Additional Questions - Addendum

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Applicable for Nov‘22 and May’23 attempt!
The Ultimate Solution! – Question Bank!
Additional Questions!
Hey Guys,
Providing you ~60 additional questions to help you with your preparation even better. Happy Learning.
Best Wishes,
Shubham
Frequently asked questions:
1. What are these additional questions?
Basically – These are mainly questions of Dec’21 exam Paper, May’22 RTP and MTP and few other
important questions.
2. Is it mandatory to refer these questions or is it optional?
It’s mandatory. These questions are equally important as those in the main booklet
3. Are there any other questions that you need to refer beyond this?
May’22 attempt students – You just need to refer MTP-2 of May’22
Nov’22 students – Refer MTP-2 of May’22 and MTPs/RTPs of Nov’22 as and when they are released.
For any queries, concern or feedbacks – Drop an email at therankerway@gmail.com
Index and Number of Questions
SN Name of Chapters Additional Questions

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

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Chapter 1 – Appointment and Qualification of Directors
Question 1:
Vibhuti Mechanics Limited, having Registered office at Rajendra Place, New Delhi, was incorporated on 17
February, 2016 with five directors who are responsible for managing the affairs of the company. Harshit, one of
the directors, looks after the marketing function but his understanding with the other four directors is dwindling
day by day. Other four directors i.e. Nipun, Lakshita, Shreyas and Vidur are also suspecting that Harshit is
involved in some illegal activities which may cause a huge loss to the company in future. Now they are contemplating
removal of Harshit from the office of directorship before the expiry of his term.
Analyse the following statements with reasons quoting relevant provisions of the Companies Act, 2013:
a) Keeping in view his illegal activities, Nipun, Lakshita, Shreyas and Vidur can remove Harshit by passing
Board Resolution.
b) Harshit can be removed only by passing a Special Resolution.
c) Nipun wants to appoint Dishant, an employee of the company but is very close to him, as director in place
of Harshit after his removal as director.
(RTP May 22)
Answer:
In respect of removal of director, a reference to Section 169 of the Companies Act, 2013 is to be made.
1. Sub-section (1) states a company may, by ordinary resolution, remove a director, not being a director
appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a
reasonable opportunity of being heard:
Provided that an independent director re-appointed for second term under sub- section (10) of section 149
shall be removed by the company only by passing a special resolution and after giving him a reasonable
opportunity of being heard:
Provided further that nothing contained in this sub-section shall apply where the company has availed itself
of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors
according to the principle of proportional representation.
2. Sub-section (2) states that a special notice shall be required of any resolution, to remove a director under
this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
3. Sub-section (3) requires that on receipt of notice of a resolution to remove a director under this section, the
company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he
is a member of the company, shall be entitled to be heard on the resolution at the meeting.
4. According to Sub-section (4), where notice has been given of a resolution to remove a director under this
section and the director concerned makes with respect thereto representation in writing to the company and
requests its notification to members of the company, the company shall, if the time permits it to do so,--
a) in any notice of the resolution given to members of the company, state the fact of the representation
having been made; and
b) send a copy of the representation to every member of the company to whom notice of the meeting is
sent (whether before or after receipt of the representation by the company), and if a copy of the
representation is not sent as aforesaid due to insufficient time or for the company's default, the
director may without prejudice to his right to be heard orally require that the representation shall
be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out
at the meeting if, on the application either of the company or of any other person who claims to be aggrieved,
the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless
publicity for defamatory matter; and the Tribunal may order the company's costs on the application to be
paid in whole or in part by the director notwithstanding that he is not a party to it.

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5. A vacancy created by the removal of a director under this section may, if he had been appointed by the
company in general meeting or by the Board, be filled by the appointment of another director in his place at
the meeting at which he is removed, provided special notice of the intended appointment has been given under
sub- section (2).
6. A director so appointed shall hold office till the date up to which his predecessor would have held office if
he had not been removed.
Note: Provisions regarding special notice are contained in Section 115. Further, Rule 23 of the Companies
(Management and Administration) Rules, 2014 also specifies the provisions in respect of special notice.
In view of the above provisions, the given statements can be analysed as under:
a) The other directors of Vibhuti Mechanics Limited i.e. Nipun, Lakshita, Shreyas and Vidur cannot remove
Harshit by passing a Board Resolution.
For the purpose of removal of a director from the office of directorship, an ordinary resolution needs to
be passed. In other words, only the shareholders of the company are empowered to remove a director.
Further, there is requirement of special notice when a director is to be removed. In case, a notice of a
resolution to remove a director is received by the company, a copy of the notice shall be sent forthwith
to the director concerned.
In this case, Harshit is entitled to receive a copy of the special notice. Harshit is also entitled to be heard
on the resolution to be passed for his removal at the meeting. In case, Harshit makes a representation in
writing to the company and requests its notification to members of the company, the company shall be
obliged to do so if the time permits. In case a copy of the representation cannot be sent due to insufficient
time or for the company's default, the director (i.e. Harshit in this case) may, without prejudice to his
right to be heard orally, require that the representation shall be read out at the meeting.
There is a cushion for the company in respect of representation if it is suspected that the rights
regarding representation conferred on the ‘director to be removed’ are being abused to secure needless
publicity for defamatory matter. The cushion is in the form of proviso. Thus, it is provided that there is
no need to send a copy of the representation and also there is no need to read out the representation at
the meeting if, on the application either of the company or of any other person who claims to be aggrieved,
the Tribunal is satisfied that the rights conferred by sub-section (4) are being abused to secure needless
publicity for defamatory matter.
In addition, the Tribunal may order the company's costs on the application to be paid in whole or in part
by the director notwithstanding that he is not a party to it. Thus, Harshit can be deprived of his right in
respect of representation if the Tribunal passes an order.
b) The statement that ‘Harshit can be removed only by passing a Special Resolution’ is not correct. As noticed
in answer (a) above, an ordinary resolution needs to be passed for removal of a director and there is no
need to pass a special resolution for this purpose. The procedure as stated in answer (a) is required to be
followed for passing an ordinary resolution for the removal of a director before the expiry of the period
of his office after giving him a reasonable opportunity of being heard.
c) Yes. Nipun can get appointed Dishant, an employee of the company who is very close to him, as director in
place of Harshit after his removal as director.

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As regards appointment of another director, Sub-section (5) stipulates that a vacancy created by the
removal of a director under Section 169 may, if he had been appointed by the company in general meeting
or by the Board, be filled by the appointment of another director in his place at the meeting at which he
is removed, provided special notice of the intended appointment has been given under sub-section (2).
To get Dishant appointed as director in place of Harshit, Nipun has to ensure that the company receives
a special notice of the intended appointment of Dishant as required by Sub-section (2).
If Dishant is so appointed, he shall hold office till the date up to which his predecessor Harshit would
have held office if he had not been removed.
Question 2:
Mr. Sid has applied for directorship in Tees Limited after complying with the provisions of Section 160 of the
Companies Act, 2013 and Rule 13 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
Tees Limited decided to conduct the general meeting on 17th July, 2021, regarding the candidature of Mr. Sid
for the office of director and listed the notice in its website on 5th July, 2021. On 8th July, 2021 one of the
shareholders objected to the company that the notice was not issued properly.
Examine the following situations and comment as per the provisions of the Companies Act, 2013.
a. Whether action taken by Tees Limited regarding service of notice is valid?
b. Whether there is any alternative available to Tees Limited, if it is decided not to serve notice individually
to its members?
[CA Final – Dec 21]
Answer:
(i) As per Section 160 of the Companies Act, 2013 read with Rule 13 of the Companies (Appointment and
Qualifications of Directors) Rules, 2014, a person (other than a retiring director) shall be eligible for
appointment as a director in a company at any general meeting (whether in AGM or EGM), if he has given a
notice in writing under his hand signifying his candidature as a director at least 14 days before the meeting
at the registered office of the company.
Even, other member of the company who intends to propose such other person as a director can also give a
written notice at the registered office of the company signifying his intention to propose the other person
as a candidate for directorship at least 14 days before the meeting.
The company shall inform its members regarding the candidature of a person for the office of director in
accordance with the manner prescribed in Rule 13 of the Companies (Appointment and Qualifications of
Directors) Rules, 2014. At least 7 days before the general meeting, the company shall inform its members
of such candidature-
1) by serving individual notices through electronic mode to such members who have provided their e-mail
addresses for communication purposes and in writing to all other members; and
2) by placing notice of such candidature on its website, if any.
When there is no need to serve notices individually: It shall not be necessary for the company to serve
individual notices if it advertises such candidature, not less than 7 days before the meeting:
a) at least once in a vernacular newspaper in the principal vernacular language of the district in which the
registered office of the company is situated, and
b) at least once in English language in an English newspaper circulating in that district.
Accordingly, in the given case, the action taken by Tees Limited regarding service of notice is not valid as no
individual notices were served to the members and neither had it advertised Mr. Sid’s candidature in any
vernacular newspapers. Placing the notice on the website will not suffice.

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(ii) Yes, there is an alternative available to Tees Limited, if it is decided not to serve notice to its members if
the following procedure is followed:
As per proviso to Rule 13 of the Companies (Appointment of Directors) Rules, 2014 it shall not be necessary
for the company to serve individual notices if it advertises such candidature, not less than 7 days before
the meeting:
a) at least in a vernacular newspaper in the principal vernacular language of the district in which the
registered office of the company is situated and circulating in that district
b) at least once in English language in an English newspaper circulating in that district.
Question 3:
Referring to the recent Amendment in Rule 6 of the Companies (Appointment and Qualification of Directors)
Rules, 2014 vide notification dated G.S.R. 774 (E) dated 18th December, 2019, advice the directors in the
following situation:
(i) Mr. Anup intends to get an appointment as an independent director in a company and hence applied in the
data bank. However, he has not cleared the online proficiency self-assessment test from the last one year
from the date of enrolment in the data bank. Whether Mr. Anup is eligible to get appointed as an
independent Director?
(ii) Mrs. Vandana intends to get an appointment as an independent Director in a company and hence applied in
the data bank. She has not cleared the online proficiency self - assessment test yet. She has served as an
independent director in a listed company for more than four years from the date of inclusion of her name in
the data bank. Whether Mrs. Vandana is eligible to get appointed as an independent Director?
Answer:
(i) As per Sub-Rule (4) of Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014,
every individual whose name is so included in the data bank under sub-rule (1) shall pass an online proficiency
self-assessment test conducted by the institute within a period of two years from the date of inclusion of
his name in the data bank, failing which, his name shall stand removed from the databank of the institute.
Yes, here, Mr. Anup is eligible to get appointed as an independent director, as per the availability of the
time period for passing of an online proficiency self-assessment test.
In other words, Mr. Anup is eligible to get an appointment as an independent director since one year only
has lapsed from the date of inclusion of his name in the data bank as against two years time period.
(ii) As per the proviso to Sub-Rule (4) of Rule 6 of the Companies (Appointment and Qualification of Directors)
Rules, 2014, an individual shall not be required to pass the online proficiency self-assessment test when the
individual has served for a total period of not less than three years as on the date of inclusion of his name
in the data bank, as a director or key managerial personnel, as on the date of inclusion of his name in the
databank, in a listed public company, amongst other companies.
Hence, yes, Mrs. Vandana is eligible to get appointment as an Independent Director, in line with the
fulfilment of said compliance.
[Note: Given Notification G.S.R. 774 (E) dated 18th December, 2019 in the question is to be read as 18th
December, 2020]
Question 4:
Eighty-two shareholders of Perish Limited, a listed Company holding shares of nominal value of Rs. 19,000 each
proposed Mr. Babulal as a Director on the Board. The paid-up share capital of Perish Limited is Rs. 6.2 Crore

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(6,20,000 equity shares of Rs. 100 each). The Company has 800 such shareholders, who are holding shares of
nominal value of Rs. 19,000 or less. Examine with reference to relevant provisions of the Companies Act 2013,
whether Mr. Babulal can be appointed as a Director of Perish Limited?
[CA Final Nov 20]
Answer:
According to Section 151 of the Companies Act, 2013 and Rule 7 of the Companies(Appointment and
Qualification of Directors) Rules, 2014, a listed company may, upon notice of not less than:
a) one thousand small shareholders; or
b) one- tenth of the total number of such shareholders,
Whichever is lower, have a small shareholders’ director elected by the small shareholders. The term “small
shareholders” means a shareholder holding shares of nominal value of not more than Rs. 20,000 or such other
sum as may be prescribed.
In the instant case, Perish Ltd. has 800 small shareholders out of which 82 small shareholders proposed Mr.
Babulal as a director on the Board. Thus, it fulfills the requirement of one-tenth of the total number of such
shareholders (800*1/10: 80). Hence, Mr. Babulal can be appointed as a director of Perish Ltd
Question 5:
Evaluate the following cases of appointment of Director(s), with reference to the relevant provisions of the
Companies Act, 2013:
(i) Ms. Nisha was appointed a director of LMN Limited on 10th October, 2020 in place of Ms. Rachna, who
resigned from her office on 31st May, 2020 six months before expiry of term of her office. LMN Limited
had its Board meeting on 31st July 2020. Whether appointment of Ms. Nisha is valid?
(ii) The Board of Directors of a Company appointed Mr. Sarvesh as an additional director on 30th July, 2020.
Mr. Sarvesh continued to hold his office till 15th October, 2020. The Company had its annual general
meeting on 15th October, 2020 which should have held on 30th September, 2020, Whether Mr. Sarvesh
can hold office till 15th October, 2020?
[CA Final Nov 20]
Answer:
(i) As per Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 along with Second
proviso to section 149(1), any intermittent vacancy of a woman director shall be filled-up by the Board at
the earliest but not later than immediate next Board meeting or three months from the date of such
vacancy whichever is later.
In the instant case, Ms. Rachna has resigned on 31st May 2020 and the immediate board meeting of LMN
Ltd. was held on 31stJuly, 2020. Ms. Nisha was appointed on 10th October 2020. The intermittent vacancy
of women director shall be filled by 31stJuly, 2020 (immediate Board meeting) or by 1st September, 2020
(three months from the date of vacancy of Ms. Rachna) whichever is later.
Hence, appointment of Ms. Nisha is not valid.
(ii) As per section 161(1) of the Companies Act, 2013, Additional director shall hold office up to the date of the
next annual general meeting or the last date on which the annual general meeting should have been held,
whichever is earlier.
In the instant case, Mr. Sarvesh, the additional director shall hold office upto next AGM i.e. 30th October
2020 or the last date on which the AGM should have been held i.e. 30th September, whichever is earlier.
But Mr. Sarvesh continued to hold office till 15th October, 2020 which is not valid. He should hold office
till 30th September, 2020

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Chapter 2 – Meetings of Board and its powers
Question 1:
The following balances are extracted from the audited financial statement of BLM Private Limited for the
financial year ending the 31st March, 2021:
Particulars Rs in crore
Paid-up share capital 20
Balance in Profit and Loss Account 6
Borrowing from banks and financial institutions 49
Current Liabilities and Provisions 8
No other body corporate has invested any money in the share capital of BLM Private Limited. The Company has
no default in repayment of the above borrowings subsisting at the proposed time of making the above
transaction. The Company has also not committed a default in filing its financial statements or Annual Return
with the Registrar.
The Company proposes to provide a loan of Rs50 lakh to its director Mr. B, who is in dire need of funds for
financing his daughter’s education. Another Director Mr. L contended that the loan should not be provided by
the Company to Mr. B due to the restrictions imposed by the provisions of the Companies Act, 2013. Mr. B, on
the other hand, is of the opinion that the Company being a Private Company, the restrictions are not applicable
to the Company.
Analysing and referring to the relevant provisions of the Companies Act, 2013 and the relevant notifications
issued by the MCA, examine the validity of the proposal of BLM Private Limited to provide the loan to its
Director, Mr. B.
Answer:
Section 185 of the Companies Act, 2013 contains provisions which impose restrictions on the loans, etc. being
given to directors, etc.
Accordingly, a company is not permitted directly or indirectly to advance any loan to
a) any director of the company or of a company which is its holding company or any partner or relative of any
director or
b) any firm in which director or relative is a partner.
As per the Notification No. G.S.R 464(E), dated 5th June 2015 as amended by Notification No. G.S.R 583(E),
dated 13th June 2017, Section 185 shall not apply to a private company which means that loan to directors may
be provided subject to following conditions:
a) In whose share capital no other body corporate has invested any money;
b) If the borrowings of such a company from banks or financial institutions or anybody- corporate is less than
twice of its paid-up share capital or fifty crore rupees, whichever is lower, and
c) Such company has no default in repayment of such borrowings subsisting at the time of making transactions
under this section.
The above exemption is applicable to a private company if it has not committed a default in filing its financial
statements under Section 137 or Annual Return under Section 92 with the Registrar.

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Here in the given case, requirement given in clause(a), and no commission of default in filing its financial
statements under Section 137 or Annual Return under Section 92 with the Registrar, are met with, However, as
per clause (b), borrowings of BLM Private Limited from banks or financial institutions is Rs 49 crore which is
more than twice of its paid-up share capital (i.e. Rs20 core X 2 = Rs40 crore).
Hence, the contention of Mr. L that loan shall not be provided to Mr. B is correct.
Accordingly, as the exemption is not applicable to BLM Private Limited, the proposal of providing a loan of Rs 50
Lakh to its director Mr. B, by BLM Private Limited is invalid.
Question 2:
Mrs. Reena, one of the directors in MAP Limited (Listed company) got evidence against Mrs. Meena, Chief
Financial officer (CFO), that she is indulged in the revenue leakage activities in the company. Mrs. Reena is
scared to report the above matter since Mrs. Meena is a very close relative of other Directors, and Mrs. Reena
won’t get adequate safeguards from the company. Since you are an expert in the secretarial matter, advice Mrs.
Reena, referring to provisions of the Companies Act, 2013, regarding the vigil mechanism, on the following
points.
(i) Can Mrs. Reena (Director) use the safeguards mechanism option available in the company regarding the
above reporting?
(ii) Who is the reporting authority to whom victims can access to report the above matter?
(iii) What are the disclosure requirements of details of Vigil Mechanism?
Answer:
The provisions related to vigil mechanism is contained in Section 177 (9) and (10) of the Companies Act, 2013
(the Act) read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014.
(i) According to Section 177(9) of the Act, vigil mechanism shall be formed by the listed companies for the
directors and employees who may report genuine concerns in the manner prescribed in Rule 7 for adequate
safeguards against their victimization by use of such mechanism and make provision for direct access to the
Chairperson of the Audit Committee in appropriate or exceptional cases.
Accordingly, the answer is - Yes, Mrs. Reena Director can opt to use safeguard mechanism available to her
under the Vigil Mechanism Policy of MAP Limited against Mrs. Meena, CFO who indulged in the revenue
leakage activities in the company and she may directly report the matter to the Chairman of the Audit
Committee and in case the Chairman of the Audit Committee has interest (being a relative of CFO) in the
matter, Mrs. Reena may directly report the matter to the Chairman of the Board.
(ii) Reporting Authority shall be the Chairperson of the Audit Committee or the director nominated to play the
role of Audit Committee, as the case may be, in exceptional cases.
(iii) It is imperative for the company to disclose the details of the establishment of vigil mechanism on the
website of the company and in Board’s report.
Question 3:
You are the CFO and in-charge of compliances of a listed entity. The Company is professionally managed and has
earned a niche in the market for its robust management practices. Mr. Edward, an eminent American business
man, currently living in Germany, joined the Company as an Executive Director. On assuming his mantle, he being
a foreign director residing abroad, approached you to specifically understand the relevant provisions of the

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Companies Act, 2013 relating to participation of directors in Board Meetings conducted through Video
Conferencing in respect of the following matters:
(i) What shall be the venue of Board Meeting through video conference?
(ii) How the statutory registers placed at the scheduled venue of the meeting shall deemed to have been signed
by the directors participating through electronic mode?
(iii) Whether meetings can be convened through audio/teleconferencing i.e. without video facility?
You are required to provide correct legal-position to the above queries after examining and evaluating the
provisions of the Companies Act, 2013.
[CA Final Nov 20]
Answer:
(i) As per Sub-rule (6) of Rule 3 of the Companies (Meetings of Board and its Powers) Rules 2014, with respect
to every meeting conducted through video conferencing or other audio visual means authorised under these
rules, the scheduled venue of the meeting as set forth in the notice convening the meeting, shall be deemed
to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to
be made at such place.
(ii) Sub-rule (7) of Rule 3 of the Companies (Meetings of Board and its Powers) Rules 2014, provides that the
statutory registers which are required to be placed in the Board Meeting as per the provisions of the Act,
shall be placed at the scheduled venue of the meeting and where such registers are required to be signed by
the directors, the same shall be deemed to have been signed by the directors participating through
electronic mode, if they have given their consent to this effect, it is so recorded in the minutes of the
meeting.
(iii) According to section 173(2) of the Companies Act, 2013, the participation of directors in a meeting of the
Board may be either in person or through video conferencing or other audio visual means, as may be
prescribed, which are capable of recording and recognising the participation of the directors and of
recording and storing the proceedings of such meetings along with date and time. Accordingly, meeting can
be convened through audio visual means capable of recording and recognising the participation of the
directors but not through audio teleconferencing i.e., without video facility
Question 4:
XYZ Ltd. is an investment company whose principal business is an acquisition of shares and debentures of other
companies. The following figures were derived from the books of XYZ Ltd.:
Assets:
Investment in shares and debenture Rs 95 Lakh
Other Assets Rs105 Lakh
Total Rs 200 Lakh
Income:
Income from investment business Rs12 Lakh
Other Income Rs18 Lakh
Total Rs30 Lakh
(i) Whether the company is an investment company as per section 186 and eligible to claim exemption given
thereunder?
(ii) The Board of Directors of XYZ Ltd is considering the proposal for making the investment in ABC Ltd. The
company has 5 directors on Board and in the Board Meeting 4 directors were present, three of them gave
the consent to the proposal and one director abstained from voting. Comment on the same
[MTP 1 May 22]

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Answer:
(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
Question 5:
Rise Tech Limited (RTL) and Sun Software Limited (SSL) are wholly-owned subsidiaries of Neelambar HiTech
Software Programmes Limited (NHSPL). The paid-up capital of NHSPL is Rs 100 crore and its general reserves
are to the extent of Rs 45 crore. RTL raised a loan of Rs 88 crore for which NHSPL stood as guarantor,
guaranteeing that the loan shall be repaid as per the stipulated terms and conditions. However, for offering the
said guarantee, NHSPL did not pass a resolution in the general meeting seeking the consent of the shareholders.
Rachna, one of the directors of NHSPL considered, offering of guarantee without passing any resolution as a
violation of the Companies Act, 2013. Analyse within the given scenario, with reasons whether Rachna’s
contention is valid.
[MTP 1 May22]
Answer:
The validity of Rachna’s contention is to be viewed in the light of Section 186 of the Companies Act, 2013.
Section 186 (2) states that no company shall directly or indirectly —
a) give any loan to any person or other body corporate;
b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding sixty per cent of its paid-up share capital, free reserves and securities premium account or one
hundred per cent of its free reserves and securities premium account, whichever is more.
Explanation: For the purposes of this sub-section, the word "person" does not include any individual who is in the
employment of the company
Section 186 (3) states that where the aggregate of the loans and investment so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate along with the investment, loan,
guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section

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(2), no investment or loan shall be made or guarantee shall be given or security shall be provided unless
previously authorised by a special resolution passed in a general meeting:
Exemption: Provided that where a loan or guarantee is given or where a security has been provided by a company
to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company,
by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the
requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee or security or
acquisition in the financial statement as provided under sub-section (4).
Particulars of loan to be disclosed: According to Section 186 (4), the company shall disclose to the members in
the financial statement the full particulars of the loans given, investment made or guarantee given or security
provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient
of the loan or guarantee or security.
We may also refer Rule 11 (1) of the Companies (Meetings of Board and its Powers) Rules, 2014 which states
that where a loan or guarantee is given or where a security has been provided by a company to its wholly owned
subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of
subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement
of sub-section (3) of section 186 shall not apply:
Provided that the company shall disclose the details of such loans or guarantee or security or acquisition in the
financial statement as provided under sub-section (4) of section 186.
Conclusion: In view of the above provisions, Rachna’s contention is not valid. Proviso to Section 186 (3) clearly
states that where a guarantee is given by a company to its wholly owned subsidiary company, the requirement of
Section 186 (3) shall not apply.
Similarly, Rule 11 (1) also states that the requirement of sub-section (3) of section 186 shall not apply if a
guarantee is given by a company to its wholly owned subsidiary company. Thus, there is no need to pass a
resolution in the general meeting of the shareholders for seeking their approval since NHSPL is permitted to
stand as guarantor for the loan raised by its wholly-owned subsidiary RTL.
The only requirement is that NHSPL should disclose to the members in the financial statement the full particulars
of the guarantee given and the purpose for which guarantee is proposed to be utilised by the recipient of the
guarantee as provided under sub-section (4) of section 186.

12
Chapter 3 – Appointment and Remuneration of Managerial

Personnel
Question 1: (Revised Answer. Please ignore Q9 of the main book of Question Bank)
You are provided with the relevant extract of the financials of Tribhuke Company Limited for the financial year
ended as on 31st March 2020 as below:
Particulars Amount
Authorised Share Capital 10,00,00,000
Issued and Paid up Share Capital 5,00,00,000
Share Premium Account 25,00,000
Reserves and Surplus (Amount of Rs. 25,00,000 is included as 35,00,000
Revaluation Reserve)
Term loan repayable after 1 year 12,00,000
Current Borrowings (Cash Credit Loan from Banks) 20,00,000
Non-Current Investments 10,00,000
Accumulated Losses 5,00,000
Preliminary expenses not written off 3,00,000
The company has three managerial persons in its board of directors – Mr. A – Managing Director, Mr. B – Whole
Time Director and Mr. C – Director. According to their terms of appointment, in case the company has no or
inadequate profits, the managerial remuneration payable to them shall be in accordance with Schedule V. You are
required to compute the total managerial remuneration payable considering the provisions of Schedule V.
[ICAI Module]
Answer:
Relevant provision:
Section II of Part II of Schedule V states the provisions applicable for the payment of managerial remuneration
in case where the company has no profits, or its profits are inadequate. In such a case, managerial remuneration
is payable on the basis of the effective capital as on the last date of the financial year for which the remuneration
is payable.
Explanation 1 to Section II of Part II of Schedule V states effective capital means the aggregate of the paid-up
share capital (excluding share application money or advances against shares); amount, if any, for the time being
standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term
loans and deposits repayable after one year (excluding working capital loans, over drafts, interest due on loans
unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any
investments (except in case of investment by an investment company whose principal business is acquisition of
shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.
Given case and conclusion:

Accordingly, to compute the total managerial remuneration payable, we should first calculate the effective capital.
Particulars Amount
Issued and Paid up Capital 5,00,00,000
Add: Share Premium Account 25,00,000
Add: Reserves and surplus excluding revaluation reserve 10,00,000

13
Add: Term Loan repayable after 1 year (excluding working capital loans) 12,00,000
Less: Non-Current Investments 10,00,000
Less: Accumulated Losses 5,00,000
Less: Preliminary Expenses 3,00,000
Effective Capital 5,29,00,000
Section II of Part II of Schedule V states that where the effective capital is 5 crores and above but less than
100 crores, the remuneration payable shall not exceed Rs. 84 lakhs. Accordingly, the total managerial
remuneration payable by the Companies to three managerial personnel for the year ended 31st March, 2020 shall
not exceed Rs. 252 lakhs (Rs. 84 lakhs x 3 managerial personnel).
Note: As nothing is specified about Mr. C, whether he is part-time or non-executive or Independent director. He
may be considered as director in whole time employment (i.e., Managerial Personnel).
Question 2:
ABC Limited showed a net profit of Rs 70 lakh after including the following items credited/debited to the
Profit and Loss Statement for the year ending on 31st March, 2021 for arriving at Profit before tax.
Other Revenue Amount (Rs)

Profit on Sale of Fixed Assets 7,00,000
Revaluation of assets 5,00,000
Change in carrying amount of an assets on measurement of the asset at fair value 9,00,000
Expenditure Amount (Rs)

Debt considered bad and written off 6,00,000
Loss of capital nature including sale of the undertaking 3,00,000
Tax Expenses, Current Tax payable 15,00,000
Details of Sale of Fixed Assets:

Sale Value 20,00,000
Original Cost 16,00,000
Written down value 13,00,000
Referring to the above details, you are requested to analyse the provisions of the Companies Act, 2013 and
answer the following:
(i) Compute the Company’s net profit as laid down under Section 198 of the provisions of the companies Act,
2013 to calculate the managerial remuneration.
(ii) Reporting Requirement in auditor’s report regarding managerial remuneration.
(iii) What are the modes of payment of managerial remuneration?
Answer:
Part (i)
According to Section 198 of the Companies Act, 2013 (the Act) net profits for any financial year for the
purpose of managerial remuneration payable under Section 197 of the Act shall be calculated as follows:
Credit shall not be given for those sums specified in Section 198(3)
Less: (if credited to the P & L A/c for arriving at Profit before tax)
- Profits from the sale of any immovable property or fixed assets of a capital nature

14
comprised in the undertaking or any of the undertakings of the company, unless the business of the company
consists, whether wholly or partly, of buying and selling any such property or assets:
- Provided that where the amount for which any fixed asset is sold exceeds the written- down value thereof,
credit shall be given for so much of the excess as is not higher than the difference between the original
cost of that fixed asset and its written -down value;
- Any change in carrying amount of an asset or of a liability recognized in equity reserves including surplus in
profit and loss account on measurement of the asset or the liability at fair value.
- any amount representing unrealized gains, notional gains or revaluation of assets.
In making the computation aforesaid, the following sum specified under Section 198(4) shall be deducted:
- debts considered bad and written off or adjusted during the year of account.
Non-Deductible Items [Section 198(5)]

- Loss of a capital nature including loss on sale of the undertaking
- Current Taxes payable by the Company.
Computation of Net Profit for purpose of calculating Managerial Remuneration as laid down u/s 198 of the Act:
Particulars Amount (Rs)
Net Profit as per Statement of Profit and Loss 70,00,000

Less: Profits on Sale of Fixed Assets not to be included in Profit (Refer note below) (4,00,000)
Less: Revaluation of Assets (5,00,000)
Less: Change in carrying amount of an assets on measurement of the asset at fair value (9,00,000)
Balances 52,00,000
Add: Tax Expenses, Current Tax Payable 15,00,000
Add: Loss of a capital nature including loss on sale of the undertaking 3,00,000
Net Profits for the purpose of calculating the managerial remuneration 70,00,000
Working Note:
S.No Particulars Amount (Rs).
A. Original Cost 16,00,000
B. Written Down Value 13,00,000
C. Sale Value 20,00,000
D. Profit on Sale of Fixed Asset 7,00,000
E. Amount to be included in Profit (A) – (B) 3,00,000
F. Amount not to be included in Profit (D) - (E) 4,00,000
Note: Credit shall not be given for profits from the sale of any immovable property or fixed assets (provided
credit shall be given for so much of the excess as is not higher than the difference between the original cost of
that fixed asset and its written- down value). Profit on sale of fixed assets = Rs 20,00,000 (–) Rs 13,00,000
(wdv) Rs 7,00,000, but credit cannot be greater than the difference of Rs 16,00,000(original cost) (-) Rs
13,00,000 (wdv) = Rs 3,00,000. Hence Rs 4,00,000 should be deducted from the Net Profit.

15
Part (ii)
Reporting requirement in Auditors’ report regarding managerial remuneration [Section 197(16) of the Act]: The
auditor of the company shall, in his report under Section 143, make a statement regarding remuneration as
under:
- whether the remuneration paid by the company to its directors is in accordance with Section 197;
- whether remuneration paid to any director is in excess of the limit laid down under Section 197; and
- give such other details as may be prescribed.
Part (iii)
Mode of payment of Managerial Remuneration [Section 197(6) of the Act]: A director or manager may be paid
remuneration in any of the following manner, either–
- by way of a monthly payment, or
- at a specified percentage of the net profits of the company, or
- partly by one way and partly by the other
Question 3:
In MAP Limited, the following directors are getting sitting fees.
Director’s Name Sitting fees (INR)
Mr. X (Non-Executive Independent Director) INR 70,000
Mrs. Y (Non-Executive Woman Director) INR 80,000
Mr. Z (Non-Executive Director) INR 60,000
Mr. L (Non-Executive Director) INR 50,000
The Boards of Directors of MAP Limited increased the sitting fees of Mr. Z and Mr. L to one lakh rupees each
and continued the sitting fees of Mr. X and Mrs. Y at the old fees stated above. Referring to the provisions of
the Companies Act, 2013, examine whether the decision of the Board of Directors to increase the sitting fees
of few directors and maintaining the same sitting fees for remaining directors shall be deemed to be valid.
Whether Mr. X, an Independent Director and Mrs. Y, a Woman Director shall be entitled for remuneration,
other than the sitting fees, and if so, what shall be the maximum remuneration payable to each of them per
annum in case the Company has no profit and its effective capital is Rs. 250 crore as at the 31st March, 2021
Answer:
(i) Sitting Fees to Directors [Section 197(5) of the Companies Act, 2013]
A director may receive remuneration by way of fee for attending meetings of the Board or Committee
thereof or for any other purpose whatsoever as may be decided by the Board subject to the conditions
imposed by Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as
under:
- Sitting fees shall not exceed one lakh rupees per meeting of the Board or committee thereof (Rule 4)
- The sitting fee payable to the Independent Directors and Women Directors shall not be less than that
payable to other directors. (As per Proviso to Rule 4)
Accordingly, increasing the sitting fees of Mr. Z and Mr. L is within the limit prescribed under the said Rule
4. However, maintaining the same sitting fees for the Mr. X and Mrs. Y is not valid in line with the
requirement to the stated provision i.e., it shall not be less than that payable to Mr. Z and Mr. L.
Therefore, the decision of the Board of Directors to increase the sitting fees of few directors and
maintaining the same sitting fees for remaining directors shall be deemed to be invalid.
(ii) According to proviso to Section 149(9) of the Companies Act, 2013, if a company has no profits or its
profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable
under sub-section (5) of section 197, in accordance with the provisions of Schedule V.

16
Further Schedule V specifies that where in any financial year during the currency of tenure of a managerial
person or other director, a company has no profits or its profits are inadequate, it may pay remuneration to
the managerial person or other director not exceeding the limits under table (A) and (B).
Explanation.- For the purposes of Section I, Section II and Section III, the term "or other director" shall
mean a non-executive director or an independent director.
As per the above provision, if in any financial year, a company has no profits or its profits are inadequate,
the company shall not pay by way of remuneration any sum (exclusive of sitting fees) to its directors,
including any managing or whole- time director or manager or any other non-executive director (includes a
woman director) or an independent director, except in accordance with the provisions of Schedule V i.e. Rs
24 Lakh plus 0.01% of the effective capital in excess of Rs 250 crore, where the effective capital of the
Company is Rs 250 crore and above.
Accordingly, the maximum remuneration payable per annum to Mr. X an Independent Director and Mrs. Y, a
woman Director (who is also non-executive director) individually will be Rs 24 Lakhs plus 0.01% of the
effective capital in excess of Rs 250 crores, where the effective capital is Rs 250 crore and above.
Since in the given case, the effective capital of the Company is Rs 250 crore, therefore, Mr. X and Mrs. Y
can be paid maximum annual remuneration of Rs 24 Lakh each.
Question 4:
You are a young women Chartered Accountant from India, having graduated from a top notch business school in
India and later on became a Certified Public Accountant (CPA) from USA. You have a special acumen for
providing scratch to end business advisory and regulatory related solutions. Your client, M/s New Tech
Software Solutions Limited (NTSSL) is a listed entity engaged in developing customised software packages for
two and three wheeler automobile manufacturers in India and abroad. The Company follows strict corporate
governance norms in letter and spirit and has the following composition of Board of Directors:
NAME DESIGNATION/CATEGORY
Mr. X CEO and Managing Director
Mr. Y Non-Independent and Non-Executive Director
Mr. A, Mr. B, Mr. C and Mr. D Independent Directors
Mrs. E Independent Women Director
During the financial year 2019-2020, the Company made the following remuneration to its Directors:
Name Amount (in Rs)
Mr. X-CEO & MD Monthly remuneration of Rs 50,000 + Commission of Rs 1,50,000 calculated
as a percentage of net profits
Mr. Y Commission at the rate of 1 % of the net profit.
(i) Mr. Y was paid a fee of Rs 1,00,000 for the services rendered by him, as a graduate civil engineer for
valuing the assets of the Company. Though he is not a Registered Valuer, he carried out the valuation on the
assumption that, valuation can be done by a person having such qualifications and experience for registered
valuers.
(ii) Payment of Rs 5,00,000 insurance premium towards Directors and Officers Liability Policy to protect the
Company against any negligence on the part of Mr. X, the Managing Director. A claim of Rs 1,00,000 was
lodged with the Insurance Company as a result of guilty of negligence of Mr. X.

17
With the above information, the said Company approached you seeking certain clarifications. Clearly explaining
the relevant provisions of the Companies Act, 2013 and the Rules made there under, provide your professional
advise to the following questions as raised by the Company:
(i) Whether the payments made to Mr. X and Mr. Y forms part of an overall maximum managerial rem?
(ii) Whether payment of insurance premium towards Directors and Officers Liability Policy form part of
remuneration of Mr. X?
(iii) Who is the approving/recommending authority for the payments made to Mr. Y?
[CA Final Nov 20]
Answer:
(i) As per section 197(1) of the Companies Act, 2013, the total managerial remuneration payable by a public
company, to its Directors, including Managing Director and Whole-Time Director, and its Manager in respect
of any financial year shall not exceed eleven per cent. of the net profits of that company for that fin. year.
Whereas section 197(6), states that a Director or Manager may be paid remuneration by way of a monthly
payment; or at a specified percentage of the net profits of the company; or partly by one way and partly by
the other.
Further section 197(4), states that the remuneration payable to the directors of a company, including any
Managing or Whole-Time Director or Manager, shall be determined, in accordance with and subject to the
provisions of this section, either by the articles of the company, or by a resolution or, if the articles so
require, by a special resolution, passed by the company in general meeting and the remuneration payable to a
director determined aforesaid shall be inclusive of the remuneration payable to him for the services
rendered by him in any other capacity:
Provided that any remuneration for services rendered by any such directo r in other capacity shall not be so
included if —
(a) the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered under section
178(1), or the Board of Directors in other cases, the director possesses the requisite qualification for the
practice of the profession.
Accordingly, as per the provision, payment made to Mr. X comprising of monthly remuneration of Rs 50,000
and commission Rs 1,50,000 and the payment of the premium amount of Rs 5,00,000 on account of guilty of
negligence of Mr. X, will form the part of the overall maximum managerial remuneration.
Whereas payment made to Mr. Y comprising of commission at the rate of 1% of the net profit will form part
of the overall maximum managerial remuneration.
Further, fee of Rs 1,00,000 rendered to him for valuing the asset of the company is the service not given in
professional capacity as he does not possess the requisite qualification for practice of respective
profession as per Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017. This payment
of fees in light of section 197(4) will also form the part of the overall maximum managerial remuneration.
(ii) As per Section 197(13),where any insurance is taken by a company on behalf of its Managing Director,
Whole-Time Director, Manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for
indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of
duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such
insurance shall not be treated as part of the remuneration payable to any such personnel:

18
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated as
part of the remuneration.
In the given case claim of Rs 1,00,000 was lodged with the Insurance company as a result of guilty of
negligence of Mr. X. Therefore, payment of the insurance premium of Rs 5,00,000 shall be treated as part
of the remuneration of Mr. X.
(iii) According to section 197(1) of the Companies Act, 2013 remuneration payable to Mr. Y who is neither
Managing Director nor Whole time director, shall not be exceeding 1% of the net profits of the company, as
there is Mr. X (a Managing Director). Here in the given case, payment of Rs 1,00,000 over 1% may require
the approval of the company in general meeting by passing a Special Resolution. Since NTSSL is a listed
company, so Nomination and Remuneration Committee will recommend for payment of commission and Rs
1,00,000 for valuation purposes for approval of Board

19
Chapter 4 – Inspection, Inquiry and Investigation

Question 1:
BKK Ltd. had filed its annual returns and other documents with the Registrar of Companies in Mumbai. Based on
the documents, the inspector appointed by the Registrar was conducting an inquiry under Section 206 of the
Companies Act, 2013. In the inspection, the inspector has called for books of account for review. Mr. R, a
director of the company, refused to produce the books of account for the inspection. Mr. R is also a director in
MKK Limited and SKK Limited. Examine the validity of the action of Mr. R and state the penalties for which he
shall be liable for contraventions, if any, as per the provisions of the Companies Act, 2013. Further, examine
whether he can continue to be the director of MKK Limited and SKK Limited.
Answer:
In line with Section 207 of the Companies Act, 2013 w.r.t. the conduct of inspection and inquiry -
(i) Where a Registrar or inspector calls for the books of account and other books and papers under sub section
(1) of section 206, it shall be the duty of every director, officer or other employees of the company:
a) to produce all such documents; and
b) to furnish with such statements, information or explanations in such form as may require; and
c) to render all assistance in connection with such inspection.
(ii) In terms of Section 207 (4) (i) of the Companies Act, 2013, if any director or officer of the company
disobeys the direction issued by the Registrar or the inspector under this section, the director or the
officer shall be punishable with imprisonment which may extend to 1 year and with fine which shall not be
less than 25,000 rupees but which may extend to 1 lakh rupees.
In terms of Section 207 (4)(ii) of the Companies Act, 2013, if a director or an officer of the company has
been convicted of an offence under this section, the director or the officer shall, on and from the date on
which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall
be disqualified from holding an office in any company.
Accordingly, the action of Mr. R, the director of the BKK Ltd. is in contravention to the stated provision as
regards the production of the books of accounts called for inspection.
Therefore, he shall be liable and punishable with imprisonment extend to 1 year and with fine which shall not
be less than 25,000 rupees but which may extend to 1 lakh rupees.
And also on conviction under the Section, Mr. R, on and from the date on which he is so convicted, be deemed
to have vacated his office from BKK Ltd. and on such vacation of office, shall be disqualified from holding an
office in any company, i.e. MKK Ltd. and SKK Ltd. and so cannot continue to be the director in these
companies.

20
Chapter 5 – Compromise, Arrangements & Amalgamations

Question 1:
The shareholders and creditors of Fume Limited, in a meeting convened for approval of a scheme of
reconstruction of the company, passed the necessary resolutions. The Tribunal makes an order sanctioning a
scheme of reconstruction of the company. After a few days the Tribunal decided to modify the scheme of
reconstruction of the company. After modifications of the scheme based on the order of the Tribunal, the
company could not implement the scheme satisfactorily and the Tribunal decided to go for wining-up of the
company. The directors of the company objected to the above acts of the Tribunal. Comment with reference to
the provisions of the Companies Act, 2013, whether the objection raised by the directors is right on the decision
of the Tribunal modifying the scheme and winding-up of the company.
Answer:
According to Section 231 of the Companies Act, 2013,
1. Power of tribunal to enforce the order:
Where the Tribunal makes an order under Section 230 sanctioning a compromise or an arrangement in respect
of a company, it—
a. shall have power to supervise the implementation of the compromise or arrangement; and
b. may, at the time of making such order or at any time thereafter, give such directions in regard to any
matter or make such modifications in the compromise or arrangement as it may consider necessary for
the proper implementation of the compromise or arrangement.
2. Winding up order by tribunal:

If the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230 cannot be
implemented satisfactorily with or without modifications, and the company is unable to pay its debts as per
the scheme, it may make an order for winding up the company and such an order shall be deemed to be an
order made under Section 273.
As per the facts of the question and provisions of law, the Tribunal has the right to modify, monitor the
implementation and order for winding- up of company in case the scheme is not implemented satisfactorily.
Thus, the objection raised by the directors on the decision of the Tribunal modifying the scheme and winding-
up of the company, is not correct.
Question 2:
As a part of amalgamation, Harsha Limited acquired 90% of the issued capital of Ananya Limited. The issued,
subscribed and paid up capital of Ananya Limited is Rs 100 Crore. Out of remaining minority shareholding of
Ananya Limited, Rs 8 Crore are held by Mr. Raju. Mr. Raju was not satisfied with the amount decided under the
scheme and therefore negotiated for a higher price. As a result, he received an extra amount of Rs 10 Lakh. The
other minority shareholders claim that Mr. Raju is not entitled to the entire extra amount of Rs10 Lakh.
Examine the validity of claim made by other minority shareholders under the relevant provisions of the Companies
Act, 2013.
[CA Final Nov 20]
Answer:
Section 236 of the Companies Act, 2013, where the shares of minority shareholders have been acquired in
pursuance of this section, and as on or prior to the date of trans fer following such acquisition, the shareholders
holding seventy-five per cent. or more minority equity shareholding negotiate or reach an understanding on a
higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or
likelihood of transfer taking place on the basis of such negotiation, understanding or agreement,-

21
the majority shareholders shall share the additional compensation so received by them with such minority
shareholders on a pro rata basis.
Accordingly, in the given case as Mr. Raju negotiated on extra amount of Rs 10 lakh which was entirely held by
him. Therefore, the claim contended by the minority shareholders is valid because in the light of the above
stated provision the extra amount received by Mr. Raju shall be allocated to all minority shareholders on pro rata
basis.
Question 3:
RMP Limited was facing acute financial difficulties as operations were continuously disrupted and the Company
was facing the brunt of:
(i) Non-Availability of Raw Materials,
(ii) Loss of demand for the Company's products,
(iii) Frequent lockdown due to workmen's unrest.
On the verge of liquidation, the Management proposed one last arrangement between creditors and the Company,
whereby, the creditors will have to forego 50%, of their dues to the Company. This has evoked strong protest
from some of the creditors who may block the arrangement.
Examine the arrangement in the light of the Companies Act, 2013 and advice the course of action/procedure to
be adopted by the company to implement the arrangement
[CA Final Nov 20]
Answer
Procedure for adoption of the Scheme of Compromise or Arrangement (Section 230 of the Companies Act, 2013)
The proposed scheme involves a compromise or arrangement with creditors and it attracts section 230. Said
section contains the powers of the Tribunal on the filing of application for the compromise or arrangement.
According to this section:

1) In the given case, a compromise or arrangement is proposed between a company and its creditors, so the
Tribunal may, on the application of the company or creditor, order a meeting of the creditors or class of
creditors, to be called, held and conducted in such manner as the Tribunal directs.
2) The company or any other person, by whom an application is made, shall disclose to the Tribunal by affidavit
all the material facts relating to the company.
3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal, a notice of such meeting
shall be sent to all the creditors and members and concerned persons individually at the address registered
with the company with the statement disclosing the details of scheme.
4) Such notice and other documents shall also be placed on the website of the company.
5) 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.
6) A notice shall provide that the persons to whom the notice is sent may vote in the meeting either themselves
or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month
from the date of receipt of such notice.
7) Where, at a meeting held, majority of persons representing three-fourths in value of the creditors, or class
of creditors, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if
such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the
company, and all the creditors.
8) 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.
Accordingly, RMP Limited is advised to file an application to the tribunal for compromise and arrangement.

22
Chapter 6 – Prevention of Oppression and Mismanagement

Question 1:
Mr. M, a member of XYZ Ltd. filed an application before the Tribunal complaining of oppression and mismanagement
w.r.t. an agreement entered by XYZ Ltd. effecting the interest of the company. Vide order passed by the Tribunal
under section 242 of the Companies Act, 2013, terminated the said agreement. The agreement was entered by Mr.
H and Mr. G who was managing director and the executive director of the XYZ Ltd. Mr. Rasik, with whom the XYZ
Ltd entered the agreement, filed a petition claiming the loss caused due to termination of the said agreement. Also
state the legal position of Mr. H and Mr. G holding their place of office in the said situation. Examine the given
facts and address the issues in terms of the relevant provisions of Companies Act, 2013.
[RTP May 21]
Answer:
As per section 243 of the Companies Act, 2013 , where an order made under section 242 terminates, sets aside or
modifies an agreement which was entered by the company, were in a manner prejudicial to the interests of the
company:
a. such order shall not give rise to any claims whatever against the company by any person for damages or for
compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise;
b. no managing director or other director or manager whose agreement is so terminated or set aside shall, for a
period of five years from the date of the order terminating or setting aside the agreement, without the leave
of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company.
Accordingly, Mr. Rasik, with whom the XYZ Ltd entered the agreement, filed a petition claiming the loss caused
due to termination of the said agreement, is not viable. Further, Mr. H and Mr. G, managing director and the
executive director of the XYZ Ltd. who entered agreement with Mr. Rasik which was ordered to be terminated by
the Tribunal, shall not act as the managing director or other director or manager of the company, for a period of
five years from the date of the order terminating or setting aside the agreement, without the leave of the
Tribunal.
Question 2:
Shine Jewellers Ltd. is engaged in the business of making and selling of gold ornaments. Recently, the Government
of India has made it compulsory for the jewellers to put hallmarking on all the gold ornaments. However, the company
is playing foul and not marking or wrong marking of hall marking on the gold jewellery.
The Central Government filed an application to the Tribunal stating therein that the affairs of the company are
being conducted in a manner prejudicial in the public interest.
The Tribunal summoned the company, but the company didn’t appeared. One more chance was given to the company
to appear, but the company remained absent. The Tribunal passed an order vide dated 30th June, 2021, which
provides the regulation of conduct of affairs of the company in future.
Based on the captioned facts, answer the following questions:
(i) Under what circumstances the Central Government can file application before the Tribunal?
(ii) What are the powers of the Tribunal, after filing of application by the Central Government under section 241?
(iii) After the order of the Tribunal, what shall the company do?
[RTP May 22]
Answer:
(i) Section 241(2) of the Companies Act, 2013 provides that where the Central Government, is of the opinion that
the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to
the Tribunal for an order under Chapter XVI.
(ii) The powers of the Tribunal are contained in section 242 of the Companies Act, 2013.

23
Section 242(1)(a) provides that if, on any application made under section 241, the Tribunal is of the opinion that
the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or
members or prejudicial to public interest or in a manner prejudicial to the interests of the company, the Tribunal
may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
In the given case, the Tribunal has passed the order, which provided the regulation of conduct of affairs of
the company in future.
(iii) In the given case, the Tribunal has taken a very liberal view. It has just asked the company to regulate the
conduct of business in future, i.e., do hall marking of the jewellery as per the Government’s notifications. No
monetary penalty has been imposed there is no cause to make an appeal before the NCLAT.
The company should file a certified copy of the order of the Tribunal with the Registrar within 30 days of the
order of the Tribunal
Question 3:
The Central Government initiated a case against Mr. Sujay Bishoi, Managing Director of BSK Ltd. for causing
damage to the interest of the financial industry by mismanaging the funds and referred the case to the Tribunal
where the Tribunal passed an order on 20 th June, 2021, holding that Mr. Sujay was not fit and proper person to
hold such office.
Mr. Sujay vacated his office as on 21st June, 2021 and he demanded compensation, as per the contract with the
company, for early termination. On 23rd January, 2025, Mr. Sujay was appointed as a non-executive director in
one other company.
In the light of the given facts, advise in the given legal situations :-
(i) Whether Mr. Sujay was entitled for such compensation?
(ii) Whether Mr. Sujay was entitled to be appointed as a non-executive director in such other company?
[MTP 1 May 22]
Answer:
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.
i. 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 for the loss or termination of office.
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.

24
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.
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
Question 4:
Few preference shareholders of Lebtuk Ltd. had filed an application with the Tribunal (NCLT) for relief against
oppression and mismanagement. The Tribunal observed that the Articles of Lebtuk Ltd. provided undue powers to
the Board of Directors and accordingly, ordered for alteration of the Articles of the company so as to restrict
the powers of Board to a certain extent. The company filed the certified copy of such order with the Registrar
on 5th November, 2021 and amended its Articles as per the order on 22nd November, 2021.
Afterwards, Mr. Ramesh Puri, CEO of Lebtuk Ltd. proposed a change to be made by the company in the Articles
which appeared to be inconsistent with the order of Tribunal.
In the context of aforesaid scenario, please answer to the following questions:-
(i) What effect such amendment in Articles would be considered to have, and by what date, such order of
Tribunal needs to be registered by the Registrar?
(ii) Whether Lebtuk Ltd. can amend its Articles to incorporate the change proposed by Mr. Ramesh and what
could be the consequences for the same?
[MTP 1 May 22]
Answer:
(i) As per section 242 of the Companies Act, 2013,the alterations made by the order in the Memorandum or
Articles of a company shall have the same effect in all respects as if they had been duly made by the company
in accordance with the provisions of this Act and the said provisions shall apply accordingly to the
Memorandum or Articles so altered.
A certified copy of every order altering, or giving leave to alter, a company’s Memorandum or Articles, shall
be filed by the company with the Registrar who shall register the same within 30 days after the making
thereof.
In the instant case, the Tribunal ordered for alteration of the Articles of Lebtuk Ltd. so as to restrict the
powers of Board to a certain extent and accordingly, the Articles were amended as per the order on 22nd
November, 2021.
Conclusion: Accordingly, as per the aforesaid provisions, such alteration would have the same effect in all
respects as if they had been duly made by the company in accordance with the provisions of the Companies
Act, 2013, and the Registrar needs to register the same at the latest by 5th December, 2021 i.e. within 30
days of filing the order by the company on 5th November, 2021.

25
(ii) As per section 242 of Companies Act, 2013, where an order of the Tribunal makes any alteration in the
Memorandum or Articles of a company, then, notwithstanding any other provision of this Act, the company
shall not have power (except to the extent, if any, permitted in the order) to make, any alteration whatsoever
which is inconsistent with the order, either in the Memorandum or in the Articles without the leave of the
Tribunal.
Here, Mr. Ramesh Puri, CEO of Lebtuk Ltd. proposed a change to be made by the company in the Articles
which appeared to be inconsistent with the order of Tribunal and accordingly, such a change cannot be made
without the leave of the Tribunal.
Conclusion: If the company makes such a change in the articles inconsistent with the order of Tribunal
without the leave of the Tribunal, then the company and every officer in default would be liable for
punishment as per sub-section (6) of section 242. According to which the company shall be punishable with
fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every
officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees.

26
Chapter 7 – Winding Up
Question 1: (This was incorrectly mapped under IBC. Remove question 44 of IBC from Main booklet)
Datavision Ltd. was ordered for winding up by the Tribunal. Raman, a provisional liquidator was appointed by the
Tribunal amongst the panel of the insolvency professionals registered with the Insolvency and Bankruptcy
Board of India (IBBI). Raman was supposed to file a declaration disclosing a conflict of interest or lack of
independence in respect of his appointment, if any within the prescribed time. However, Raman deliberately
did not filed such declaration. Actually, Raman was having interest in the company, since his wife is holding the
position of Whole Time Director in that company.
Answer the following questions:

(i) After appointment as a provisional liquidator, in what time, he is required to file a disclosure of conflict
of interest/ lack of independence, if any?
(ii) To whom such disclosure is required to be filed by the provisional liquidator?
(iii) What are the consequences, if the provisional liquidator do not submit such disclosure?
[MTP – Dec’21]
Answer:
(i) Section 275(6) provides that on appointment as provisional liquidator or Company Liquidator, as the case
may be, such liquidator shall file a declaration within seven days from the date of appointment in the
prescribed form disclosing conflict of interest or lack of independence in respect of his appointment, if
any, with the Tribunal and such obligation shall continue throughout the term of his appointment.
Thus, the disclosure of interest / independence has to be filed by the provisional liquidator within 7 days
from the date of appointment. The order given by the Tribunal may provide the date of appointment. If
no such date has been mentioned in the order by the Tribunal, the date of the order may be treated as
date of appointment.
(ii) Section 275(6) provides that on appointment as provisional liquidator or Company Liquidator, as the case
may be, such liquidator shall file a declaration within seven days from the date of appointment in the
prescribed form disclosing conflict of interest or lack of independence in respect of his appointment, if
any, with the Tribunal and such obligation shall continue throughout the term of his appointment.
Thus, the disclosure of interest / independence has to be filed by the Provisional Liquidator with the
Tribunal.
(iii) Section 276(1) provides that the Tribunal may, on a reasonable cause being shown and for reasons to be
recorded in writing, remove the provisional liquidator or the Company Liquidator, as the case may be, as
liquidator of the company on ground, of conflict of interest or lack of independence during the term of
his appointment that would justify removal.
Thus, the liquidator has to be independent and should not have the conflict of interest. In the given case
Raman’s wife is already holding the post of Whole Time Director in the company, which can vitiate the
independence of the liquidator.
Further, Raman, has deliberately not filed such declaration before the Tribunal. Hence the Tribunal
after having such information, can remove him.

27
Question 2:
Sigma Limited is ordered to be wound-up compulsory by the Tribunal. The Commencement date of winding-up is
the 30th July 2019. Mr. Rajesh is the company’s liquidator. There were few onerous properties that Mr. Rajesh
was unaware of and could not be disclaimed by 29th August 2019. Meanwhile, Mr. Mahesh applied with Tribunal
to claim an interest in disclaim property. Referring to the provisions of the Companies Act, 2013, examine
(i) whether Mr. Rajesh can disclaim those properties after 29th August 2019 and
(ii) what the order can the Tribunal pass after hearing of Mr. Mahesh’s Application?
Answer:
(i) Disclaim of onerous property by Company Liquidator:
As per Section 333(1) of the Companies Act, 2013, where any part of the property of a company which is
being wound up, the Company Liquidator may, notwithstanding that he has endeavoured to sell or has taken
possession of the property or exercised any act of ownership in relation thereto or done anything in
pursuance of the contract, with the leave of the Tribunal and subject to the provisions of this section, by
writing signed by him, at any time within 12 months after the commencement of the winding up or such
extended period as may be allowed by the Tribunal, disclaim the property.
Where the Company Liquidator had not become aware of the existence of any such property within 1 month
from the commencement of the winding up, the power of disclaiming the property may be exercised at any
time within twelve months after he has become aware thereof or such extended period as may be allowed by
the Tribunal.
Therefore, accordingly, Mr. Rajesh, the Company’s liquidator, can disclaim those properties after 29th
August, 2019 at any time within till twelve months after he has become aware thereof
(ii) Order of Tribunal after hearing Mr. Mahesh’s application (SECTION 333(7): In terms of Section 331(6)
of the Companies Act, 2013 the Tribunal may, on an application by any person who either claims any interest
in any disclaimed property or is under any liability not discharged under this Act in respect of any disclaimed
property, and after hearing any such persons as it thinks fit, make an order for the –
• vesting of the property in, or
• the delivery of the property to any person entitled thereto or to whom it may seem just that the
property should be delivered by way of compensation for such liability as aforesaid,
• or a trustee for him, and
on such terms as the Tribunal considers just and proper, and on any such vesting order being made, the
property comprised therein shall vest accordingly in the person named therein in that behalf without any
conveyance or assignment for the purpose.
Question 3:
By an order dated 25th June, 2020, NCLT had ordered for winding up of Kamath Trading Limited. Consequently,
Official Liquidator took control for the assets and other records of the Company. During the winding up
proceedings, the Official Liquidator came across a transaction where some of the properties of the Company was
sold to a small Private Company. Mr. Nag, who was interested in that small Private Company happened to be the
brother of Director of Kamath Trading Limited. The sale of the said properties took place on 20th March, 2020
at a price which was Rs 58 Lakh less than the market price.
In the light of the facts given above, examine, with reference to relevant provisions of the Companies Act 2013,
what action the Tribunal can take in this regard?
[CA Final Nov 20]

28
Answer:
The official liquidator can invoke the provisions contained in Section 328 of the Companies Act, 2013 to recover
the sale of assets of the company. According to Section 328 of the Companies Act, 2013, 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 Tribunal may order as it may think fit and may declare such transaction invalid and restore the
position.
Since in the present case, the sale of some properties took place on 20 th March, 2020 and the company went into
liquidation on 25th June, 2020 i.e., within 6 months before the winding up of the company and the sale has
resulted in a loss of Rs. 58 lakhs to the company.
The official liquidator will be able to succeed in proving the case under Section 328 by way of fraudulent
preference as the property was sold to a small private company in which the brother of director of Kamath
Trading Limited was interested.
Hence, the transaction made will be regarded as invalid and restore the position of the Kamath Trading Limited
as if no transfer of property has been made.
Question 4:
Digital Era Limited (DEL), is a start-up Company, incorporated in the year 2017 under the provisions of the
Companies Act, 2013. The main object of the Company is to manufacture and market two wheelers adopting a
new technology of using hydrogen as a fuel to run the vehicle in lieu of petrol. Despite several experiments, the
technology of hydrogen fuelled engine for the two wheelers was not successful. As per the requirements of the
Companies Act, 2013, no business was commenced and no financial statements were filed with the Registrar of
Companies (RoC). Eventually the Board of Directors of the Company resolved to apply to the RoC for getting the
name of the Company struck-off from the Register of Companies.
The RoC, after satisfying that all the compliances specified under Section 248 of the Companies Act, 2013 have
been met by the Company and after publishing a notice for general public and also in the official gazette, the
name of the Company was struck-off from the Register of Companies w.e.f 7th January,2020.
Earlier in the year 2018, Mr. Amrit, had supplied certain spares to the Company for Rs 2,50,000 and despite his
several requests, the amount was not settled by the Company. In September 2020, he came to know from his
close aides that DEL has some assets available with them. Thereafter, with a view to recover his dues from the
Company, he approached you seeking your professional guidance. As a competent professional, advise Mr. Amrit,
the following, in the light of the provisions of the Companies Act, 2013:
(i) Whether the assets of the company shall be made available for the discharge of its liabilities even after the
date of the order removing the name of the company from the Register of Companies?
(ii) Can an aggrieved person file an appeal against the order of the RoC? If so, state the legal provisions in this
regard.
(iii) When and under what circumstances can the RoC restore the name of the company?
(iv) State the circumstances and the time frame within which the Tribunal can order the name of the company to
be restored to the Register of Companies?
(v) Can the name of a company registered under Section 8 of the Companies Act, 2013 be removed from the
Register of Companies?
[CA Final Nov 20]
Answer:
(i) Realisation of assets: According to section 248(6) of the Companies Act, 2013, the Registrar, before passing
an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the
realisation of all amount due to the company and for the payment or discharge of its liabilities and

29
obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from
the managing director, director or other persons in charge of the management of the company.
Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company
shall be made available for the payment or discharge of all its liabilities and obligations even after the date
of the order removing the name of the company from the register of companies.
Hence, the assets of the company (DEL) shall be made available for the discharge of its liabilities even after
the date of order of removing the name of the company from the register of companies.
(ii) Appeal: According to section 252(1) of the Companies Act, 2013, any person aggrieved by an order of the
Registrar, notifying a company as dissolved under section 248, may file an appeal to the Tribunal within a
period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that
the removal of the name of the company from the register of companies is not justified in view of the
absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of
the name of the company in the register of companies.
Before passing any order under this section, the Tribunal shall give a reasonable opportunity of making
representations and of being heard to the Registrar, the company and all the persons concerned.
(iii) Restoration of name of company: If the Registrar is satisfied, that the name of the company has been struck
off from the register of companies either inadvertently or on the basis of incorrect information furnished
by the company or its directors, which requires restoration in the register of companies, he may within a
period of three years from the date of passing of the order dissolving the company under section 248, file
an application before the Tribunal seeking restoration of name of such company. [second proviso to section
252(1)]
(iv) If a Company, or any member or creditor or workman thereof feels aggrieved by the Company having its
name struck off from the Register of Companies, the Tribunal on an application made by the Company,
Member, Creditor or Workmen before the expiry of twenty years from the publication in the Official
Gazette of the notice under sub section (5) of Section 248 may, if satisfied that the Company was, at the
time of its name being struck off, carrying on business or in operation or otherwise it is just that the name
of the Company be restored to the Register of Companies, order the name of the Company to be restored to
the Register of Companies, and the tribunal may, by the order, give such other directions and make such
provisions as deemed just for placing the Company and all other persons in the same position or nearly as may
be as if the name of the Company had not been struck off from the Register of Companies.
(v) Exemption to section 8 companies: A company registered under section 8 of the Companies Act, 2013 cannot
be removed from the register of companies. [Section 248(3)]

30
Chapter 9 - Companies Incorporated Outside India

Question 1:
Blue Star Inc. is a company incorporated in USA, four years back and has no established place of business in India.
The company has entered into following contracts:-
Particulars Contracts entered in the Material Contracts

ordinary course of business
F.Y. 2017-18 4 2
F.Y. 2018-19 6 1
F.Y. 2019-20 5 3
F.Y. 2020-21 3 4
Apart from above, one contract has been entered into with its manager. The company intended to offer its
securities in India. For that purpose, the secretary of the company, Mr. Berry Christan prepared the prospectus
along with annexing the required documents and got it registered. Expert’s consent was issued in a separate
statement, the reference of which was given in the prospectus.
Few application forms for securities of Blue Star Inc. were issued to prospective investors without the prospectus
out of which one such form was issued in connection with bona fide invitation to the person to enter into an
underwriting agreement with respect to securities of Blue Star Inc.
In the context of aforesaid case, please answer to the following questions:-
(i) Whether the expert’s statement can be considered to be included in the prospectus?
(ii) What copy of contracts would have been annexed with the prospectus by Mr. Berry?
(iii) Whether it is valid on the part of Blue Star Inc. for issuing few application forms without prospectus?
(RTP, May 22)
Answer:
(i) According to section 388(2) of the Companies Act, 2013, a statement shall be deemed to be included in a
prospectus, if it is contained in any report or memorandum appearing on the face thereof or by reference
incorporated therein or issued therewith.
In the given case, the reference of expert’s consent statement was given in the prospectus. Thus, the expert’s
statement shall be deemed to be included in a prospectus.
(ii) According to the Companies (Registration of Foreign Companies) Rules, 2014, the following documents shall be
annexed to the prospectus, inter-alia, namely:-
a) a copy of contracts for appointment of managing director or manager and in case of a contract not
reduced into writing, a memorandum giving full particulars thereof;
b) a copy of any other material contracts, not entered in the ordinary course of business, but entered
within preceding 2 years.
In the given case, during the preceding 2 years, i.e. F.Y. 2019 -20 and F.Y. 2020-21, respectively, the material
contracts entered into by Blue Star Inc. are 3 + 4 = 7 and apart from it, one contract has been entered into
with its manager. So, in total 8 copies of contracts would have been annexed with the prospectus by Mr. Berry.
(iii) According to section 387(3) of the Companies Act, 2013, no person shall issue to any person in India a form of
application for securities of such a company or intended company as is mentioned in section 387(1), unless the
form is issued with a prospectus which complies with the provisions of this Chapter (Chapter XXII) and such
issue does not contravene the provisions of section 388:
Exception: If it is shown that the form of application was issued in connection with a bona fide invitation to a
person to enter into an underwriting agreement with respect to securities.

31
Blue Star Inc. has, thus, violated provisions of section 387(3) by issuing few application forms without
prospectus. However, the application form issued in connection with bona fide invitation to the person to enter
into an underwriting agreement with respect to securities of Blue Star Inc. can be considered as valid as such
a case is covered by the exception to the said sub-section.
Question 2:
(i) Tokyo Ferro Alloys Limited, a company registered in Japan, started its operations in India by establishing a
Marketing Division in Mumbai on 1st April, 2021. Recently, the Company decided to issue certain securities in
India and therefore, is planning to circulate in India, a prospectus offering for subscription in securities of
the Company. Assuming that all the other formalities in this respect have been complied with, advise the
person in-charge of Indian operations regarding the other documents required to be annexed to the
prospectus in order to registered the same, referring to the relevant provisions of the Companies Act, 2013
and the rules made thereunder,
(ii) Vibav Pte, a company incorporated in Singapore is having a liaison office in Delhi. The Liaison office seeks your
advice regarding the documents to be filed with the Registrar along with the financial statement under the
Companies Act, 2013 read with the Companies (Registration of Foreign Companies) Rules, 2014
Answer:
(i) According to this Section 389 of the Companies Act, 2013 read with Rule 11 of the Companies (Registration of
Foreign Companies) Rules, 2014,
The Following documents shall be annexed to the prospectus, namely:

a. any consent to the issue of the prospectus required from any person as an expert;
b. a copy of contracts for appointment of managing director or manager and in case of a contract not
reduced into writing, a memorandum giving full particulars thereof;
c. a copy of any other material contracts, not entered in the ordinary course of business, but entered
within preceding 2 years;
d. A copy of underwriting agreement; and
e. A copy of power of attorney, if prospectus is signed through duly authorized agent of directors.
Accordingly, the person in charge of the Indian operations shall be advised in accordance with the above
provisions.
(ii) According to Rule 4 of the Foreign Companies (Registration of Foreign Companies) Rules, 2014, every foreign
company, shall, along with the financial statement required to be filed with the Registrar, attach thereto the
following documents; namely:-
1. Statement of related party transaction
2. Statement of repatriation of profits
3. Statement of transfer of funds (including dividends, if any).
The above statement shall include such other particulars as are prescribed in the Companies (Registration of
Foreign Companies) Rules, 2014.

32
Chapter 10 - Miscellaneous Chapters

Registered Valuer
Question 1: (This is same as question 2 of Chapter 10 of Main booklet. Please remove that question and
refer this one)
M/s KIL Limited, a listed company, proposed to acquire a plant for consideration other than cash from Mr. KK, a
director. The Managing Director of the Company identified Mr. JK a registered valuer under the provisions of the
Companies Act, 2013 for the purpose of valuation of the plant. Mr. KK acquired the plant 48 months back from a
partnership firm in which the spouse of Mr. JK is a partner. The Managing Director of the Company issued an order
appointing Mr. JK as a registered valuer. Examine and decide whether the decision of appointment and the mode of
appointment is valid under the provisions of the Companies Act, 2013?
[Nov 2019 - New]
Answer:
1. Restriction on acquiring assets for consideration other than cash: According to Section 192 (1) of the Companies
Act, 2013, 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.
2. Relaxation of restriction: The above restriction shall be relaxed i.e. the company may enter into an arrangement
involving non-cash transactions, if prior approval for such arrangement is accorded by a resolution of the
company in general meeting.
3. Contents of notice issued for approval of resolution: The notice for approval of the resolution in general meeting
issued by the company shall include the particulars of the arrangement. It shall also include the value of the
assets involved in such arrangement duly calculated by a registered valuer.
4. As per section 247(2) of the Companies Act, 2013, the valuer shall not undertake valuation of any assets in
which he has a direct or indirect interest or becomes so interested at any time during a period of 3 years prior
to his appointment as valuer or 3 years after the valuation of assets was conducted by him.
As per the facts of the question and the provisions of the Act, M/s KIL Limited acquired plant from consideration
other than cash from Mr. KK, a director. The Act has restricted such a non- cash transaction from a director. The
company can enter into such a transaction only if it obtains prior approval for the same in general meeting. It is
also required that notice for such meeting shall also include the value of the assets involved in such arrangement
duly calculated by a registered valuer.
As per further facts of the question, the Managing director of the company identified Mr. JK to be the registered
valuer. Mr. KK acquired the plant 48 months (i.e. 4 years) back from a partnership firm in which the spouse of Mr.
JK is a partner.
In the light of the facts of the question and provision of law, since more than 3 years (here 4 years) has passed
when Mr. KK acquired the asset from a partnership firm in which the spouse of Mr. JK is a partner, Mr. JK can be
validly appointed as a registered valuer.
However, according to section 247(1) of the Companies Act, 2013, where a valuation is required to be made in
respect of any property, it shall be valued by a person having such qualification and experience, registered as a

33
valuer and being a member of an organisation recognised, in such manner, on such terms and conditions as may be
prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company.
In view of above, the mode of appointment of Mr. JK is not valid as he is appointed by the Managing Director of
the company.
Question 2:
Referring to the provisions of the Companies Act, 2013 and the Companies (Registered Valuer and Valuation
Rules), 2017 answer the following:
(i) Mr. shah was convicted by Court in case of valuation report issued to X Limited for preferential allotment to
angel investors. The valuer made no due diligence, and methods adopted while valuing the company intended to
defraud its members. What will be the liability of Mr. Shah in the above-mentioned conviction?
(ii) Mr. Ravi, a Chartered Accountant, was convicted by the Court to civil offence dated 31st July, 2012 for 10
years. On 1st August, 2021, he wants to registered himself as a registered valuer. Can Mr. Ravi register
himself as a registered valuer?
Answer:
(i) Mr. Shah was convicted by Court for valuation report wherein he made no due diligence and conducted
valuation with the intention to defraud the members of the company. Hence, he shall be liable to the
following:
1) According to Section 247(4) of the Companies Act, 2013, if the valuer has contravened the provisions of
Section 247 with the intention to defraud the company or its members, he shall be punishable with
imprisonment for a term which may extend to 1 year and with fine which shall not be less than Rs. 1 Lakh
but which may extend to Rs. 5 lakhs. [Section 247(3)]
2) Where a valuer has been convicted as given in point above, he shall be liable to:
a) refund the remuneration received by him to the company; and
b) pay for damages to the company or to any other person for loss arising out of incorrect or
misleading statements of particulars made in his report.
(ii) According to Chapter II, Rule 3 of the Companies (Registered Valuer and Valuation Rules), 2017, a person
shall be eligible to be a registered valuer if he has not been convicted by any competent Court for an offence
punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and
a period of 5 years has not elapsed from the date of expiry of the sentence;
Provided that if a person has been convicted of any offence and sentenced in respect thereof to
imprisonment for a period of 7 years or more, he shall not be eligible to be registered.
As per the facts of the question and provision of law, since, Mr. Ravi has been convicted by the Court for 10
years (i.e. more than 7 years) imprisonment, he is not eligible to registered as a registered valuer
Question 3:
WNDS Ltd. appointed Mr. Rajil Veta, a CA, as its registered valuer for carrying on valuation of an immovable
property as per the provisions of the Companies Act, 2013. The valuation was made by Mr. Rajil on 3rd May, 2021,
for which he was paid a remuneration of Rs. 88,000 by WNDS Ltd.
It was later found that Mr. Rajil was levied penalty under the Income Tax Act, 1961, by the Commissioner
(Appeals) for furnishing incorrect information in one valuation report issued by him to one another company, as a
registered valuer, for which he had filed an appeal with the Appellate Tribunal (ITAT) and the ITAT had
confirmed the said penalty levied by the Commissioner (Appeals) and passed its order on 24th September, 2017.
In the context of aforesaid case-scenario, examine the given situation:-

34
(i) Mr. Rajil by accepting appointment as a registered valuer of WNDS Ltd., can be considered to have
contravened the law.
(ii) What could be the consequences for the same?
[MTP 1 May 22]
Answer:
(i) As per the Companies (Registered Valuers and Valuation) Rules, 2017, a person shall be eligible to be a
registered valuer if, inter-alia, he has not been levied a penalty under section 271J of Income-tax Act, 1961
and time limit for filing appeal before Commissioner of Income- tax (Appeals) or Income-tax Appellate
Tribunal, as the case may be has expired, or such penalty has been confirmed by Income-tax Appellate
Tribunal, and 5 years have not elapsed after levy of such penalty.
In the instant case, Mr. Rajil was levied a penalty by the Commissioner (Appeals) for furnishing incorrect
information in one report and a certificate issued by him to one another company, relating to valuation i.e.
under section 271J of the Income Tax Act, 1961.
In the appeal, the ITAT had confirmed the said penalty levied by the Commissioner (Appeals) and passed its
order on 20th November, 2018.
Here, 5 years from levy of such penalty had not elapsed and so, Mr. Rajil can be considered to have
contravened the law by accepting appointment as a registered valuer of WNDS Ltd. as he was not eligible to
be appointed as a registered valuer.
(ii) As per Section 247 of the Companies Act, if a valuer contravenes the provisions of this section or the rules
made thereunder, the valuer shall be liable to a penalty of fifty thousand rupees. However, if the valuer has
contravened such provisions with the intention to defraud the company or its members, he shall be
punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less
than Rs. 1 Lakh but which may extend to Rs 5 lakhs.
Further, where a valuer has been convicted as aforesaid, he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company or to any other person for loss arising out of incorrect or misleading
statements of particulars made in his report.
Here, since Mr. Rajil have contravened the provisions of the Companies (Registered Valuers and Valuation)
Rules, 2017 by accepting appointment as a registered valuer of WNDS Ltd. , therefore, following
consequences could arise on him:-
(i) Levy of penalty of Rs 50,000 and if he intended to defraud the company or its members, he shall be
punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be
less than Rs. 1 Lakh but which may extend to Rs 5 lakhs.
(ii) Refund of remuneration of Rs 88,000 received by him to the company.
(iii) Pay for damages to the company or to any other person for loss arose due to furnishing of incorrect or
misleading statements of particulars, if any, made in his report

35
Miscellaneous Provisions of the Companies Act, 2013

Question 1:
Rudraksha Ayurveda Ltd. is engaged in the business of producing and selling of ayurvedic medicines. Its purchase
department is headed by Jagriti. The purchase department of the company is responsible for purchasing various
ingredients which are used for manufacturing of the ayurvedic medicines. Some of the ingredients like Swarna
Bhasma, Rajat Bhasma involves heavy costs.
Jagriti was delegated purchasing power of ingredients up to one lakh rupees individually for one lot and ten lakh
rupees to committee. The committee consists of Head of Purchase department Head of Marketing department,
Head of Finance and Accounts department and the Managing Director.
Suppliers of the Swarna Bhasma and Rajat Bhasma raised their invoices and the amount due from the company was
somewhere between 18 to 20 lakhs. Jagriti always negotiates with the suppliers to inflate the price by 10% of the
actual price and pass on this 10% as commission to Jagriti. This practice was being in vogue since Jagriti was
promoted to the Head of Purchase department i.e., from January 2019. The bills of suppliers were sent to the
Finance and Accounts department only after recommendation for payment by Jagriti. Jagriti takes the commission
of 10% upfront before recommending the invoices for payment.
The management of the company was having some doubt on the integrity of Jagriti, so it entrusted the forensic
audit since January 2019 to till date of the invoices recommended by her.
The forensic auditor carried detailed investigation, market price prevailing of Swarna Bhasma and Rajat Bhasma on
different times. The auditor also sent a bogus supplier to Jagriti for supply of the Swarna Bhasma and Rajat
Bhasma. The bogus supplier was also told the same commission sharing story.
The forensic auditor submitted the report to the Managing Director and narrated that by inflating the invoices by
10% the company since January 2019 has incurred a total loss of Rs 25 lakh rupees. The turnover of the company
for the year ended on 31st March, 2021 was 50 crore rupees.
Based on the captioned facts, answer the following questions:
(i) What punishment for fraud has been provided in the Companies Act, 2013?
(ii) What would have been your answer, if the amount involved in the fraud done by Jagriti comes to Rs.9 lakh only.
(iii) If the fraud in question would have been of public interest, what would be the term of imprisonment?
[RTP May 22]
Answer:
(i) Section 447 of the Companies Act, 2013 provides that without prejudice to any liability including repayment of
any debt under this Act or any other law for the time being in force, any person who is found to be guilty of
fraud involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever
is lower shall be punishable with imprisonment for a term which shall not be less than six months, but which may
extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud,
but which may extend to three times the amount involved in the fraud.
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less
than three years.
In the given case:

The amount involved in fraud: Rs 25 lakh; 1% of Turnover of Rs 50 crores = Rs 50 lakhs; Whichever is less,
means Rs 25 lakh
Imprisonment - Minimum of 6 months Maximum of 10 years AND Fine: Minimum: Rs 25 lakh and maximum 3
times of fraud amount i.e., Rs 75 lakhs.
(ii) The second proviso to Section 447 provides that where the fraud involves an amount less than ten lakh rupees
or one per cent. Of the turnover of the company, whichever is lower, and does not involve public interest, any

36
person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or
with fine which may extend to fifty lakh rupees or with both.
If fraud amount is Rs 9 lakh; 1% of Turnover of Rs 50 crores = Rs 50 lakh; Whichever is lower i.e., Rs 9 lakh
Imprisonment: May extend to 5 years OR Fine: May extend to Rs 50 lakh OR with BOTH.
(iii) The first proviso to section 447 provides that where the fraud in question involves public interest, the term of
imprisonment shall not be less than three years.
In the given case, only the company has suffered loss and public interest has not been involved.
Question 2:
In the annual general meeting of XYZ Ltd. held on 28th May, 2020, while discussing on the matter of retirement and
reappointment of director Mr. X, allegations of fraud of Rs. 20 lakh in Bombay branch of the Company were marked against
him by some members. This resulted into disorder and confusion in the meeting. The Chairman declared 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, examine 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.
[CA Final Nov 20]
Answer:
Section 439 of the Companies Act, 2013 provides that offences under the Act shall be non- cognizable. As per this section:
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.
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 or a member 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 or a member of the company or of a person authorized by
the Central Government in this behalf.

37
National Company Law Tribunal and Appellate Tribunal

Question 1:
TIM Limited is undergoing Corporate Insolvency Resolution Process (CIRP) under the jurisdiction of National
company Law Tribunal (NCLT), Delhi. During the CIRP process, the Resolution Professional needs the assistance of
the District Collector due to non- cooperation from the directors of TIM Limited to take control of all the
property, books of account or other documents and has approached NCLT, Delhi, regarding this matter. In the
meanwhile, TIM Limited applied with High Court objecting the assistance from the District Collector.
Referring to the provisions of the Companies Act, 2013, examine whether the District Collector can deny the
request of NCLT, Delhi and further comment whether the High Court has the power to question the act of the
District Collector.
Answer:
Power to seek assistance of Chief Metropolitan Magistrate, etc., (Sec 429 of the Companies Act, 2013).
1) The Tribunal may, in any proceedings for winding up of a company under this Act or in any proceedings under
the Insolvency and Bankruptcy Code, 2016, in order to take into custody or under its control all property,
books of account or other documents, request, in writing, the Chief Metropolitan Magistrate, Chief Judicial
Magistrate or the District Collector within whose jurisdiction any such property, books of account or other
documents of such company under this Act or of corporate persons under the said Code, are situated or
found, to take possession thereof, and the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the
District Collector, as the case may be, shall, on such request being made to him:
a. take possession of such property, books of account or other documents; and
b. cause the same to be entrusted to the Tribunal or other persons authorised by it.
2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan
Magistrate, Chief Judicial Magistrate or the District Collector may take or cause to be taken such steps and
use or cause to be used such force as may, in his opinion, be necessary.
3) No act of Chief Metropolitan Magistrate, Chief Judicial Magistrate or the District Collector done in
pursuance of this section shall be called in question in any court or before any authority on any ground
whatsoever.
Referring to the above, the District Collector cannot deny the request of NCLT, Delhi and the High Court has no
power to question the act of the District Collector

38
Chapter 1 – Securities and Exchange Board of India,

1992 and SEBI LODR, 2015
Question 1:
The Securities and Exchange Board of India (SEBI), at present, is having a Chairman, 2 members from the Union
Ministry, 1 member from the Reserve Bank of India and 5 other members (nominated by the Government of
India). Out of the 5 other members, 4 members are whole-time members. Mr. A is one of those 4 whole-time
members, who is also a director of PQR Limited. A matter relating to PQR Limited came up for consideration in a
meeting of the Board (SEBI), in which Mr. A had some indirect pecuniary interest. Mr. A declared the fact of
interest at the meeting of the SEBI, but took part in the deliberation and decision of the Board in respect to
the matter. Out of the total 9 members (including the chairman), who were all present in the meeting, 5
members including the chairman and Mr. A (both are in strong support of the proposal), voted in favour of the
matter and the remaining 4 members voted against the matter. Referring to the provisions of the Securities and
Exchange Board of India Act, 1992, advise, how the matter will be decided. Will your answer differ in case Mr. A
was only a part-time member and not a whole-time member of the SEBI?
Answer:
According to Section 7(3) of the Securities and Exchange Board of India Act, 1992, all questions which come up
before any meeting of the Board shall be decided by majority vote of the members present and the Chairman or
the presiding member will have a second or casting vote, in the event of equality of votes.
Section 7A, provides that any member-

• who is a director of a company, and
• who as such director has any indirect pecuniary interest in any matter coming up for consideration at a
meeting of the Board,
shall disclose (as soon as possible after relevant circumstances have come to his knowledge) the nature of his
interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the member
shall not take any part in any deliberation or decision of the Board with respect to that matter.
As per facts of the question and provision of law, the matter ought to be decided excluding Mr. A (considering
Section 7A). Thus, the matter should have been decided by the remaining 8 members. Further the chairman has
a second or casting vote which he can exercise in case of equality of votes. Hence in the given case if there is
equality of votes the Chairman will cast his second vote and the matter will be decided accordingly.
In terms of section 7A, any member who falls within the purview of this section, cannot take part in any
deliberation or decision of the Board with respect to that matter. Hence, Mr. A shall not take part in the
proceedings related to PQR Limited, whether he is a part time member or whole time member.
Question 2:
You are the compliance officer appointed by the Board of Directors of PR Limited, a listed company. Advice,
referring to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 about the reporting
timelines requirements with Stock Exchanges:
(i) Change in the Capital structure of the listed company exceeding 2% of the total paid- up share capital-
(ii) Proposal for buyback of securities
(iii) Change in contents of the listed company website
(iv) Record Date or date of closure of transfer book.

39
Answer:
(i) According to Regulation 31(1) of the SEBI (Listing Obligations and Disclosure Requirements), a listed entity
(here, PR Limited) shall submit a statement showing holding of securities and shareholding pattern separately
for each class of securities, 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.
(ii) The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors at
least 2 working days in advance, excluding the date of the intimation and date of the meeting where the
proposal of buyback of securities is to be considered.
(iii) As per Regulation 46(3), the listed entity shall update any change in the content of its website within 2
working days from the date of such change in content.
(iv) Record Date or Date of Closure of Transfer Books [Regulation 42(2)]: The listed entity shall give notice in
advance of at least 7 working days (excluding the date of intimation and the record date) to stock
exchange(s) of record date (i.e., before record date) specifying the purpose of the record date.
Question 3: (LODR)
As at 01.04.2019, the composition of the Board of Directors of M/s. Apex Ltd, an unlisted, Company comprised
of 7 directors as under:
S. No Name Designation
01 Mr. X Executive Chairman (Executive and Non-Independent)
02 Mr. Y Managing Director and CEO (Executive and Non-Independent)
03 Mrs. Z Women Director (Non-Independent)
04 Mr. A Independent
05 Mr. B Independent
06 Mr. C Independent
07 Mr. D Independent
As at 01.04.2019, the constitution of the Audit Committee comprised of the following Directors:
Name Designation
Mr. Y Mr. X Chairman Member
Mrs. Z Member
Mr. Y Member
The majority of the members of the Audit Committee have the ability to read and understand the financial
statements but none of them have accounting or related financial management expertise. During January, 2020,
the company went for an Initial Public Issue (IPO) and got its shares listed on a recognized Stock Exchange.
Referring to SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015:
(i) State, how a qualified and an independent Audit Committee should be constituted?
(ii) Whether the present constitution of the Audit Committee is in order and whether it can continue post listing
of its securities in the Stock Exchange?
[CA Final Nov 20]
Answer:
(i) Audit Committee: According to Regulation 18 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015, every listed entity shall constitute a qualified and independent audit committee which
shall have:
a) Minimum three directors as members.
b) Two-thirds of the members of audit committee shall be independent directors.

40
c) All members of audit committee shall be financially literate and at least one member shall have
accounting or related financial management expertise.
(ii) As per the facts of the question, M/s Apex Limited, listed its securities in a recognised stock exchange in
the month of January, 2020. In order to comply with the requirements of SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015, the company requires to do the following:
a. The audit committee of M/s Apex Limited already has 3 directors as members, which is in compliance.
b. The audit committee has 3 directors which are Non-Independent. However, once the company gets
listed, at least 2 [3*(2/3)] directors shall be independent directors. Thus, they need to change the
composition of audit committee once the company gets listed on stock exchange.
c. In the existing audit committee though majority of the members have the ability to read and understand
the financial statement but none of them has accounting or related financial management expertise.
However, once the company gets listed it is required that all members of audit committee shall be
financially literate and at least one member shall have accounting or related financial management
expertise. Hence, it is required that the company should appoint at least one member in the audit
committee who shall have accounting or related financial management expertise.
In view of above, the existing audit committee cannot continue after listing of its securities.
According to Section 177(1) of the Companies Act, 2013 and rule 6 of the Companies (Meetings of Board and
its Powers) Rules, 2014, if the Company was required to have the audit committee, the existing audit
committee is also not in order as it does not have majority of the members as independent directors
Question 4:
Ava is holding the post of directorship in 8 listed entities as on January 2019. She received an offer of
directorship from another listed entity in April 2020. Ava is holding the position of Whole Time Director in a
listed entity. Besides this, she is also getting offer of independent directorship in some 6 listed entities. In one
of the listed entities, Ava asked for allotment of the stock option.
Ava, as an independent director has to devote much time in reading and understanding the agency items put
forwarded to her before the Board meeting. She expects to be rewarded with suitable compensation for the
same. Ava is a Chartered Accountant. In one of the listed entities, she was offered to hold the position of
chairperson in the meeting of the audit committee.
Based on the information and profile of Ava, answer the following questions as per the requirement of SEBI
(LODR) Regulations, 2015:
(i) Whether Ava can join the 9th listed entity as a director with effect from April, 2020?
(ii) Ava is holding the position of WTD in a listed entity. In how many more companies she can be an independent
director?
(iii) Whether Ava can be Chairperson in Audit Committee of Boards in a listed entity?
[MTP 1 May 22]
Answer:
(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 2019 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.

41
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.

42
The Foreign Exchange Management Act, 1999

Delete Question 1 to 12 of Main Booklet of QB and refer these questions
Question 1:
‘Printex Computer’ is a Singapore based company having several business units all over the world. It has a unit for
manufacturing computer printers with its Headquarters in Pune. It has a Branch in Dubai which is controlled by the
Headquarters in Pune. What would be the residential status under the FEMA, 1999 of printer units in Pune and that
of Dubai branch?
[ICAI Module]
Answer:
Printex Computer being a Singapore based company would be person resident outside India [(Section 2(w)].
Section 2 (u) defines ‘person’ under clause (viii) thereof, as person would include any agency, office or branch owned
or controlled by “such person”. The term such person appears to refer to a person who is included in clause (i) to
(vi). Accordingly, Printex unit in Pune, being a branch of a company would be a ‘person’.
Section 2(v) defines a person resident in India. Under clause (iii) thereof person resident in India would include an
office, branch or agency in India owned or controlled by a person resident outside India. Printex unit in Pune is
owned or controlled by a person resident outside India, and hence it, would be a ‘person resident in India.’
However, Dubai Branch though not owned is controlled by the Printer unit in Pune which is a person resident in
India. Hence, the Dubai Branch is a person resident in India.
Question 2:
Examine, with reference to the provisions of the Foreign Exchange Management Act, 1999, the residential status
of the branches mentioned below:
i. MKP Limited, an Indian company having its Registered Office at Mumbai, India established a branch at New
York U.S.A. on 1st April, 2004.
ii. WIP Ltd., a company incorporated and registered in London established a branch at Chandigarh in India on
1st April, 2004.
iii. WIP Ltd.'s Singapore branch which is controlled by its Chandigarh branch.
[May 2005]
Answer:
Section 2(u) defines a 'person'. As per this definition, the following shall be covered in the definition of a 'person':
a) A company
b) Any agency, office or branch owned by a 'person'.
Section 2(v) defines a 'person resident in India'. As per this definition, the following shall be covered in the
definition of a person resident in India:
a) Any person or body corporate registered or incorporated in India.
b) An office, branch or agency in India owned or controlled by a person resident outside India.
c) An office, branch or agency outside India owned or controlled by a person resident in India.
The answer to the given problem is as under:

i. MKP Limited as well as the New York branch of MKP Limited is a 'person'. Therefore, residential status under
FEMA shall be determined for each of them separately.

43
MKP Limited is incorporated in India. Therefore, it is a 'person resident in India'.

MKP Limited (a 'person resident in India') has established a branch outside India. Therefore, the New York
branch of MKP Limited falls under the clause 'an office, branch or agency outside India owned or controlled by
a person residential India' and so the New York branch is a 'Person resident in India'.
ii. WIP Ltd. as well as Chandigarh branch of WIP Ltd. is a 'person'. WIP Ltd. (a foreign company) does not fall
under any of the clauses of the definition of a 'person resident in India'. Therefore, WIP Ltd. is a person
resident outside India. The Chandigarh branch of WIP Ltd. is a 'Person resident in India' since it falls under
the clause an office, branch or agency in India owned or controlled by a person resident outside India'.
iii. The Singapore branch of WIP Ltd., though not owned, is controlled by the Chandigarh branch. The Singapore
branch is a ‘Person resident in India' since it falls under the clause 'an office, branch or agency outside India
owned or controlled by a person resident in India'.
Question 3:
Mr. Z had resided in India during the financial year 2019-2020. He left India on 1st August, 2020 for United States
for pursuing higher studies for three years. What would be his residential status during financial year 2020-2021
and during 2021-2022?
[ICAI Module]
Answer:
Mr. Z had resided in India during financial year 2019-2020 for more than 182 days. After that he has gone to USA
for higher studies. He has not gone out of or stayed outside India for or on taking up employment, or for carrying
a business or for any other purpose, in circumstances as would indicate his intention to stay outside India for an
uncertain period. Accordingly, he would be ‘person resident in India’ during the financial year 2020-2021.
RBI has however clarified in its AP circular no. 45 dated 8th December 2003, that students will be considered as
non-residents. This is because usually students start working there to take care of their stay and cost of studies.
For the financial year 2021-2022, he would not have been in India in the preceding financial year (2020-2021) for
a period exceeding 182 days. Accordingly, he would not be ‘person resident in India’ during the financial year 2021-
2022.
Question 4:
Miss Alia is an airhostess with the British Airways. She flies for 12 days in a month and thereafter takes a break
for 18 days. During the break, she is accommodated in ‘base’, which is normally the city where the Airline is
headquartered. However, for security considerations, she was based at Mumbai. During the financial year, she was
accommodated at Mumbai for more than 182 days. What would be her residential status under FEMA?
[ICAI Module]
Answer:
Miss Alia stayed in India at Mumbai ‘base’ for more than 182 days in the preceding financial year. She is however
employed in UK. She has not come to India for employment, business or circumstances which indicate her intention
to stay for uncertain period. Under section 2(v) (B), such persons are not considered as Indian residents even if
their stay exceeds 182 days in the preceding year. Thus, while Miss Alia may have stayed in India for more than
182 days, she cannot be considered to be a Person Resident in India.
If, however, she has been employed in Mumbai branch of British Airways, then she will be considered a Person
Resident in India.

44
Question 5:
Mr. X had resided in India during the financial year 2019-2020 for less than 182 days. He had come to India on
April 1, 2020 for carrying on business. He intends to leave the business on April 30, 2021 and leave India on June
30, 2021. Determine his residential status for the financial years 2020-2021 and 2021-2022 up to the date of his
departure?
[ICAI Module]
Answer:
Mr. X came to India for carrying on business. During FY 2019-20, he resided in India for less than 182 days. Since
he has not fulfilled condition of staying in India for more than 182 days, he would normally be considered PROI but
as Mr X has come for carrying on business in India, he falls under the second limb and will be considered as PRI
w.e.f. 1st April 2020. Mr. X will be considered as a person resident in India’ from 1st April 2020.
As regards, financial year 2021-2022, Mr. X would continue to be an Indian resident from 1st April 2021.
If he leaves India for the purpose of taking up employment or for business/vocation outside India, or for any other
purpose as would indicate his intention to stay outside India for an uncertain period, he would cease to be person
resident in India from the date of his departure.
It may be noted that even if Mr. X is a foreign citizen, if he has not left India for any these purposes, he would be
considered, ‘person resident in India’ during the financial year 2021-2022. Thus, it is the purpose of leaving India
which will decide his status from 1st July 2021.
Question 6:
Intentionally left blank!
Question 7:
Question 8:
Question 9:
During the financial year 2000-01, Mr. Aman visited India for the first time for a holiday. He stays in India for
more than 182 days and goes back on 1st January 2001. He again comes to India on August 1, 2001 for the purpose
of business. He intends to wind up his business and leave India on 31st December, 2002, and plans to take up
employment outside India. What would be his residential status during the financial years 2000-01, 2001-02 and
2002-03?
Answer:
The given problem can be answered as follows:
(a) FY 2000-01 Mr. Aman came to India for the first time in the financial year 2000-01. It means he did not
reside in India for anytime in the financial year 1999-2000. Moreover, the purpose of visit is for holiday and
therefore, for the financial year 2000-01 he is a Person resident outside India'.
(b) FY 2001-02 He resided in India for more than 182 days in the financial year 2000-01. Also, during the financial
year 2001-02 he has been in India for the purpose of business. Therefore, for the financial year 2001-02 he
is a Person resident in India".
(c) FY 2002-03 He resided in India for more than 182 days in the financial year 2001-02. However, he left India
for the purpose of taking up employment outside India. Therefore, he shall be a 'Person resident outside
India' with effect from 31st December 2002. For the period 1st April 2002 to 31st December 2002, he will
continue to be a PRI
Question 10: Intentionally Left Blank

45
Question 11:
The Reserve Bank of India receives a complaint that an authorized person has submitted incorrect statements and
information to the Reserve Bank of India in respect of receipt and utilization of foreign exchange. Explain the
powers of the Reserve Bank of India with regard to inspection of records of the above authorized person in respect
of the above complaint. Referring to the provisions of Foreign Exchange Management Act, 1999, state the duties
of the above authorized person.
[CA Final May 2010]
Answer:
Power of Reserve Bank to inspect authorized person (Section 12)
a. Inspection by Reserve Bank:
The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially
authorized in writing by the Reserve Bank in this behalf, of the business of any authorized personas may appear
to it to be necessary or expedient for the purpose of :
1. verifying the correctness of any statement, information or particulars furnished to Reserve Bank;
2. obtaining any information/particulars which such authorized person has failed to furnish on being called
upon to-do so;
3. Securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made
hereunder.
b. Duty to produce books and furnish information:
It shall be the duty of every authorized person to produce before the officer authorized by Reserve Bank to
make an inspection of the authorized person, such books, accounts and other documents in his custody or power
and to furnish any statement or information as the said officer may require within such time and in such manner
as the said officer may direct.
Question 12:
Suresh resided in India during the Financial Year 2013-14. He left India on 15th July, 2014 for Switzerland for
pursuing higher studies in Biotechnology for 2 years. What would be his residential status under the Foreign
Exchange Management Act, 1999 during the Financial Years 2014-15 and 2015-16?
Mr. Suresh requires every year USD 25,000 towards tuition fees and USD 30,000 for incidental and stay expenses
for studying abroad. Is it possible for Mr. Suresh to get the required Foreign Exchange and, if so, under what
conditions?
[ICAI Module]
Answer:
Residential Status: According to section 2(v) of the Foreign Exchange Management Act, 1999, ‘Person resident in
India’ means a person residing in India for more than 182 days during the course of preceding financial year [Section
2(v)(i)].
However, it does not include a person who has gone out of India or who stays outside India for employment outside
India or for any other purpose in such circumstances as would indicate his intention to stay outside India for an
uncertain period.
Generally, a student goes out of India for a certain period. In this case, Mr. Suresh who resided in India during the
financial year 2013-14 left on 15.7.2014 for Switzerland for pursuing higher studies in Biotechnology for 2 years,
he will be resident as he has gone to stay outside India for a ‘certain period’ RBI has however clarified in its AP
circular no. 45 dated 8th December 2003, that students will be considered as non-residents. This is because usually
students start working there to take care of their stay and cost of studies.

46
Mr. Suresh will not be resident during the Financial Year 2015-2016 as he did not stay in India during the relevant
previous financial year i.e., 2014-15.
Foreign Exchange for studies abroad: According to Para I of Schedule III to Foreign Exchange Management
(Current Account Transactions), Amendment Rule, 2015 dated 26th May , 2015, individuals can avail of foreign
exchange facility for the studies abroad within the limit of USD 2,50,000 only. Any additional remittance in excess
of the said limit shall require prior approval of the RBI.
Further proviso to Para I of Schedule III states that individual may be allowed remittances (without seeking prior
approval of the RBI) exceeding USD 2,50,000 based on the estimate received from the institution abroad. In this
case the foreign exchange required is only USD 55,000 per academic year and hence approval of RBI is not required.
Author’s Note – The answer of ICAI in determining the residential status is very unclear. The final answer is –
As Mr. Suresh is gone for higher studies, he will be considered PROI from the date he leaves India
Additional questions of FEMA:

Question 1:
Hill Limited, a Public Limited company in India, obtained an External Commercial Borrowing (‘ECB’) of USD 50,000
dated 30th June 2020, from a foreign lender. On 2nd July 2021, based on mutual consent of the parties, ECB is
fully converted into equity. The shares were issued to foreign lender at the par value and not at fair value. You
are required to provide the correct legal position regarding the valuation of shares and state the reporting
requirements by Hill Limited at the time of conversion of ECB into equity in the light of the provisions of the
Foreign Exchange Management Act, 1999 and the Rules made thereunder
Answer:
Legal position regarding valuation of shares
For conversion of ECB dues into equity, the exchange rate prevailing on the date of t he agreement between the
parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB
lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference
to the date of conversion only.
In view of the above, Hill Limited cannot convert ECB into shares at par value. It has to issue shares to the
borrower at fair value at the conversion date (i.e. based on applicable pricing guidelines prevailing on the date of
conversion).
Reporting requirements
Conversion of ECB, including those which are matured but unpaid, into equity is permitted subject to the following
conditions:
In case of full conversion of ECB into equity, the reporting to the Reserve Bank will be of the entire portion,
reported in Form FC-GPR. While reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB fully
converted to equity”. Subsequent filing of Form ECB 2 Return is not required.
Question 2:
Mr. Vivek, an Indian citizen, was working in Singapore for ten years. He is currently holding assets and bank
balances in Singapore and planning to settle down in India. Mr. Vivek seeks your advice as to whether he can hold,
own, transfer or invest in a foreign currency, foreign security or any immovable property situated outside India
as per the Foreign Exchange Management Act, 1999

47
Answer:
A per Section 6 of the FEMA, 1999, a person resident in India may hold, own, transfer or invest in foreign
currency, foreign security or any immovable property situated outside India if such currency, security or
property was acquired, held or owned by such person when he was resident outside India or inherited from a
person who was resident outside India.
Here, in the given case, Mr. Vivek, an Indian Citizen, who was working in Singapore for ten 10 years, currently
planning to settle in India wanted to hold, own, transfer or invest in foreign currency, foreign security or any
immovable property situated outside India.
Hence in the given case, Mr. Vivek, earned income through employment or business or vocation when he was
outside India. After his settlement in India, he may freely utilize all their eligible assets abroad as well as income
on such assets or sale proceeds thereof received after their return to India for making any payments or to make
any fresh investments abroad without approval of Reserve Bank.
Note (given in ICAI’s suggested answer):

The residential status of Mr. Vivek that he is a ‘person resident in India’ is not given in the question. The word
‘Indian citizen’ in the question may be read as ‘Indian Resident’.
Question 3:
Under the auspices of the Foreign Exchange Management Act, 1999, (the Act) examine whether the given
situations fall under "Current Account Transactions" or not as defined in the Act?
(i) Mr. S, a resident in India, imports machinery from a vendor in UK for installing in his factory.
(ii) An Indian resident, imports machinery from a vendor in US for installing in his factory on a credit period of 3
months.
(iii) An Indian resident, transfers US$ 1,000 to his NRI brother in New York as "gift". The funds are sent from
resident's Indian Bank account to the NRI brother's Bank account in New York.
[CA Final Nov 20]
Answer:
(i) An Indian resident imports machinery from a vendor in UK for installing in his factory. As per FEMA, it does
not alter (create) an asset in India for the UK vendor. It does not create any liability to a UK vendor for the
Indian importer. Once the payment is made, the Indian resident or the UK vendor neither owns nor owes
anything in the other country. Hence it is a Current Account Transaction.
(ii) An Indian resident imports machinery from a vendor in UK for installing in his factory on a credit period of 3
months. Under FEMA, it is a liability outside India. However, under definition of Current Account Transaction
[S. 2(j)(i)], “short-term banking and credit facilities in the ordinary course of business” are considered as a
Current Account Transaction. Hence import of machinery on credit terms is a Current Account Transaction.
(iii) An Indian resident transfers US$ 1,000 to his NRI brother in New York as “gift”. The funds are sent from
resident’s Indian bank account to the NRI brother’s bank account in New York. As per FEMA, once the gift is
accepted by the NRI, no one owns or owes anything to anyone in India or USA, the transaction is over. Hence
it is a Current Account Transaction

48
The Prevention of Money Laundering Act, 2002

Question 22: (Corrected answer to Q22 of PMLA of main booklet. Please refer this answer and ignore
it there)
Mr. JJ found guilty by the authorities under section 13 of the Prevention of Money Laundering Act, 2002 and
monetary penalty was C on Mr. JJ. But Mr. JJ could not pay the penalty amount. What is the mechanism to
recover the fine or monetary penalty proposed on any person by the authorities under section 13 or section 63
of the Prevention of Money Laundering Act, 2002?
Answer:
Recovery of fine or penalty [Section 69 of the Prevention of Money Laundering Act, 2013]
Where any fine or penalty imposed on any person under section 13 or section 63 is not paid within six months
from the day of imposition of fine or penalty, the Director or any other officer of the Adjudicating Authority
authorised by him in this behalf may proceed to recover the amount from the said person in the same manner
as prescribed in Schedule II of the Income-tax Act, 1961 for the recovery of arrears and he or any
officer authorised by him in this behalf shall have all the powers of the Tax Recovery Officer mentioned
in the said Schedule for the said purpose.
Additional Question of PMLA:

Question 1:
Mr. Ramesh Kulkarni conducts private tuition classes from his residence. It was alleged by the Enforcement
Directorate that Mr. Kulkarni has under reported his income and collected income in tax and used the
proceeds to purchase a house property in Marol, Mumbai. The ED officers through written orders
provisionally attached the properties on suspicion of it being derived from the proceeds of crime. Comment on
the validity of the provisional attachment on the order issued by the ED officers.
[RTP Nov 20]
Answer:
As per Section 5(5) of the Prevention of Money Laundering Act, 2002, the Director or any other officer who
provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such
attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.
As per Section 8(4) of the Prevention of Money Laundering Act, 2002, where the provisional order of
attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director
or any other officer authorised by him in this behalf shall forthwith take the possession of the property
attached under section 5 or frozen under sub-section (lA) of section 17, in such manner as may be prescribed.
Accordingly , the Director is to file a petition with the Adjudicating Authority within 30 days of attachment.
After order of attachment is confirmed, the Director take possession of the attached property
Question 2:
Mr. Joshi was in possession of some cash (money) obtained from the offence of money laundering. He bought
a property with that money and transferred such property to Mr. Keyur Pandya. Registration of the said
property in the name of Mr. Keyur was pending and the Adjudicating Authority under the Prevention of Money
Laundering Act, 2002, after issuing a show cause notice to Mr. Joshi and considering his reply, passed an order
for provisional attachment of the said property.
During the trail of the said case by Special Court, Mr. Keyur came to know of such attachment of the property
bought by him from Mr. Joshi and he made immediately claim for such property with the Special Court. In his
claim, he mentioned that he was not aware that the property which he bought was “proceeds of crime” as per

49
the provisions of the Prevention of Money Laundering Act, 2002, and he was totally unrelated to Mr. Joshi and
had bought the said property at fair market value by making payment through account payee cheques’. Further,
he mentioned in his claim, that due to such provisional attachment of the property, he has suffered a business
loss of Rs 5 lakhs.
In the given context of facts, answer the following questions:-
(i) Whether the Special Court can consider the claim of Mr. Keyur and direct for restoration of property to
him?
(ii) Whether Mr. Keyur could have made such claim at an earlier stage of the proceedings in respect of such
property under the Prevention of Money Laundering Act, 2002?
(iii) What is the option available with Mr. Keyur, if the Special Court rejects his claim?
(RTP May 22)
Answer:
(i) Under section 8(5) of the Prevention of Money Laundering Act, 2002, the Special Court, in such manner as
may be prescribed, may also direct the Central Government to restore such confiscated property or part
thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss
as a result of the offence of money laundering.
Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has
acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not
involved in the offence of money laundering.
Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the
purposes of restoration of such properties during the trial of the case in such manner as may be prescribed.
In the given case, it appears that Mr. Keyur in good faith had bought the property from Mr. Joshi without
knowing that the said property was “proceeds of crime” as per the provisions of the Prevention of Money
Laundering Act, 2002 and he also does not appear to be involved in the offence of money laundering because
as per his claim he was totally unrelated to Mr. Joshi and had bought the said property at fair market value
by making payment through account payee cheques’. Also, as per his claim, he has suffered a business loss
of Rs 5 lakhs due to such provisional attachment of the said property.
Thus, Special Court might consider the claim of Mr. Keyur during the trial of the case and direct Central
Government for restoration of property to him.
(ii) As per Section 8(2) of the Prevention of Money Laundering Act, 2002, the Adjudicating Authority (AA)
shall by an order, after—
a) considering the reply, if any, to the notice issued;
b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf;
and
c) taking into account all relevant materials placed on record before him,
record a finding whether all or any of the properties referred to in the notice issued, are involved in
money-laundering.
If the property is claimed by a person, other than a person to whom the notice had been issued, such
person shall also be given an opportunity of being heard to prove that the property is not involved in money-
laundering.
Thus, Mr. Keyur could have made such claim to the Adjudicating Authority at the time of its adjudication

50
in respect of such property and he would have been given an opportunity of being heard for the same by
the Adjudicating Authority.
(iii) As per Section 26 of the Prevention of Money Laundering Act, 2002, the Director or any person aggrieved
by an order made by the Adjudicating Authority under this Act, may prefer an appeal to the Appellate
Tribunal.
Thus, if the Special Court rejects the claim of Mr. Keyur, he can file an appeal with the Appellate Tribunal
against the order of provisional attachment made by the Adjudicating Authority.
Question 3:
The Special Court at Jaipur passed the final order that Mr. Rohit has committed the offences of money
laundering. The Special Court ordered to confiscate the property of Mr. Rohit. However, his friend Mr.
Mohit claimed that he is the beneficial owner of the property since he has given finance against the property
and have encumbrance on it. Based on the above scenario, referring to provisions of the Prevention of Money
Laundering Act, 2002, comment whether Mr. Mohit has encumbrance on the property after the final order
having been passed by the special court and conclude who has the vested interest in the property?
Answer:
According to Section 9 of the Prevention of Money Laundering Act, 2002, where an order of confiscation has
been made under Section 8(5) or Section 8(7) or Section 58B or Section 60(2A) in respect of any property
of a person, all the rights and title in such property shall vest absolutely in the Central Government free
from all encumbrances.
However, where the Special Court or the Adjudicating Authority, as the case may be, after giving an
opportunity of being heard to any other person interested in the property attached under this Chapter, or
seized or frozen, is of the opinion that any encumbrance on the property or lease-hold interest has been
created with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or
lease-hold interest to be void and thereupon the aforesaid property shall vest in the Central Government
free from such encumbrances or lease-hold interest.
Further, nothing in this section shall operate to discharge any person from any liability in respect of such
encumbrances, which may be enforced against such person by a suit for damages.
Thus, Mr. Mohit does not have encumbrance on the property after the final order by the Special Court and
the Central Government has vested interest in the property has been passed
Question 4:
A Police officer arrested Mr. Radhe without any warrants for the offence under the Prevention of Money
Laundering Act, 2002(PMLA). Is the police officer right in his action? When can the special court take
cognizance of any offence under the PMLA, 2002?
Answer:
Section 45 of the Prevention of Money Laundering Act, 2002, provides that the offences under the Act shall
be cognizable and non-bailable. As per Code of Criminal Procedure, cognizable offence is an offence in which
police officer may arrest without any warrants or orders of the court.
As per the facts of the question and provision of law, the police officer can validly arrest Mr. Radhe without
any warrants for the offence under the Prevention of Money Laundering Act, 2002, and shall investigate into

51
an offence if specifically authorised, by the Central Government by a general or special order, and, subject to
such conditions as may be prescribed.
Cognizance of offence: The Special Court cannot take cognizance of any offence punishable under section 4
of the Act, unless a complaint in writing is made by:-
The Director, or any officer of the Central Government or a State Government authorised in writing in this
behalf by the Central Government by a general or special order made in this behalf by that Government.
Question 5:
Mr. Ranjit, an officer, received an information in the morning of the 1 st December, 2021 that some assets
involved in money laundering have been stored in a certain premises and they are likely to be shifted to a
place out of the State by the evening of the same day. The matter being serious and needs urgent action,
Mr. Ranjit, in exercise of his powers, under the Prevention of Money Laundering Act, 2002, entered
immediately in that premises and arrested the In-charge of the premises without reasons recorded in
writing. You are being an expert, examine, whether Mr. Ranjit shall be liable for any punishment for such
action under the provisions of the Prevention of Money Laundering Act, 2002
Answer:
Punishment for Vexatious Search: As per the provisions of Section 62 of the Prevention of Money
Laundering Act, 2002, any Authority or officer exercising powers under this Act or any Rules made
thereunder, who, without reasons recorded in writing : -
a) Searches or causes to be searched any building or place; or
b) Detains or searches or arrests any person,
shall for every such offence be liable on conviction for imprisonment for a term which may extend to two
years or fine which may extend to fifty thousand rupees or both.
Mr. Ranjit has acted in contravention of the said provisions and hence he may be liable on conviction for
imprisonment for a term which may extend to two years or fine which may extend to fifty thousand rupees or
both.
Question 6:
The Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (the Act) made an order
under Section 8(3), confirming the provisional attachment of property made under Section 5(1) of the said
Act. Mr. Rana, owner of the attached property, aggrieved by the order, wanted to make an appeal to the
Appellate Tribunal. However, before making an appeal Mr. Rana is adjudicated as an insolvent. Explain, with
reference to the relevant provisions of the said Act, whether appeal could be made to Appellate Tribunal in
the present case?
[CA Final Nov 20]
Answer:
Continuation of proceedings in the event of death or insolvency [Section 72 of PMLA, 2002]
Where-
a) any property of a person has been attached under section 8 and no appeal against the order attaching
such property has been preferred; or
b) any appeal has been preferred to the Appellate Tribunal, and-
(i) in a case referred to in clause (a), such person dies or is adjudicated an insolvent before preferring
an appeal to the Appellate Tribunal; or
(ii) in a case referred to in clause (b), such person dies or is adjudicated an insolvent during the
pendency of the appeal,

52
then, it shall be lawful for the legal representatives of such person or the official assignee or the
official receiver, as the case may be, to prefer an appeal to the Appellate Tribunal or as the case may be,
to continue the appeal before the Appellate Tribunal, in place of such person and the provisions of
section 26 shall, so far as may be, apply, or continue to apply, to such appeal.
Hence, in the instant case, the appeal can be made to the Appellate Tribunal by the official assignee or
the official receiver of Mr. Rana.
Question 7:
Three Companies belong to Gopal group based out of Bengaluru. Each of the three companies are into
businesses as under:
Company A Chit Funds
Company B Housing Finance
Company C Payment System Operator
In the light of the relevant provisions of the Prevention of Money Laundering Act, 2002, examine the
following
(i) Who is a "beneficial owner" under the Prevention of Money Laundering Act, 2002?
(ii) Whether each of the above businesses fall within the definition of "Financial Institution"?
(iii) What are the obligations of a financial institution regarding maintenance of records?
(iv) Whether a Civil Court have jurisdiction to entertain any suit or proceeding in respect of any matter
which the Appellate Tribunal is empowered by or under this Act?
(v) Can an injunction be granted by any Court or other Authority in respect of any action taken or to be
taken in pursuance of any power conferred on the Appellate Tribunal?
Answer:
(i) “Beneficial owner” means an individual who ultimately owns or controls a client of a reporting entity or
the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate
effective control over a juridical person. As in the given case, Company A, Company B, and Company C
belongs to Gopal Group, who exercises ultimate control over them, therefore, Gopal Group is the
Beneficial owner.
(ii) “Financial institution” means a financial institution as defined in clause (c) of section 45 I of the Reserve
Bank of India Act, 1934 and includes a chit fund company, a housing finance institution, an authorised
person, a payment system operator, a non- banking financial company and the Department of Posts in the
Government of India.
In the instant case, Company A, Company B and Company C falls within the definition of “Financial
Institution” conducting the business of chit fund, housing finance institution, payment system operator
respectively.
(iii) Section 12 of the Prevention of Money Laundering Act, 2002 provides for the obligation of Banking
Companies, Financial Institutions and Intermediaries i.e. the reporting entity to maintain records of
transactions.
Maintenance of records: According to sub-section 12 (1), every reporting entity shall–

• maintain a record of all transactions, including information relating to transactions (mentioned in
next point) in such manner as to enable it to reconstruct individual transactions;

53
• furnish to the Director information relating to such transactions, whether attempted or

executed, the nature and of value;
• maintain record of documents evidencing identity of its clients and beneficial owners as well as
account files and business correspondence relating to its clients.
(iv) Civil court not to have jurisdiction [Section 41]

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which
the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act to
determine.
(v) Injunction: No injunction shall be granted by any court or other authority in respect of any action taken
or to be taken in pursuance of any power conferred by or under this Act on the Appellant Tribunal.
Question 8:
Mr. 'Bemaan' purchased a flat out of the proceeds obtained by illegal transactions of business. The flat was
attached by the Director of Enforcement Directorate after complying with the procedures under Section 5
of the Prevention of Money Laundering Act, 2002. Mr. 'Bemaan' got a stay from the High Court for any
proceedings under the said Act. The stay was subsequently vacated.
a. State the relevant provisions of the PMLA, 2002 for computing the period of provisional attachment
including extension, if any.
b. Whether Mr. 'Beta', son of Mr. ''Bemaan'' can occupy the flat during the period of provisional
attachment?
[MTP 1 May 22]
Answer:
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 authorised 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 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.

54
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.
Question 9:
Mr. Ram with malafide intention, to take revenge with his rival competitor, gives false information as regards
to conduct of his business in illegal manner. So search warrant was issued by the concerned authority against
him. Examine the legal position of Mr. Ram with respect to the act committed by him in the given situation in
the light of Prevention of Money Laundering Act, 2002
[MTP 1 May 22]
Answer:
As per section 63 of the Prevention of Money Laundering Act, 2002, any person willfully and maliciously
giving false information and so causing an arrest or a search to be made under this Act, shall on conviction be
liable for imprisonment for a term which may extend to two years or with fine which may extend to fifty
thousand rupees or both.
Accordingly, Mr. Ram, here in the said instance, wilfully gives false information in order to take revenge,
shall be liable for imprisonment for a term which may extend to two years or with fine extending to Rs
50,000 or both.

55
Foreign Contributions (Regulations) Act, 2010

Question 1:
Shaksharta Foundation, a trust, is running a renowned private school named, MK Triwam, engaged in the
activities of providing education from primary to higher secondary.
For the financial year ended March 2020, it received an interest of Rs 35 lakhs in its FCRA account from which
it withdrew Rs 5 lakhs for conducting an open workshop with participation of schools at the National level, for
development of the children and the teachers in the school in tune with the today’s education system. The
income earned through such workshop was Rs 12 lakhs.
Recently, the school collected its annual fees from the students, totaling to Rs 5 crore which included fees
from foreign students amounting to Rs 40 lakhs.
For a training programme to be held, Shaksharta Foundation received sponsorship money of Rs 10 lakhs from
Krimerse (P) Ltd. in which 60% of the shares are held by Housder Inc., a USA company, within the limits
specified under FEMA. Such money was deposited by it in its FCRA account.
In the context of aforesaid scenario, answer to the following questions:-
(i) Whether the amount received from Krimerse (P) Ltd. was to be deposited in FCRA account by
Shaksharta Foundation?
(ii) Identify, in the given case, the foreign contributions received by Shaksharta Foundation.
[RTP May 22]
Answer:
Part (i)
According to section 2(1)(j) of the Foreign Contribution (Regulation) Act, 2010, Foreign Source, inter-alia,
includes, a company within the meaning of the Companies Act, 1956 (presently, the Companies Act, 2013) and
more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or
more of the following, namely:-
a) the Government of a foreign country or territory;
b) the citizens of a foreign country or territory;
c) corporations incorporated in a foreign country or territory;
d) trusts, societies or other associations of individuals (whether incorporated or not), formed or
registered in a foreign country or territory;
e) Foreign company;
Provided that where the nominal value of share capital is within the limits specified for foreign investment
under the Foreign Exchange Management Act, 1999, or the rules or regulations made there under, then,
notwithstanding the nominal value of share capital of a company being more than one-half of such value at the
time of making the contribution, such company shall not be a foreign source.
According to section 17 of the Foreign Contribution (Regulation) Act, 2010, every person who has been granted
certificate or prior permission under section 12 shall receive foreign contribution only in an account designated
as "FCRA Account" by the bank.
No funds other than foreign contribution shall be received or deposited in any such account.
Here it is given that, 60% of the shares of Krimerse (P) Ltd. are held by Housder Inc., a USA company, within
the limits specified under FEMA. So, even though more than 50% shares held by a foreign company, Krimerse
(P) Ltd. cannot be considered as a foreign source as per the proviso of Section 2(1)(j)(vi).
Any donation, delivery or transfer received from a ‘foreign source’ whether in rupees or in foreign currency is
construed as ‘foreign contribution’ under FCRA, 2010, and as per Section 17, only foreign contribution has to be
deposited in FCRA account.

56
Thus, the amount received from Krimerse (P) Ltd. was not to be deposited in FCRA account by Shaksharta
Foundation as it was not a foreign contribution.
Part (ii)
The following items can be considered as the foreign contributions received by Shaksharta Foundation:-
Sr. No. Particulars Amount (Rs) Explanation

As per Explanation 2 to Section 2(1)(h) of the FCRA, 2010,
- The interest accrued on the foreign contribution deposited in any
Interest received
1. 35 lakhs bank referred to in section 17(1), or
in FCRA account
- any other income derived from the foreign contribution or
interest thereon.
Shall also be deemed to be foreign contribution within the meaning
of this clause.
Income earned
2. 12 lakhs
from workshop Here, workshop was conducted from the amount of interest earned
in the FCRA account and so it constitutes to other income derived
from it.
Notes:-
1) Fees collected from foreign students of Rs 40 lakhs is not be considered as foreign contribution as per
Explanation 3 to Section 2(1)(h) of the FCRA, 2010.
2) Sponsorship money of Rs 10 lakhs received from Krimerse (P) Ltd. would also be not considered as
foreign contribution as per Section 2(1)(h) read with proviso of Section 2(1)(j)(vi), as explained above.
Question 2:
Mr. Rajesh seeks your expert advice for reporting compliance in respect of receiving the following foreign
contribution/gift article in India referring to the provision of the Foreign Contribution (Regulation) Act,
2010.
Foreign Contribution from his brother who stays in Singapore to the extent of INR 12,20,000 in a financial
year.
A TV set of USB 1300 gifted to him by his friend who stays in Japan for his personal use. The market value
of the said gifted article in India on the date of gift is 1,00,000.
Answer:
(i) As per Section 4(e) of the FCRA, 2010 and Rule 6 of FCRR, 2011, even the persons prohibited under
section 3, i.e., persons not permitted to accept foreign contribution, are allowed to accept foreign
contribution from their relatives. However, in terms of Rule 6 of FCRR, 2011, any person receiving foreign
contribution in excess of one lakh rupees or equivalent thereto in a financial year from any of his relatives
shall inform the Central Government regarding the details of the foreign contribution received by him in
electronic form in Form FC-1 within thirty days from the date of receipt of such contribution.
Since the amount of contribution is Rs. 12,20,000, Mr. Rajesh has to inform the Central Government
regarding the details of the foreign contribution received by him (from his brother who stays in
Singapore) in electronic form in Form FC-1 within thirty days from the date of receipt of such
contribution.
(ii) As per Section 6A of the Foreign Contribution (Regulation) Act, 2010, “foreign contribution” as defined in
Section 2(1)(h) means the donation, delivery or transfer made by any foreign source, of any article, not

57
being an article given to a person as a gift for his personal use, if the market value, in India, of such
article, on the date of such gift, is not more than such sum as may be specified from time to time, by the
Central Government by the rules made by it in this behalf. (This sum has been specified as Rupees One
lakh/-currently).
In the given situation, Mr. Rajesh received the TV set (market value `1,00,000) as gift from his friend,
who stays in Japan. Since, the value of the TV set is within the prescribed limit, hence, Mr. Rajesh is
permitted to receive the article.
Therefore, the TV set received by Mr. Rajesh shall not be deemed to be the foreign contribution and no
reporting compliance shall be attracted in this case
Question 3:
Mr. Soumak is an editor of a daily business news on BNN TV. He received a salary of US $ 180,000 from Mr.
Bob. Mr. Bob is a US citizen resident in India and operates BNN TV business operations in India. Mr. Bob
received such payment i.e., salary given to Mr. Soumak from his parent Company BNN Inc. of USA. Examine
under the provisions of the Foreign Contribution (Regulation) Act, 2010, whether receipt of salary by Mr.
Soumak is prohibited
[CA Final Nov 20]
Answer:
According to section 3 of the Foreign Contribution (Regulation) Act, 2010, no foreign contribution shall be
accepted by any editor. Also, as per section 4, nothing contained in section 3 shall apply to the acceptance, by
any person specified in that section, of any foreign contribution where such contribution is accepted by him,
subject to the provisions of section 10, by way of salary, wages or other remuneration due to him or to any
group of persons working under him, from any foreign source or by way of payment in the ordinary course of
business transacted in India by such foreign source.
Hence, taking into account the above provisions, receipt of salary by Mr. Soumak from parent company BNN
Inc. of USA is not prohibited.
Question 4: (Solve once you are done with FEMA)

Mr. Ashok, a citizen of India, has been working in a company in Chicago, USA, since last 8 years and had been
settled there with his family.
However, the said company opened its branch in India last year and Mr. Ashok has been deputed there for a
duration of 26 months from 25th April, 2020.
He remitted an amount of $ 2,80,000 on 20th December, 2021 to his family in USA. The details of salary
earned by him from 25th April, 2020 to 30th November, 2021 are as follows:-
Particulars $*
Gross Salary 3,50,000
Contribution to Provident Fund 40,000
TDS as per Income Tax Act, 1961 40,000
* Amount is converted to USD from INR.
You being an expert in Foreign Exchange Matters, kindly advise on the below issues:-
(i) How much excess amount, if any, has been remitted by Mr. Ashok to his family in USA?
(ii) Whether the company in USA in which Mr. Ashok was deputed, can be treated as MNC under FCRA, 2010?
[MTP 1 May 22]

58
Answer:
Part (i)
According to section 2(v) of the Foreign Exchange Management Act, 1999, ‘Person resident in India’ means a
person residing in India for more than 182 days during the course of preceding financial year but does not
include a person who has come to or stays in India, for or on taking up employment in India.
As per Schedule III to the Foreign Exchange Management (Current Account Transactions) Rules, 2000,
For a person who is resident but not permanently resident in India and-
a) is a citizen of a foreign State other than Pakistan; or
b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary
or joint venture in India of such foreign company,
may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other
deductions).
Explanation: For the purpose of this item, a person resident in India on account of his employment or
deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the
duration of which does not exceed three years, is a resident but not permanently resident.
Fact of the case & Conclusion: Mr. Ashok is a citizen of India working in a company in USA and has been
deputed to its branch in India for a duration of 26 months i.e. for not more than 3 years and Mr. Ashok’s stay
in F.Y. 2020-21 was more than 182 days in India, so, he would be considered as a resident but not permanently
resident in India.
Accordingly, he was allowed to remit an amount upto his net salary i.e. $ 2,70,000 ($ 3,50,000 - $ 40,000 - $
40,000) while he has remitted an amount of $ 2,80,000 to his family in USA. Thus, the excess amount
remitted by him is $ 10,000 ($ 2,80,000 - $ 2,70,000).
Part (ii)
As per Explanation to Section 2(1)(g) of the FCRA, 2010,— a corporation incorporated in a foreign country or
territory shall be deemed to be a multi-national corporation if such corporation,—
a. has a subsidiary or a branch or a place of business in two or more countries or territories; or
b. carries on business, or otherwise operates, in two or more countries or territories;
Facts: Mr. Ashok has been working in a company in Chicago, USA since last 8 years and the said company
opened its branch in India last year.
So, it appears that the said company had been incorporated in USA and operating in USA since a long time and
has also started its operations in India by opening a branch in India.
Thus, the company in USA in which Mr. Ashok is deputed, can be treated as MNC under FCRA, 2010 as it is
carrying on business or operating in two countries i.e. USA and India, respectively.

59
The Arbitration and Conciliation Act, 1996

Question 1:
In the case of Mr. Lal Vs QPR Limited, the Arbitrator in his Arbitration Award asked Mr. Lal to pay INR 10
crore towards his dues to QPR Limited, who is not a financial creditor. However, the financial creditors of Mr.
Lal wants to challenge the arbitration award given by the arbitrator. In the light of the provisions of the
Arbitration and Conciliation Act, 1996 answer the following:
a. Whether the financial creditors of Mr. Lal will be successful in challenging the Arbitration award?
b. What are the timelines for challenging the Arbitration award?
c. Is the automatic stay on the enforcement of Arbitration award, shall be operated, if challenged?
Answer:
(i) Challenging of Arbitral award: According to the Arbitration and Conciliation Act, 1996, only a party to the
arbitration agreement can challenge an arbitral award. A person who is not a party to the arbitration
cannot raise a challenge against an arbitral award.
Since in the question, financial creditors of Mr. Lal, who wants to challenge the arbitration award, are not
party to the arbitration (in the case of Mr. Lal vs. QPR Limited), hence, cannot raise a challenge against an
arbitral award.
(ii) Timeline – Timeline refers to by when a challenge against arbitral award can be raised. The law notes an
initial time period of three months from when the award is received by party, with a maximum extension of
thirty more days by the Court.
(iii) Automatic stay –According to the Act, there is no automatic stay on the enforcement. A party has to
specifically request for a stay, and the court at the time of granting stay can impose conditions. [Section
36(2)&(3)]
Thus, there will not be automatic stay on the enforcement of Arbitration award, if it is challenged.
Question 2:
Shyam started a fresh juice shop and contacted Naresh for supply of fruits and vegetables. Most of the
communication between them happened over email. On the email, they decided the payment, terms and other
conditions of service. For initial 5 months, Shyam was regular in making payment to Naresh for the fruits
bought, but later on stopped making payments. Naresh filed a suit against Shyam in a Magisterial Court but
Shyam contended that the matter should be settled through Arbitration. Referring to provision of the
Arbitration and Conciliation Act, 1996, state, whether the contention of Shyam is correct?
[CA Final Nov 20]
Answer:
Arbitration is a private method of dispute resolution. Under the Indian law every individual has the right to
approach the court for resolution of his/her dispute that may involve infringement of right(s) vested upon that
individual. This protection is so stringent that it cannot be contracted away. The Indian Contract Act, 1872
however notes an exception in favour of arbitration.
Arbitration cannot happen without the parties consenting to submit their dispute to arbitration. Consent of
the parties therefore is the most fundamental requirement for an arbitration to happen. An arbitration
agreement records the consent of the parties that in the event of a dispute between them that matter
instead of being taken to court, will be submitted for resolution to arbitration. Arbitration agreement
therefore is necessary to start arbitration.

60
In the instant case, there is no express arbitration agreement between the parties (Naresh &Shyam) as
regards to reference of disputes for arbitration. Further, Naresh filed a suit against Shyam in the Magisterial
court but Shyam contended that the matter of dispute should be settled through Arbitration. Here, since no
express arbitration agreement was made between the parties, Shyam contention to submit the dispute for
arbitration, is not correct. Even the court cannot refer the parties to arbitration unless there's a written
consent by parties by way of joint application or memo or an affidavit.
Question 3:
XYZ Company Ltd. entered into an agreement with PQR Company Ltd. for the supply of terrain tyres to PQR
Company Ltd for a period of 5 years. The agreement had referred to the terms and conditions contained in the
Indian Tyre Manufacturing Association for sale and purchase of manufacturing tyres. Clause 14 of the terms
provided that if any dispute arises between the parties, the same shall be mutually decided by the parties or
shall be referred for arbitration if the parties so determine. You are required to state whether the parties
under the agreement will be able to refer the dispute, if any, to the arbitration considering the given scenario
and the provisions of the Arbitration and Conciliation Act, 1996.
[MTP 1 May 22]
Answer:
The provisions of the Arbitration and Conciliation Act, 1996 outlines the requirements of a valid arbitration
agreement. One of such requirements is clarity of consent i.e. the intention to go to arbitration must be clear
in other words there must be consensus ad idem. Utilization of vague words cannot be considered as adequate.
Further the Arbitration and Conciliation Act, 1996 envisages the possibility of an arbitration agreement
coming into being through incorporation i.e. arbitration agreement through reference. In other words, parties
to an agreement could agree to arbitrate by referring to another contract , containing an arbitration
agreement.
Facts and conclusion: In the given scenario, it was an arbitration agreement through reference, but the terms
and conditions of the said agreement were not clear and vague and therefore the said agreement is not a valid
arbitration agreement as the italicized portion in the agreement clearly highlights the need for further
agreement between the parties.
Accordingly in the given instance, the parties will not be able to refer the disputes, if any, to arbitration since
the terms and conditions of arbitration agreement through reference are vague and not clear and thus the
arbitration agreement is not valid in law.
Question 4:
A dispute has been aroused between the management of Paras Furnishing Ltd. and its labours. The dispute was
to provide the basic facilities at the workplace, air-conditioning environment and hours of work. The management
of the company sent an invitation to leader of the labour union to conciliate on the issues raised by the labours.
The union leader accepted the invitation.
Examine the give situation and answer the following:
(i) When the conciliation proceeding shall be said to be commenced in the given case?
(ii) How the settlement agreement will be arrived at by the conciliators?
[RTP May 22]
Answer:
(i) Section 62 of the Arbitration and Conciliation Act, 1996 provides that -
1) The party initiating conciliation shall send to the other party a written invitation to conciliate under this
Part, briefly identifying the subject of the dispute.
2) Conciliation proceedings, shall commence when the other party accepts in writing the invitation to
conciliate.

61
3) If the other party rejects the invitation, there will be no conciliation proceedings.
In the given case the management of the company sent an invitation which has been accepted by the union
leader, so the commencement of conciliation proceeding took place on acceptance of an invitation.
(ii) Following is the manner to arrive at the settlement agreement:

a. Terms of Settlement: When it appears to the conciliator that a settlement is possible, he should identify
possible terms of settlement and submit them to the parties for their observations and suggestions. The
parties may also make suggestions as to contents of the agreement.
b. Agreement – if the parties reach a settlement, then it has to be written down as an agreement. This
agreement is known as settlement agreement (at times it is also referred to as Memorandum of
Conciliation). It can be made by the parties or by the Conciliator on behalf of the parties. However the
conciliator is required to authenticate the agreement without which the agreement would have no legal
sanctity.
c. Enforcement - the settlement agreement has the same status as that of an arbitral award. It is final
and binding on the parties and persons claiming under them.

62
Insolvency and Bankruptcy Code, 2016

Question 1 (Important Question):
Mr. Tushar Maheshwari submitted his candidature for being a resolution applicant of Valt Chambers Ltd. in
pursuant to an invitation made for the names of prospective resolution applicants under section 25(2)(h) of the
Insolvency and Bankruptcy Code, 2016, by Mr. Manish Dave, the resolution professional.
Mr. Tushar is a spouse of sister of Mr. Amit Dhariya who is going to be involved in the management of Valt
Chambers Ltd. as a director at the time of implementation of the resolution plan and Mr. Tushar, being a person
resident in India was convicted under the provisions of FEMA Act, 1999, for an act specified under the Twelfth
Schedule of the IBC, 2016, with imprisonment for 2.5 years and only 1 year & 3 months has expired from the
date of his release of imprisonment, for not paying penalty arose due to bringing into India from USA during his
temporary visit, Rs 2,00,00,000 worth Indian currency notes.
In the light of the given facts, examine whether Mr. Tushar is eligible to be a resolution applicant?
(RTP May 22)
Answer:
As per clause (d) of Section 29A of the Insolvency and Bankruptcy Code, 2016, a person shall not be eligible
to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person
has been convicted for an offence punishable with imprisonment for two years or more under the FEMA Act,
1999, specified under the Twelfth Schedule.
However, this clause is not applicable to person who is a connected person referred to in clause (iii) of
Explanation I.
As per Explanation I — the expression "connected person" means—

(i) any person who is the promoter or in the management or control of the resolution applicant;
or
(ii) any person who shall be the promoter or in management or control of the business of the
corporate debtor during the implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company or related party of a person
referred to in clauses (i) and (ii):
Further, as per section 5(24A) of the Code, "relative", with reference to any person, inter-alia, includes
son, daughter, sister or brother and their spouses, respectively.
Here in the given case, Mr. Tushar being sister’s spouse will be considered as a related party to Mr. Amit as
per section 5(24A) of the Code and consequently will be considered as a ‘connected person’ to Mr. Amit who
is going to be involved in the management of Valt Chambers Ltd. as a director at the time of implementation
of the resolution plan.
Accordingly, the provisions of clause (d) of Section 29A of the Insolvency and Bankruptcy Code, 2016, will
not be applicable to Mr. Tushar as the case is covered by proviso to the said clause.
Thus, Mr. Tushar will be eligible to be a resolution applicant of Valt Chambers Ltd. in view of the facts given
in the present case.
Question 2:
Mr. Kush, an operational creditor, filed an application with the Adjudicating Authority (NCLT, Delhi) to initiate
the Corporate Insolvency Resolution Process (CIRP) against M Limited, and the application was accepted. On
10th July 2021, NCLT Delhi appointed Mr. Ajay to act as an Interim Resolution Professional of M Limited.
After the appointment, Mr. Ajay issued the public announcement on 12th July 2021, of the initiation of CIRP
process and called for the submission of claims. On 20th July 2021, the Committee of Creditors was
constituted by Mr. Ajay. Thereafter, Mr. Kush wants to withdraw his application under Section 12A of the

63
Insolvency and Bankruptcy Code, 2016. However, Mr. Ajay denied filing a withdrawal application stating that
the Committee of Creditors has already been constituted.
Referring to the provisions of the Insolvency and Bankruptcy Code, 2016, answer the following with reference
to the above facts.
(i) Is Mr. Ajay right to deny Mr. Kush to file a withdrawal application with NCLT, Delhi? Explain in detail.
(ii) Would your answer differ in case the Committee of Creditors is not constituted?
(iii) Who is the authority to pass the final order of withdrawal application?
Answer:
(i) According to 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. Ajay cannot deny Mr. Kush for filing of withdrawal application only on the basis that committee
of creditors has been constituted.
(ii) Before Constitution of Committee of Creditors

The 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 passed by the Adjudicating
Authority.
Thus, if Committee of Creditors is not constituted Mr. Kush shall apply to the Adjudicating Authority
(NCLT, Delhi) through the Interim Resolution Professional, for withdrawal.
Hence, the answer will not differ and Mr. Ajay cannot deny Mr. Kush 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.e.
NCLT, Delhi.
Question 3:
ABC Limited is undergoing voluntary liquidation process under Section 59 of the Insolvency and Bankruptcy
Code, 2016(IBC, 2016). Mrs. Rita was appointed as liquidator by ABC Limited after complying with the
provisions of the IBC, 2016. During the process, Mrs. Rita got occupied with other professional assignments,
and hence ABC Limited decided to replace the liquidator with other insolvency professional. Referring to the
provisions of IBC, 2016, answer the following:
(i) Whether ABC Limited can replace Mrs. Rita with another liquidator?
(ii) What will be the reporting requirements to be fulfilled by the newly appointed liquidator immediately after
appointment under the IBC, 2016?
(iii) What are the reporting requirements under the IBC, 2016, after receiving the order of dissolution from
the Adjudicating Authority?

64

Answer:
As per Section 59 of the Insolvency and Bankruptcy Code, 2016, following shall be answers:
(i) Yes, ABC Limited can replace Mrs. Rita with another liquidator by passing a special resolution.
(ii) Newly appointed insolvency professional shall, within three days of his appointment as liquidator intimate
the IBBI about such appointment.
The Adjudicating Authority shall on an application filed by the liquidator, pass an order that the corporate
debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.
Such a copy of an order of dissolution shall within fourteen days from the date of such order, be forwarded to
the authority with which the corporate person is registered.
Question 4:
Abhi Limited entered into an agreement with Atulya Gas Limited for purchase of natural gas, which is not
specified as an essential supply. On failure of Abhi Limited to make payments, Atulya Gas Limited issued notice
to Abhi Limited that further supply of gas would be stopped if payments are not made immediately. On further
non payment, Atulya Gas Limited filed a petition before NCLT for initiating Corporate Insolvency Resolution
process against Abhi Limited. On 15th March, 2020 the petition was admitted, on 30th April, 2020, Atulya Gas
Limited disconnected gas supply to Abhi Limited for non-payment. As a result of disconnection of gas supply,
operations of Abhi Limited came to a halt. The Resolution professional filed a petition to NCLT seeking Atulya
Gas Limited to resume the supply of natural gas, as natural gas was an important material for production of
electricity by Abhi Limited. Referring to the provisions of Insolvency and Bankruptcy Code, 2016, answer the
following:
(i) When the moratorium period will expire in this case?
(ii) Whether Resolution Professional will be successful in his petition filed with NCLT?
(CA Final Nov 20)
Answer:
(i) According to section 14 of the IBC, with the admission of an insolvency application and commencement of
Corporate Insolvency Resolution process, the Adjudicating authority will declare moratorium period during
which no action can be taken against the company or the assets of the company to keep the Company as a
going concern.
A calm period for 180 days is declared, during which all suits and legal proceedings etc. against the
Corporate Debtor are held in abeyance to give time to the entity to resolve its status. It is called the
Moratorium Period.
In the instant case, Atulya Gas Ltd. filed a petition before NCLT for initiating Corporate Insolvency
Resolution process against Abhi Ltd. on 15thMarch, 2020. Hence, Moratorium period will expire within 180
days i.e. by 11th September 2020.
(ii) Section 14 also provides some exemptions under Moratorium according to which the supply of essential
goods or services to the corporate debtor as may be specified shall not be terminated or suspended or
interrupted during moratorium period.
Hence, since as per the agreement between Abhi Limited and Atyulya Gas Limited it’s specified that
natural gas is not an essential supply for production of electricity. Therefore, resolution professional will
not be successful in his petition filed with NCLT to resume the supply of Natural Gas disconnected by
Atulya Gas Ltd.

65
Question 5:
Pursuant to Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) a liquidation order was passed
against Luci Soya Limited (LSL) (Corporate Debtor) by the Adjudicating Authority (NCLT). Mr. Solanki was
appointed as the liquidator by the NCLT. Upon resuming his mantle, Mr. Solanki started collecting claims from
all the creditors within the time frame as prescribed in the IBC, 2016. While initiating the liquidation process
as per provisions of the IBC, 2016, Mr. Solanki proposed to include the equity shares of one of its subsidiary as
part of the liquidation estate in relation to the corporate debtor. Besides this, one of the unsecured financial
creditor demanded that, at the time of distribution of liquidation proceeds, his dues may be paid before the
government dues are paid. Mr. Solanki also observed that pending legal proceedings against the corporate debtor,
'A' Ltd, an operational creditor, has filed a case with the Arbitral Tribunal praying for an arbitral award against
LSL.
On the basis of the above information and in the light of the Insolvency and Bankruptcy Code, 2016, answer
the following:
(i) Whether the proposal of Mr. Solanki to include the equity shares of the subsidiary Company of LSL as part
of liquidation estate is tenable?
(ii) How should Mr. Solanki deal with the demand of the unsecured financial creditor?
(iii) Whether 'A' Ltd will succeed in its prayer for an arbitral award against LSL?
[CA Final Nov 20]
Answer:
(i) Liquidation estate: As per section 36 of the Insolvency and Bankruptcy Code, 2016, for the purposes of
liquidation, the liquidator shall form an estate of the assets, which will be called the liquidation estate in
relation to the corporate debtor.
Liquidation estate shall comprise all liquidation estate assets which shall include any assets over which the
corporate debtor has ownership rights, including shares held in any subsidiary of the corporate debtor.
Hence, the proposal of Mr. Solanki to include the equity shares of subsidiary company of LSL as part of
liquidation estate is tenable.
(ii) According to section 53 of the IBC, 2016, out of proceeds from the sale of the liquidation assets, financial
debts owed to unsecured creditors shall be distributed in priority over the amount due to the Central
Government and the State Government. [clauses (d) and (e)]
Hence, Mr. Solanki has to fulfill the demand of unsecured financial creditor, at the time of distribution of
liquidation proceeds, to pay his dues before the Government dues are paid.
(iii) Section 33(5) of the Code provides that when a liquidation order has been passed, no suit or legal proceeding
shall be instituted by or against the corporate debtor.
The institution of suits or continuation of any pending suits or proceedings against the corporate debtor
including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or
other authority.
Hence, Mr. A will not succeed in its prayer for an arbitral award against LSL.
Question 6:
Nature Limited is a Micro Enterprise under section 7 of the MSME Development Act, 2006 which has filed an
application for initiating Pre-package Insolvency Resolution Process (PPIRP) under Section 54C of the
Insolvency Bankruptcy Code, 2016. You have been appointed as the Resolution Professional to conduct the
PPIRP. Nature Limited has prepared a Base Resolution Plan (BRP) which was presented to the Committee of
Creditors (CoC). The CoC evaluated the BRP and realised that the plan impairs the claims owed to few
operational creditors. In the capacity of Resolution Professional, advice the CoC on whether it is mandatory for
them to approve the BRP and if not, the process in which they can invite alternative resolution plans.

66
[MTP 1 May 22]

Answer:
As per the provision of Section 54K of the Insolvency and Bankruptcy Code, 2016, following is the manner to
initiate the PPIRP:
1. Submission of BRP: The corporate debtor (CD) shall submit the base resolution plan (BRP) to the
resolution professional (RP) within 2 days of the pre-packaged insolvency commencement date (ICD).
2. Presentation of BRP to CoC: The RP shall present the same, to the committee of creditors (CoC).
3. Given opportunity to revise the BRP: The CoC may provide the CD an opportunity to revise the BRP prior
to its approval or invitation of Prospective Resolution Applicant (PRA), as the case may be.
4. After approval submitted to AA: The CoC may approve the BRP for submission to the AA if it does not
impair any claims owed by the CD to the Operational Creditors.
5. If BRP is biased: Where-
a) the CoC does not approve the BRP under sub-section (4); or
b) the BRP impairs any claims owed by the CD to the OC,
the RP shall invite PRA, to submit a resolution plan(s), to compete with the BRP, in such manner as
specified.
6. Fulfilment of criteria laid down by RP: The RA submitting resolution plans pursuant to invitation shall fulfil
such criteria as may be laid down by the RP with the approval of the CoC, having regard to the complexity
and scale of operations of the business of the corporate debtor and such other conditions as may be
specified.
7. The RP shall provide to the RA:
a) the basis for evaluation of resolution plans as approved by the CoC; and
b) the relevant information referred to in section 29 i.e., Information Memorandum.
In the given case, Nature Limited, a MSME which is undergoing PPIRP has prepared a BRP that impairs the
claims owed to operational creditors. In such a case, in view of the above provision, the RP can invite claims
from the PRAs in the manner specified above.
Conclusion: It is not mandatory for the CoC to approve the BRP submitted by the CD. In case where the BRP
impairs the claim owed to operational creditors, the CoC may either provide an opportunity to revise the plan
or shall invite claims from PRAs and select the most suitable plan.

67

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Index and Number of Questions

SN Name of Chapters Additional Questions

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

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

Chapter 1 – Appointment and Qualification of Directors

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

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

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

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

Hence, appointment of Ms. Nisha is not valid.

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

Chapter 2 – Meetings of Board and its powers

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

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

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

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

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

Chapter 3 – Appointment and Remuneration of Managerial

Given case and conclusion:

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

Other Revenue Amount (Rs)

Expenditure Amount (Rs)

Details of Sale of Fixed Assets:

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

Non-Deductible Items [Section 198(5)]

Particulars Amount (Rs)

Net Profit as per Statement of Profit and Loss 70,00,000

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

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

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

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

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

Chapter 4 – Inspection, Inquiry and Investigation

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

Chapter 5 – Compromise, Arrangements & Amalgamations

2. Winding up order by tribunal:

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

According to this section:

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

Chapter 6 – Prevention of Oppression and Mismanagement

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

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

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

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

Answer the following questions:

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

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

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

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

Chapter 9 - Companies Incorporated Outside India

Particulars Contracts entered in the Material Contracts

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

The Following documents shall be annexed to the prospectus, namely:

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

Chapter 10 - Miscellaneous Chapters