserves as it
deems fit.
5. (c)
Restrictions on non-cash transactions Involving Directors: Section 192 of the Companies Act, 2013 provides
for restrictions on non-cash transactions involving directors. According to the provision,
(i) No company shall enter into an arrangement by which-
(a) a director of the company or its holding, subsidiary or associate company or a person connected with
him acquires or is to acquire assets for consideration other than cash, from the company, or
(b) the company acquires or is to acquire assets for consideration other than cash, from such director or
person so connected, unless prior approval for such arrangement is accorded by a resolution of the
company in general meeting and if the director or connected person is a director of its holding company,
5
approval shall also be required to be obtained by passing a resolution in general meeting of the holding
company.
(ii) The notice for approval of the resolution by the company or holding company in general meeting shall
include the particulars of the arrangement along with the value of the assets involved in such
arrangement duly calculated by a registered valuer.
(iii) Any arrangement entered into by a company or its holding company in contravention of the provisions
of this section shall be voidable at the instance of the company unless -
(a) the restitution of any money or other consideration which is the subject-matter of the arrangement is no
longer possible and the company has been indemnified by any other person for any loss or damage
caused to it; or
(b) any rights are acquired bona fide for value and without notice of the contravention of the provisions of
this section by any other person.
5. (d)
According to section 28 of the Competition Act, 2002, the Commission, may, notwithstanding anything
contained in any other law for the tune being in force, by order in writing, direct division of an enterprise
enjoying dominant position to ensure that such enterprise does not abuse its dominant position. The order may
provide for ail or any of the following matters, namely
(1) the transfer or vesting of property, rights, liabilities or obligations,
(2) the adjustment of contracts either by discharge or reduction of any liability or obligation or otherwise,
(3) the creation, allotment, surrender or cancellation of any shares, stocks or securities,
(4) the formation or winding up of an enterprise or the amendment of the memorandum of association or
articles of association or any other instruments regulating the business of any enterprise,
(5) the extent to which, and the circumstances in which, provisions of the order affecting an enterprise may
be altered by the enterprise and the registration thereof,
(6) any other matter which may be necessary to give effect to the division of the enterprise
(7) The payment of compensation to any person who suffered any loss due to the dominant position of such
an enterprise.
6. (a)
In accordance with provisions of the FEMA, 1999 as contained in section 7 read with section 8. an exporter
shall make appropriate declaration of the value of the goods being exported and he is also required to
repatriate the foreign exchange due to India in respect of such exports to India in the manner within the time
as may be prescribed. Under section 8, the exporter is under an obligation to realise and repatriate to India
such foreign exchange. However, if there is a delay in the receipt of export, it will not be a violation which
shall be punishable. Section 8 applies to a resident who shall take all the reasonable steps, depending upon the
individual case.
There are certain categories of export for which declaration need not be made. These are given under the
Regulation 4 of the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015
According to the regulation, export of goods by way of gift shall be accompanied by a declaration by the
exporter that they are not more than five lakh rupees in value Taking into consideration the above, since the
value of gift of jewellery to VK's friend in the USA is less than Rs. 5 lac in value, the gift does not need any
declaration to be furnished by exporter to the specified authority.
6. (b)
As per the provision of Sec 2(m) of the Prevention of Money Laundering Act, 2002 Offence of cross border
implications means
6
(i) Any conduct by a person at a place outside India which constitutes an offence at that place and which
would have constituted an offence specified in Part A, Part B or Part C of the Schedule, had it been
committed in India and if such person remits the proceeds of such conduct or part thereof to India, or
(ii) Any offence specified in Part A, Part B or Part C of the Schedule which has been committed in India
and the proceeds of crime, or part thereof have been transferred to a place outside India or any attempt
has been made to transfer the proceeds of crime, or part thereof from India to a place outside India.
It is evident from point ii of the above definition that an attempt to remit the proceeds will be considered as an
offence of cross border implications where the offence is committed in India If the offence is committed
outside India then it will be considered as an offence of cross border implications when:-
 Such offence is an offence if it would have been committed in India, AND
 Proceeds or part thereof is remitted to India
The word "attempt to remit" is missing in part i of the definition.
Also where even part of the proceeds is remitted still it would be covered under the above definition. Also the
definition of "offense of cross border implications" does not contain any monetary limit Hence, the contention
of government is not correct, since the proceeds were not successfully remitted to India and only an attempt
was made hence the offense will not be considered as an offense of cross border implications
6. (c)
Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of Proximate (i.e.
Nearest) Cause, means when a loss is caused by more than one causes, the proximate or the nearest or the
closest cause should be taken into consideration to decide the liability of the insurer The principle states that
to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farthest)
must be looked into.
For example: A cargo ship's base was punctured due to rats and so sea water entered and cargo was damaged.
Here there are two causes for the damage of the cargo ship
(i) The cargo ship getting punctured because of rats, and
(ii) The sea water entering ship through puncture. The risk of sea water is insured but the first cause is not.
The nearest cause of damage is sea water which is insured and therefore the insurer must pay the
compensation. However, in the case of life insurance, the principle of Causa Proxima does not apply.
Whatever may be the reason of death (whether a natural death or an unnatural death) the insurer is liable
to pay the amount of insurance.
6. (d)
Section 15 of the SARFAESI Act provides for the manner and effect of takeover of management. When the
management of business of a borrower is taken over by an asset reconstruction company it can appoint as
many persons as it thinks fit to be the directors, where the borrower is a company, or the administrators of the
business of the borrower, in any other case. The secured creditor is required to publish a notice in a newspaper
published in English language and in a newspaper published in an Indian language in circulation in the place
where the principal office of the borrower is situated.
On the publication of the notice all persons who were directors of the company or administrators of the
business, as the case may be, are deemed to have vacated their office. It also has the effect of termination of
all contracts entered into by the borrower with such directors or administrators.
Where the management of the business of a borrower, being a company as defined in the Companies Act,
1956, is taken over by the secured creditor, then, notwithstanding anything contained in the said Act or in the
memorandum or articles of association of such borrower
(a) It shall not be lawful for the shareholders of such company or any other person to nominate or appoint
any person to be director of the company
(b) No resolution passed at any meeting of the shareholders of such company shall be given effect to unless
approved by the secured creditor
7
(c) No proceeding for the winding up of such company or for the appointment of a receiver in respect
thereof shall lie in any court, except with the consent of the secured creditor
Where the management of the business of a borrower had been taken over by the secured creditor, the secured
creditor shall, on realization of his debt in full, restore the management of the business of the borrower to him.
7. (a)
While routine governance regulations become applicable for public sector companies formed under the
Companies Act, 2013 and come under the purview of SEBI regulations the moment they mobilise funds from
the public, the typical organisational structure of PSUs makes it difficult for the implementation of corporate
governance practices as applicable to other publicly - enterprises. The typical difficulties faced are listed
below.
The board of directors will comprise essentially of bureaucrats drawn from various ministries which are
interested in the PSU In addition, there may be nominee directors from banks or financial institutions who
have loan or equity exposures to the unit. The effect will be to have a board much beyond the required size,
rendering decision-making a difficult process.
The chief executive or managing director (or chairman and managing director and other functional directors
are likely to be bureaucrats and not necessarily professionals with the required expertise. This can affect the
efficient running of the enterprise. Difficult to attract expert professionals as independent directors.
The laws and regulations may necessitate a percentage of independent components on the board, but many
professionals may not be enthused as there are serious limitations on the impact they can make Due to their
very nature, there are difficulties in implementing better governance practices Many public sector
corporations are managed and governed according to the whims and fancies of politicians and bureaucrats.
Many of them view PSUs as a means to their ends.
A lot of them have turned sick due to overdoses of political interference, even when their areas of operations
offered enormous opportunities for advancement and growth. And when the economy was opened up, many
of them lacked the competitiveness to fight it out with their counterparts from the private sector
7. (b)
Some of the Governance Issues that crop up in Family Owned Business are discussed below:
Role of the Board of Directors

The Constitution of the Board plays an important role in managing the Family Owned Businesses. The Board
is expected to take independent / unbiased decisions and the board members are the 'trustees' of the
shareholders, especially the minority group. They should be in a position to provide transparent data and take
decisions in the best interest of the shareholders.
When it comes to board membership, most family Controlled businesses reserve this right to members of the
family and in a few cases to some well trusted non-family managers. This practice is generally used to keep
family control over the direction of its business. Indeed, most decisions are usually taken by the family
member directors. Family directors who are also managers in the business would naturally encourage
reinvesting profits in the company so as to increase its growth potential. On the contrary, family directors who
do not work in the business would rather make the decision of distributing the profits as dividends to family
shareholders. These gainsay views can lead to major conflicts in the board and negatively impact its way of
functioning.
Role of the CEO

In selecting the CEO of a company, one should want the organisation to be run by the most competent person
with professional knowledge and experience.
Being an employee of a firm the CEO has accountability and responsibility to the organisation and its
shareholders. He or she should be able to be questioned by an independent authority called the Board or
8
Chairperson of the company. In a worst case situation if found unsuitable, he/she is asked to relinquish the
position.
Practically, it is when the CEO is a family member, this becomes quite difficult and awkward which can
create further unsuitable problems for management and as a whole business. This family CEO believes that
being owner of majority share owner he has full right for different experiments as well to do according to their
force.
Succession Plan
A change of guard or succession is a complex and stressful event for any business and in the case of family
businesses it gets extra complicated.
On family business, there is a saying, "the first generation creates, the second inherits and the third
destroys" Two words 'succession planning seem so simple and easy to follow and yet it is so difficult because
it means coming to terms with the fact that you are not indispensable. Some of business families are engaging
reputed consultants to make succession planning.
Internal Control Formation

Weaknesses in Corporate governance structures of family businesses are most evident in internal controls,
implementation of effective internal audit and realisation of risk management. Since many family Controlled
businesses are managed by the founders or their children, with their close supervisor the control environment
is largely customised to their needs and according to their indulgence.
The problem comes when controls do not grow along with the company, as the businesses grow with the
passage of time and the situation becomes more complex. This space is a crucial spot of concern for external
investors for their decision making and long term survival.
7. (c)
The following steps should be taken for proper evaluation of CSR projects which would be taken up / funded
by a company.
(i) Scrutiny of documents of the implementing agency/ beneficiary
(ii) Inspection, on satisfaction with documents.
(iii) Need analysis: nature of beneficiaries.
(iv) Feasibility of the project.
(v) Track record of the implementing agency.
(vi) Financials: capital/ revenue expenses?
(vii) Parallel financing by govt.?
(viii) Joint financing: collaborative project?
Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns
in their business operations and in their interaction with their stakeholders on a voluntary basis. Corporate
Social Responsibility can be explained as:
 Corporate - means organised and fairly big business houses.
 Social - means everything dealing with the people
 Responsibility - means accountability between the two.
The term corporate citizenship implies the behaviour which would maximise a company's positive impact and
minimise the negative impact on its social and physical environment.
9
8. (a)
Corporate Insolvency Resolution Process
Part II of Insolvency and Bankruptcy Code, 2016 [Sections 4 to 77] deal with Insolvency Resolution and
liquidation of corporate persons. This part is divided into seven chapters pertaining to:
(i) Corporate Insolvency resolution Process [Section 4-32]
(ii) Liquidation Process [Section 33-54)
(iii) Fast Track Corporate Insolvency Resolution Process [Section 55-58)
(iv) Voluntary Liquidation of Corporate Persons [Section 59)
(v) Adjudicating Authority for Corporate Persons (Section 60-67)
(vi) Offences and Penalties [Section 68-77)
8. (b)
Section 2 (ac) of Securities Contracts Regulation Act, 1956 [as amended by Finance Act, 2015] explains
Derivatives as follows:
"Derivative" includes:
(1) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or
contract for differences or any other form of security.
(2) a contact which derives its value from the prices, or index of prices, of underlying securities
(3) commodity derivatives, and
(4) such other instruments as may be declared by the Central Government to be derivatives.
8. (c)
Procedure for Investigation of Combinations
As per the Combination Regulations, the Commission shall form its prima facie opinion as to whether the
combination is likely to cause or has caused appreciable adverse effect on competition within the relevant
market in India within 30 days from the receipt of the notice. If the Commission is prima facie of the opinion
that a combination has caused or is likely to cause adverse effect on competition in Indian markets, it shall
issue a notice to show cause to the parties as to why investigation in respect of such combination should not
be conducted. On receipt of the response, if the Commission is of the prima facie opinion that the combination
has or is likely to have appreciable adverse effect on competition, the Commission shall deal with the notice
as per the provisions of the Act.
8. (d)
Government to Business (G2B) Initiatives
G2B initiatives encompass all activities of government which impinge upon business organisations. These
include registrations under different statutes, licences under different laws and exchange of information
between government and business. The objective of bringing these activities under e-Governance is to provide
a congenial legal environment to business, expedite various processes and provide relevant information to
business. Some of the important initiatives are furnished below:
(a) E-Procurement Project for Government purchase - It is an initiative for procurement of material through
e-tender process by avoiding human interface i.e., supplier and buyer interaction during the pre-bidding
and post-bidding stages. It is an initiative to establish transparency in procurement process, shortening
of procurement cycle, availing of competitive price, enhancing confidence of suppliers and establishing
flexible and economical bidding process for suppliers.
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(b) MCA 21-This project aims at providing easy and secure online access to all registry related services
provided by the Union Ministry of Corporate Affairs (MCA) to corporates and other stakeholders at any
time and in a manner that best suits them.
MCA made it mandatory for some companies having fulfilled the stipulated criteria to file their Balance
Sheet and Profit and Loss account statements in XBRL (Extensible Business Reporting Language). With
the development of taxonomies for Banks, Insurance, Non-Banking Finance Companies and Power
sector, the companies operating in these sectors would also be filing their financial reports in XBRL.
8. (e)
Report of the Committee (Kumar Manglam Birla) on Corporate Governance
SEBI, appointed Kumar Manglam Birla - as chairman to give a comprehensive view of the issues related to
insider trading to protect the rights of various stakeholders. The heart of the committee's report is the set of
recommendations which distinguishes the responsibilities and obligations of the board and the management in
instituting the systems for good corporate governance and emphasizes the rights of shareholders in demanding
corporate governance. Many of the recommendations are mandatory. These recommendations are expected to
be enforced on the listed companies for initial and continuing disclosures in a phased manner within specified
dates, through the listing agreement. The companies will also be required to disclose separately in their annual
reports, a report on corporate governance delineating the steps they have taken to comply with the
recommendations of the committee. These will enable shareholders to know, where the companies, in which
they have invested, stand with respect to specific initiatives taken to ensure robust corporate governance.
____________________
11
PAPER - 13 : CORPORATE AND ECONOMIC LAWS
SUGGESTED ANSWERS
SECTION – A
1.
(i) (a)
(ii) (c)
(iii) (d)
(iv) (d)
(v) (a)
(vi) (c)
(vii) (b)
(viii) (a)
(ix) (b)
(x) (b)
(xi) (c)
(xii) (c)
(xiii) (b)
(xiv) (b)
(xv) (b)
SECTION – B
2. (a)
Prohibition on Acceptance of Deposits from Public [Section 73 of Companies Act 2013]
(1) No company can invite, accept or renew deposits under this Act from the public except in a manner
provided under Chapter V provided that nothing in this Sub section shall apply to a banking company
and non-banking financial company and to such other companies as the Central Government may,
after consultation with the Reserve Bank of India, specify in this behalf.
(2) A company may, with the mandate of a resolution in general meeting and subject to such rules as
may be prescribed accept deposits from its members on such terms and conditions, including the
provision of security, if any, or for the repayment of such deposits with interest, as may be agreed
upon between the company and its members, subject to the fulfillment of the following conditions,
namely
(a) Issuance of a circular to its members including therein a statement showing the financial position of
the company, the credit rating obtained, the total number of depositors and the amount due towards
deposits in respect of any previous deposits accepted by the company and such other particulars in
such form and in such manner as may be prescribed.
(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the
date of issue of the circular
(c) depositing on or before 30th April each year such sum which shall not be less than twenty percent of
the amount of its deposits maturing during the following financial year, and kept in a scheduled bank
in a separate bank account to be called as deposit repayment reserve account
(d) Certifying that the company has not committed any default in the repayment of deposits accepted
either before or after the commencement of this Act or payment of interest on such deposits, and
where the default has occurred, the company made good the default and five years have elapsed since
then.
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(e) Providing security, if any, for the due repayment of the amount of deposit or the interest thereon
including the creation of such charge on the property or assets of the company.
Provided that in case where a company does not secure the deposits or secures such deposits
partially, then, the deposits shall be termed as 'unsecured deposits' and shall be so quoted in every
circular, form, advertisement or in any document related to invitation or acceptance of deposits.
(3) Every deposit accepted by a company under sub-section (2) shall be repaid with interest in
accordance with the terms and conditions of the agreement referred to in that sub-section.
(4) Where a company fails to repay the deposit or part thereof or any interest thereon under Sub- Section
(3) the depositor concerned may apply to the Tribunal for an order directing the company to pay the
sum due or for any loss or damage incurred by him as a result of such non-payment and for such
other orders as the Tribunal may deem fit.
(5) The deposit repayment reserve account referred to in clause (c) of Sub-Section (2) shall not be used
by the company for any purpose other than repayment of deposits.
2. (b)
Omnibus approval for related party transactions on annual basis (Rule 6A)
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 following conditions, namely -
(1) The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for
making the omnibus approval which shall include the following, namely:
(a) maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a
year
(b) the maximum value per transaction which can be allowed.
(c) extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus
approval
(d) review, at such intervals as the Audit Committee may deem fit, related party transaction entered into
by the company pursuant to each of the omnibus approval made.
(e) transactions which cannot be subject to the omnibus approval by the Audit Committee.
(2) The Audit Committee shall consider the following factors while specifying the criteria for making
omnibus approval, namely:
(a) repetitiveness of the transactions (in past or in future).
(b) justification for the need of omnibus approval.
(3) The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of
repetitive nature and that such approval is in the interest of the company.
(4) The omnibus approval shall contain or indicate the following:
(a) name of the related parties.
(b) nature and duration of the transaction.
(c) maximum amount of transaction that can be entered into.
(d) the indicative base price or current contracted price and the formula for variation in the price, if any,
and
(e) any other information relevant or important for the Audit Committee to take a decision on the
proposed transaction:
Provided that where the need for related party transactions cannot be foreseen and aforesaid details
are not available, the audit committee may make omnibus approval for such transactions subject to
their value not exceeding I crore per transaction.
(5) Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh
approval after the expiry of such financial year.
2
(6) Omnibus approval shall not be made for transactions in respect of selling or disposing of the
undertaking of the company.
(7) Any other conditions as the Audit Committee may deem fit.
It is to be noted that the proviso to the Section 188 provides that a company, whose paid-up capital is more
than Rupees Ten crore or is proposed to enter into transactions exceeding such sums as prescribed under
Rule 15 of the Companies (Meetings of Board and its Powers) Rules 2014, cannot enter into the
transactions, except with the previous approval of shareholders by way of resolution The transactions, as
prescribed under Rule 15(3), which require prior approval of Shareholders.
3. (a)
Restrictions on Powers of Board (Section 180 of Companies Act 2013)
Section 180 of the Act provides for restrictions on powers of Board However, this section shall not apply to
private companies vide Notification No. GSR 46(E) dated 05 June, 2015
(a) The Board of Directors of a company shall exercise the following powers only with the consent of
the company by a special resolution, namely
(1) To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the
company or where the company owns more than one undertaking of the whole or substantially the
whole of any of such undertakings substantially the whole of the undertaking shall mean Twenty per
cent or more of the value of the undertaking as per balance sheet of the preceding financial year.
Here the 'Undertaking' means a unit of business in which the investment of the company exceeds
twenty percent of its net worth as per the audited balance sheet of the preceding financial year or an
undertaking which generates twenty per cent of the total income of the company during the previous
financial year.
(2) To invest otherwise in trust securities the amount of compensation received by it as a result of any
merger or amalgamation,
(3) To borrow money, where the money to be borrowed, together with the money already borrowed will
exceed aggregate of its paid-up share capital and free reserves and security premium, apart from
temporary loans obtained from the company's bankers in the ordinary course of business, The
acceptance by a banking company, in the ordinary course of its business, of deposits of money from
the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise,
shall not be deemed to be a borrowing of monies by the banking company within the meaning of this
clause. "Temporary loans' means loans repayable on demand or within six months from the date of
the loan such as short term, cash credit arrangements, the discounting of bills and the issue of other
short term loans of a seasonal character, but does not include loans raised for the purpose of financial
expenditure of a capital nature,
Note: For above mater, E-Form MGT - 14 is required to be filed under Section 117(3) (e)
(4) To remit, or give time for the repayment of, any debt due from a director.
Note Every Special Resolution is required to be filed in Form No.MGT-14 as per Section 117(3) (a)
(b) Every special resolution in relation to borrowing shall specify the total amount up to which monies
may be borrowed by the Board of Directors.
(c) No debt incurred by the company in excess of the limit imposed by above point (3) shall be valid or
effectual, unless the lender proves that he advanced the loan in good faith and without knowledge
that the limit imposed by that clause had been exceeded.
3. (b)
Required minimum contribution of the Companies towards CSR:
(a) The Board of every company shall ensure that the company spends, in every financial year, at least
two per cent of the average net profits of the company made during the three immediately preceding
financial years, in pursuance of its CSR Policy.
3
(b) The company shall give preference to the local area and areas around it where it operates, for
spending the amount earmarked for CSR activities.
(c) If the company fails to spend such an amount, the Board shall, in its report, specify the reasons for
not spending the amount.
(d) Companies may build CSR capacities of their own personnel as well as those of their implementing
agencies through Institutions with established track records of at least three financial years. However,
such expenditure shall not exceed five percent of total CSR expenditure of the company in one
financial year.
4. (a)
In terms of section 173(1) of the Companies Act, 2013, a company must hold a minimum number of four
meetings of its Board of directors every year in such a manner that not more than 120 days shall elapse
between two consecutive meetings of the Board.
The proviso to this subsection provides that the Central Government may by notification, direct that these
provisions will not apply in relation to any class or description of companies or may apply subject to such
exceptions, modifications or conditions as may be specified in the notification As per section 174(4) of the
Act, if a meeting of the Board could not be held for want of quorum then, unless the articles otherwise
provide the meeting shall automatically stand adjourned till the same day in the next week, at the same time
and place, or if that day is a National Holiday till the next succeeding day which is not a national holiday, at
the same time and place.
If there is no Quorum at the adjourned Meeting also, the Meeting shall stand cancelled. An adjourned
Meeting being a continuation of the original Meeting, the interval period in such a case, shall be counted
from the date of the original Meeting Thus, in case of an adjourned Meeting, the gap of one hundred and
twenty days for the purpose of fixing up the date of the next Meeting or for any other purpose should be
counted from the date of the original Meeting In this case, the Board meeting of PQR limited was held 3
times and for the 4th time the meeting was called but could not be held for want of quorum.
Hence, as per the provisions of the Companies Act, 2013 the Company (PQR) has violated the provisions
with respect to convening the Board Meetings.
But if the 4th Board meeting was adjourned due to want of quorum and the adjourned meeting was duly held
within the stipulated time, then the company has not contravened the provisions of the Act.
4. (b)
According to section 2(68) of the Companies Act, 2013, "Private company" means a company having a
minimum paid-up share capital as may be prescribed, and which by its articles, except in case of One Person
Company, limits the number of its members to two hundred. However, where two or more persons hold one
or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member
It is further provided that –
(a) persons who are in the employment of the company, and
(b) persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members.
In the instant case, KFR Limited may be converted into a private company only if the total members of the
company are limited to 200 Total Number of members
I. Directors and their relatives 50
II. 5 Couples (5x1) 5
III. Others 145
Total 200
Therefore, there is no need for reduction in the number of members since the existing number of members is
200 which does not exceed the maximum limit of 200.
4
5. (a)
The provisions relating to validity of acts of directors are contained in section 176.
The provisions of section 176 are discussed below in detail:
Section 176 seeks to give protection to the company and third parties where certain acts are done by a
director in good faith and without notice that these are done wrongly or illegally Thus, section 176 validates
the bona fide acts of de facto directors. These provisions may be explained as follows:
1. Acts of a director – Validated
No act done by a person as a director shall be deemed to be invalid, notwithstanding that it was
subsequently noticed that -
(a) his appointment was invalid by reason of any defect or disqualification; or
(b) his appointment was terminated by virtue of any provision contained in the Act or in the Articles of
the company.
2. Acts of managing director - Not validated
Acts done by a director in his capacity as managing director are not validated under section 176.
Accordingly, where a managing director ceased to hold his office, all his subsequent acts were held to be
invalid. It was not an irregular exercise of power, but exercise of power by a person who had no authority
at all [Varkey Souriarv Keraleeya Banking Co. Ltd. AIR 1957 Ker 97).
3. Acts of a director - Not validated in certain cases
In the following cases, the acts of a director shall not be valid:
(a) where his appointment is illegal or there is no appointment at all;
(b) If an appointment has been shown to the company as invalid or terminated, where such defect comes
into the knowledge of the company, all subsequent acts done by such a director shall be invalid.
(c) Where the acts of a director are ultra vires the Companies act 2013.
5. (b)
In the scheme of reconstruction by a Multinational Company listed in India, the company wanted to acquire
the minority shareholders by selling their shares to the promoters at a price determined by the promoters,
As per Section 236(1) of the Companies Act, 2013 (the Act), in the event of an acquirer, or a person acting
in concert with such acquirer, becoming registered holder of ninety per cent or more of the issued equity
share capital of a company, or in the event of any person or group of persons becoming ninety per cent.
majority or holding ninety per cent of the Issued equity share capital of a company, by virtue of an
amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or
group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity
shares.
According to Section 236(2) of the Act, the acquirer, person or group of persons, shall offer to the minority
shareholders of the company for buying the equity shares held by such shareholders at a determined price on
the basis of valuation by a Registered Valuer.
The minority shareholders of the Company may offer to the majority shareholders to purchase the minority
equity shareholding of the Company at the determined price as above.
In the given case, the minority shareholders were not given a choice whether they wanted to tender their
shares or not. Also, 6 minority shareholders were dissenting from the scheme. Chairman declared that such a
scheme was passed by a majority of more than 90% shareholding. Further the price of the shares was
determined by the Promoters and not by a Registered Valuer.
Accordingly, in the given instance, the said procedure of acquisition of shares of minority shareholders is not
in compliance with the procedure given in Section 236 of the Act.
Further, as per the Section 236(9) of the Act, when a shareholder or the majority equity shareholder fails to
acquire full purchase of the shares of the minority equity shareholders, then, the provisions of this section
shall continue to apply to the residual minority equity shareholders.
5
Therefore, as per the above provisions of the Act, minority shareholders will succeed in rejecting the said
offer of purchasing minority shareholding in the Company.
6. (a)
Features of Corporate Governance:
Let us discuss a few features or elements of Corporate governance generally accepted by the industry.
1. A proper tool for transparency: disclosing the status of the affairs company at every step to every
stakeholder is required to maintain transparency. The concept goes against the theory of suppression
of material facts by the company to its stakeholders, may be or may not be, for the benefit of the
shareholders only
2. Prudent and participative management: The management should use its full intelligence and
knowledge for the benefit of the stakeholders. Hence, it may be taken that management is prudent
and wise in its decision making
3. Enhancing value of the enterprise: Any company should grow from year to year, if it wants to
satisfy its stakeholders. Value may be monetary or reputation, image, goodwill etc. Better governing
companies will have better reputation, trust of the stakeholders and there will be enhancement of
business, leading to more profit and better enterprise valuation.
4. Accountability: Success and accountability has to go together. Successful companies will make
themselves accountable to the stakeholders. There are many combinations of relationships, ie. with
the customer, creditors, shareholders, employees, etc. The company cannot say it is accountable to
one stakeholder only It has to be accountable to all stakeholders.
5. Innovation: Doing something new or doing the same thing in a novel manner is the essence of
growth and sustainability of an enterprise. The governance structure should encourage new things in
the company to enhance the value of the company.
6. Professionalism and specialisation: The basics of professionalism is that the job shall not be
compromised at any level and there should not be conflict of interest of the directors and senior
managers between his duty and personal gain. It also takes into account the competence of the person
doing job having obviously adequate domain knowledge either by academic qualification or track
record of experience
7. Stakeholder recognition: All stakeholders should be recognized and respected. The Company
should believe that all these stakeholders have a contribution in making the company work and grow.
6. (b)
The process works of the business intelligence:
A business intelligence architecture includes more than just Bl software Business intelligence data is
typically stored in a data warehouse built for an entire organisation or in smaller data marts that hold subsets
of business information for individual departments and business units, often with ties to an enterprise data
warehouse. Bl data can include historical information and real-time data gathered from source systems as it's
generated, enabling Bl tools to support both strategic and tactical decision-making processes Before it's used
in Bl applications, raw data from different source systems generally must be integrated, consolidated and
cleansed using data integration and data quality management tools to ensure that Bl teams and business users
are analysing accurate and consistent information. Steps in Bl can be
(a) data preparation, in which data sets are organised and modelled for analysis,
(b) analytical querying of the prepared data,
(c) distribution of key performance indicators (KPIs) and other findings to business users, and
(d) use of the information to help influence and drive business decisions Initially, Bl tools were primarily
used by BI and IT professionals. However, now, business analysts, executives and workers are using
business intelligence platforms themselves, thanks to the development of self-service BI and data
6
discovery tools. Self-service business intelligence environments enable business users to query Bl
data, create data visualisations and design dashboards on their own.
Bl programs often incorporate forms of advanced analytics, such as data mining, predictive analytics,
text mining, statistical analysis and big data analytics. A common example is predictive modelling
that enables what-if analysis of different business scenarios. In most cases, though, advanced
analytics projects are conducted by separate teams of data scientists, statisticians, predictive
modellers and other skilled analytics professionals, while BI teams oversee more straightforward
querying and analysis of business data.
7. (a)
An issuer cannot make a public issue or rights issue of equity shares and convertible securities under the
following conditions:
(a) If the issuer, any of its promoters, promoter group or directors or selling shareholders are debarred
from accessing the capital market by SEBI, or of any other company which is debarred from
accessing the capital market under the order or directions made by SEBI.
(b) Unless an application is made to one or more stock exchanges for "in principle" approval of listing of
equity shares and convertible securities on such stock exchanges and has chosen one of them as a
designated stock exchange. In case of an initial public offer, the issuer should make an application for
listing in at least one recognised stock exchange having nationwide trading terminals
(c) Unless it has entered into an agreement with a depository for dematerialisation of equity shares and
convertible securities already issued or proposed to be issued.
(d) Unless all existing partly paid-up equity shares of the issuer have either been fully paid up or
forfeited.
(e) Unless firm arrangements of finance through verifiable means towards 75% of the stated means of
finance, excluding the amount to be raised through the proposed public issue or rights issue or
through existing identifiable internal accruals, have been made
(f) Promoter's holding is in dematerialised form prior to filing of offer document.
(g) The amount for general corporate purposes as mentioned in the objects of the issue in the draft offer
document shall not exceed 25% of the amount raised by the issuer.
(h) A public use of equity securities, if the issuer or any of its promoters or directors is a willful
defaulter, or
(i) Issue shall be open for at least 3 days and not more than 10 days
(j) Minimum subscription shall be 90% of the issuer size failing which the application money has to be
refunded within 15 days of closure of the issue
7. (b)
Penalty for offences in relation to furnishing of information
Without prejudice to the provisions of section 44 of the Competition Act 2002, if a person, who furnishes or
is required to furnish under this Act any particulars, documents or any information,
(a) makes any statement or furnishes any document which he knows or has reason to believe to be false
in any material particular, or
(b) omits to state any material fact knowing it to be material, or
(c) Willfully alters, suppresses or destroys any document which is required to be furnished as aforesaid,
such person shall be punishable with fine which may extend to 1 crore as may be determined by the
Commission.
The Commission may, if it is satisfied, impose a lesser penalty that any person has made a full and true
disclosure in respect of the alleged violations, a lesser penalty. However, a lesser penalty shall not be
7
imposed by the Commission in cases where the report of investigation directed under section 26 has been
received before making of such disclosure.
Lesser penalty shall not be imposed by the Commission if the person making the disclosure does not
continue to cooperate with the Commission till the completion of the proceedings before the Commission.
The Commission may, if it is satisfied that such producer, seller, distributor, trader or service provider
included in the cartel had in the course of proceedings,
(a) not complied with the condition on which the lesser penalty was imposed by the Commission, or
(b) had given false evidence, or
(c) the disclosure made is not vital, and thereupon such producer, seller, distributor, trader or service
provider may be tried for the offence with respect to which the lesser penalty was imposed and shall
also be liable to the imposition of penalty to which such person has been liable, had lesser penalty not
been imposed.
8. (a)
Permitted Investments by persons resident outside India
Any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or
the investment limits, may make investment as stated hereinafter For details, one has to see the relevant
annexure, out of various annexures which relate to each kind of investment.
(i) Subscribe/ purchase/ sale of capital instruments of an Indian company is permitted as per the
directions laid down in Annex 1
(ii) Purchase/ sale of capital instruments of a listed Indian company on a recognised stock exchange in
India by Foreign Portfolio Investors is permitted as per the directions laid down in Annex 2
(iii) Purchase/ sale of Capital Instruments of a listed Indian company on a recognised stock exchange in
India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis is
permitted as per the directions laid down in Annex 3
(iv) Purchase/ sale of Capital Instruments of an Indian company or Units or contribution to capital of a
LLP or a firm or a proprietary concern by Non-Resident Indian (NRI) or Overseas Citizen of India
(OCI) on a Non-Repatriation basis is permitted as per the directions laid down in Annex 4
(v) Purchase/ sale of securities other than capital instruments by a person resident outside India is
permitted as per the directions laid down in Annex 5
(vi) Investment in a Limited Liability Partnership (LLP) is permitted as per the directions laid down in
Annex 6
(vii) Investment by a Foreign Venture Capital Investor (FVCI) is permitted as per the directions laid down
in Annex 7
(viii) Investment in an Investment Vehicle is permitted as per the directions laid down in Annex 8.
(ix) Issue/ transfer of eligible instruments to a foreign depository for the purpose of issuance of
Depository receipts by eligible person(s) is permitted as per the directions laid down in Annex 9.
(x) Purchase/ sale of Indian Depository Receipts (IDRs) issued by Companies Resident outside India is
permitted as per directions laid down in Annex 10.
8. (b)
Measures for assets reconstruction (Section 9 of SARFAESI Act, 2002)
An asset reconstruction company may for the purposes of asset reconstruction, provide for any one or more
of the following measures, namely
(a) the proper management of the business of the borrower, by change in or takeover of, the management
of the business of the borrower,
(b) the sale or lease of a part or whole of the business of the borrower,
(c) rescheduling of payment of debts payable by the borrower,
(d) Enforcement of security interest in accordance with the provisions of this Act.
8
(e) settlement of dues payable by the borrower,
(f) taking possession of secured assets in accordance with the provisions of this Act,
(g) Conversion of any portion of debt into shares of a borrower company Provided that conversion of
any part of debt into shares of a borrower company shall be deemed always to have been valid, as if
the provisions of this clause were in force at all material times.
The Reserve bank for this purpose shall determine the policy and issue necessary directions including the
directions for regulation of management of the business of the borrower and fees to be charged. The asset
reconstruction company shall take measures as per the directions of RBI.
_________________________

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Suggested Answer_Syllabus 2016_Jun2017_Paper 13

SUGGESTED ANSWERS TO QUESTIONS

Time Allowed : 3 Hours Full Marks : 100

2. (a) Explain briefly the purpose of establishing SEBI. 6

(ii) Corporate governance is about stakeholders' satisfaction: The term "Corporate

(ii) Restrictions on loans and advances (Sections 20 & 21)

5. (a) Required minimum contribution of the Companies towards CSR:

Resale price maintenance - It includes any agreement to sell goods on condition

6. (a) Notice of Board meeting

(ii) Insurable Interest

Insurable interest varies depending on the nature of the insurance. The

The existence of insurable interest at the time of happening of the event is

7. (a) (i) XBRL applies to the following companies:

(ii) Advantages of XBRL

8. Write short notes on any four of the following: 4×4=16

8. (a) Producer Companies

(b) Actuarial Valuation/Report (section 13)

(c) Lock-in of specified securities held by promoters.

(d) STR (Suspicious Transaction Reports)

SUGGESTED ANSWERS TO QUESTIONS

Time Allowed : 3 Hours Full Marks : 100

(a) Multiple choice questions: 2x10=20

(i) The power of appointing additional director can be exercised by the

2. (a) According to section 7(7) of the Companies Act, 2013:

Provided that before making any order under this sub-section.—

3. (a) Robertson Ltd. is a company registered in Thailand. Although, it has no place of

Advise the management of the company. 4

According to the Companies (Registration of Foreign Companies) Rules, 2014:

(ii) Does the scheme of compromise or arrangement require approval of preference

(ii) Preference shareholders: The term member' includes preference shareholders

If the Court/Tribunal directs separate meeting of preference shareholders and

The shareholders' application will not be accepted as under 210 of the

(ii) According to section 177(5), the Audit Committee is empowered to;

Hence, 'X' cannot be appointed as Managing Director for life in a private

(ii) Overriding preferential payments (Section 326)

In case of the winding up of a company, the sums towards wages or salary

7. (a) Cancellation of Certificate of Registration (Section 4 of the securitization and

Items to be excluded in determining the amount of paid up equity share capital: In

In this case, MN Limited is not a Government company because the holding of

(ii) PQ Limited is a subsidiary but not a wholly owned subsidiary of a government

In this case, PQ Limited is a government company as the definition of Government

8. Write short notes on any four of the following: 4×4=16

(a) Objectives of the Competition Act, 2002

(b) Difference between Mediation and Conciliation

(c) Benefits of Listing

(d) Objectives of MOU System

(e) Strategy to tackle black money

8. (a) Objectives of the Competition Act, 2002

(b) to promote and sustain competition in markets.

(b) Difference between Mediation and Conciliation

(c) Benefits of Listing

(d) Objectives of MoU System

(e) Strategy to tackle black money:

SUGGESTED ANSWERS TO QUESTIONS

Paper-13: Corporate Laws & Compliance

Time Allowed : 3 Hours Full Marks : 100

Multiple choice questions: 2x10=20

(viii)A minor can be nominated as a nominee in Life Insurance Policy by its

(ix) Which of the following is not the type of unfair competition?