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Corporate & Economics Laws CMA Final
Corporate & Economics Laws CMA Final
Corporate & Economics Laws CMA Final
Quest-1 The information extracted from the audited Financial Statement of Pacific Solutions Private
Limited as on 31st March, 2023 is as below:
(1) Paid-up equity share capital ` 50,00,000 divided into 5,00,000 equity shares (carrying
voting rights) of ` 10 each. There is no change in the paid-up share capital thereafter.
(2) The turnover is ` 2,00,00,000.
It is further understood that Smart Software Limited is holding 2,00,000 equity shares, fully
paid- up, of Pacific Solutions Private Limited. Pacific Solutions Private Limited has filed its
Financial Statement for the said year with the Registrar of Companies (ROC) excluding the
Cash Flow Statement within the prescribed time line during the financial year 2023-24. The
ROC has issued a notice to Pacific Solutions Private Limited as it has failed to file the Cash
Flow Statement along with the Balance Sheet and Profit and Loss Account. You are to advise on
the following points explaining the provisions of the Companies Act, 2013:
(i) Whether Pacific Solutions Private Limited shall be deemed to be a small company whose
significant equity shares are held by a public company?
(ii) Whether Pacific Solutions Private Limited has defaulted in filing its financial statement?
Solution According to section 2(85) of the Companies Act, 2013, small company means a company, other
than a public company, having-
(A) paid-up share capital not exceeding four crore rupees; and
(B) turnover as per profit and loss account for the immediately preceding financial year not
exceeding forty crore rupees:
Provided that nothing in this clause shall apply to a holding company or a subsidiary company.
Also, according to section 2(87), subsidiary company, in relation to any other company (that is
to say the holding company), means a company in which the holding company exercises or controls
more than one-half of the total voting power either at its own or together with one or more of
its subsidiary companies.
In the given question, Smart Software Limited (a public company) holds 2,00,000 equity shares
of Pacific Solutions Private Limited (having paid up share capital of 5,00,000 equity shares @ `
10 totalling ` 50 lakh).
Conclusion:- Hence, Pacific Solutions Private Limited is not a subsidiary of Smart Software
Limited and hence it is a private company and not a deemed public company.
Further, the paid up share capital (` 50 lakh) and turnover (` 2 crore) is within the limit as
prescribed under section 2(85), hence, Pacific Solutions Private Limited can be categorised
as a small company.
Quest-2 Ram Pvt. Ltd. is the holding company of Laxman Pvt. Ltd. As per the last profit and loss account
for the year ending 31st March, 2023 of Laxman Pvt. Ltd., its turnover was ` 1.80 crore; and
paid up share capital was ` 80 lakh. The Board of Directors wants to avail the status of a small
company. The Company Secretary of the company advised the directors that the company
cannot be categorized as a small company. In the light of the above facts and in accordance
with the provisions of the Companies Act, 2013, you are required to examine whether the
contention of Company Secretary is correct, explaining the relevant provisions of the Act.
Solution As per section 2(85) of the Companies Act, 2013, small company means a company, other than
a public company:
(i) paid-up share capital of which does not exceed four crore rupees, and
(ii) turnover of which as per profit and loss account for the immediately preceding financial
year does not exceed forty crore rupees:
In the instant case, as per the last profit and loss account for the year ending 31st March,
2023 of Laxman Pvt. Ltd., its turnover was to the extent of ` 1.80 crore, and paid -up share
capital was ` 80 lakh. Though Laxman Pvt. Ltd., as per the turnover and paid-up share capital
norms, qualifies for the status of a ‘small company’ but it cannot be categorized as a ‘small
company’ because it is the subsidiary of another company (Ram Pvt. Ltd.).
Conclusion:- Thus, we may conclude that the Contention of the Company Secretary is correct.
Quest-3 Manicar Limited has allotted equity shares with voting rights to Nanicar Limited worth ` 10
Crores and issued Non-Convertible Debentures worth ` 30 Crores during the Financial Year
2017-18. After that total Paid-up Equity Share Capital of the company is ` 100 Crores and Non-
Convertible Debentures stands at ` 150 Crores.
Define the Meaning of Associate Company and comment on whether Manicar Limited and
Nanicar Limited would be called Associate Company as per the provisions of the Companies Act,
2013?
Solution Define Associate Company u/s 2(6)
In the given case, as Manicar Ltd. has allotted equity shares with voting rights to Nanicar
Limited of Rs. 10 crores, which is less than requisite control of 20% of total share capital (i.e.
100 crore) to have a significant influence of Nanicar Ltd. Since the said requirement is not
complied, therefore Manicar Ltd. and Nanicar Ltd. are not associate companies as per the
Companies Act, 2013.
According to Section 2(87), “subsidiary company” in relation to any other company (that is to
say the holding company), means a company in which the holding exercises or controls more than
one-half of the total voting power either at its own or together with one or more of its
subsidiary companies.
By virtue of provisions of Section 2(87) of Companies Act, 2013, Shah Auto Private Limited is
a subsidiary company of Narendra Motors Limited because Narendra Motors Limited is holding
more than one-half of the total voting power in Shah Auto Private Limited.
Further as per Section 2(45), a subsidiary company of Government Company is also termed as
Government Company. Hence, Shah Auto Private Limited being subsidiary of Narendra Motors
Limited will also be considered as Government Company.
Quest-5 Mr. R is an Indian citizen, and his stay in India during the immediately preceding financial year
is for 130 days. He appoints Mr. S, a foreign citizen, as his nominee, who has stayed in India for
125 days during the immediately preceding financial year.
1. Is Mr. R eligible to be incorporated as a One-Person Company (OPC)?
2. If yes, can he give the name of Mr. S in the Memorandum of Association as his nominee?
3. What would be the procedure for change on nominee and if any such change shall amount to
alteration in Memorandum
4. What would be the procedure for Withdrawal of consent by nominee
Justify your answers with relevant provisions of the Companies Act, 2013.
Solution As per the provisions of the Companies Act, 2013
Only a natural person who is an Indian citizen and resident in India (person who stayed in India
for a period of not less than 120 days during immediately preceding financial year) –
• Shall be eligible to incorporate an OPC
• Shall be a nominee for the sole member.
Case-2- If name of Mr. S in the Memorandum of Association as his nominee can be given
In the given case, Mr. S’s name is mentioned in the Memorandum of Association as nominee
and his stay in India during the immediately preceding financial year is more than 120 days,
he is a foreign citizen and not an Indian citizen.
Conclusion:- We may conclude that S’s name cannot be given as nominee in the memorandum
since he is not an Indian Citizen.
Quest-6 Alpha Ltd., A Section 8 company is planning to declare dividend in the Annual General Meeting
for the Financial Year ended 31-03-2018. Mr. Chopra is holding 800 equity shares as on date.
State whether the act of the company is according to the provisions of the Companies Act, 2013.
Solution According to section 8 of the Companies Act, 2013, the Central Government may allow person or
an association of persons to be registered as a Company under the Companies Act if it has been
set up for promoting commerce, arts, science, sports, education, research, social welfare
religion, charity protection of environment or any such other useful object and intends to
apply its profits or other income in promotion of its objects.
As per Section 8 of the Companies Act, 2013, the companies having licence under Section 8 of
the Act are prohibited from paying any dividend to its members. Their profits are intended to
be applied only in promoting their objects
Conclusion:- Thus, the proposed act of Alpha Ltd., a company registered under the provisions of
Section 8 of the Companies Act, 2013, to declare dividend, is not according to the provisions
of the Companies Act, 2013.
Quest-7 AK Private Limited has borrowed ` 36 crores from BK Finance Limited. However, as per
memorandum of AK Private Limited the maximum borrowing power of the company is
` 30 crores. Examine, whether AK Private Limited is liable to pay this debt? State the
remedy, if any available to BK Finance Limited.
Solution This case is governed by the ‘Doctrine of Ultra Vires’. According to this doctrine, any act done
or a contract made by the company which travels beyond the powers of the company conferred
upon it by its Memorandum of Association is wholly void and inoperative in law and is therefore
not binding on the company. This is because, the Memorandum of Association of the company
is, in fact, its charter; it defines its constitution and the scope of the powers of the company.
Hence, a company cannot depart from the provisions contained in the memorandum however
imperative may be the necessity for the departure. Hence, any agreement ultra vires the
company shall be null and void.
Sajagta (P) Listed non-convertible debt The company holds 52% equity shares
Ltd. securities issued on private in Pratibodh Ltd. as an investment on
placement basis in terms of behalf of another company in a
relevant SEBI Regulations. capacity of a trustee.
Equity shares issued by the Kleshrahit Ltd. and Indriyadaman Ltd. are not listed in any of
the recognized stock exchanges.
In the context of aforesaid facts, answer the following question(s): -
1. Whether the aforesaid companies can be considered as listed company(ies)?
2. Explain the relationship between the aforesaid companies?
Solution Mention about Sec 2(52) along with Rule 2A of the Companies (Specification of definitions
details) Rules, 2014
1. Kleshrahit Ltd.- Equity shares issued by the company are not listed. However, the company
has issued listed non- convertible redeemable preference shares issued on private placement
basis in terms of relevant SEBI Regulations which falls in the exceptions to the listed company,
given as per clause (a)(ii) to Rule 2A, as aforesaid, and accordingly, Kleshrahit Ltd. shall not be
considered as a listed company.
2. Indriyadaman Ltd. Equity shares issued by the company are not listed. However, the
company has issued listed non- convertible debt securities issued on private placement basis in
terms of relevant SEBI Regulations which falls in the exceptions to the listed company, given
as per clause (a)(i) to Rule 2A, as aforesaid, and accordingly, Indriyadaman Ltd. shall not be
considered as a listed company.
3. Sajagta (P) Ltd. The company has issued listed non-convertible debt securities issued
on private placement basis on a recognised Stock Exchange in terms of relevant SEBI
Regulations which falls in the exceptions to the listed company given as per clause (b) to Rule
2A, as aforesaid, and accordingly, Sajagta
(P) Ltd. shall not be considered as a listed company.
(P) Ltd. as Indriyadaman Ltd. controls more than one-half of the total voting power of Sajagta
(P) Ltd.
According to the Doctrine of the Indoor Management, the outsiders are not deemed to have
notice of the internal affairs of the company. They are entitled to assume that the acts of the
directors or other officers of the company are validly performed, if they are within the scope
of their apparent authority. So long as an act is valid under the articles, if done in a particular
manner, an outsider dealing with the company is entitled to assume that it has been done in the
manner required. This is the indoor management rule, that the company’s indoor affairs are the
company’s problem. This rule has been laid down in the landmark case-the Royal British Bank vs.
Turquand. (Known as “Turquand Rule”)
In the instant case, Mr. R is not liable to pay the amount of ` 1,50,000 to MNO Private Limited
as he had genuine reasons to trust Mr. C, an employee of the company who had issued him a
signed and sealed receipt.
If a receipt under the company seal was not issued by Mr. C after receiving payment, Mr. R is
liable to pay the said amount as this will be deemed to be a negligence on the part of Mr. R
and it is his duty to make the necessary enquiry to check that whether Mr. C is eligible to
take the payment or not.
Quest-10 Mr. Sunny sold his business of cotton production to a cotton production company CPL Private
Limited in which he held all the shares except one which was held by his wife. He is also the
creditor in the company for a certain amount. He also got the insurance of the s tock of
cotton of CPL Private Limited but in his own name not in the name of company. After one
month, all the stocks of the cotton of CPL Private Limited were destroyed by fire . Mr. Sunny
filed the claim for such loss with the Insurance company. State with reasons that whether
the insurance company is liable to pay the claim?
Solution According to the decision taken in case of Salomon v/s Salomon & Co. Ltd., a company has
separate legal entity. A company is different from its members. Further, according to the
decision taken in case of Macaura v/s Northern Assurance Co. Ltd., a member or creditor does
not have any insurable interest in the property of company. Members or creditors of the
company cannot claim ownership in the property of company.
On the basis of above provisions and facts, it can be said Mr. Sunny and CPL Private Limited
are separate entities. Mr. Sunny cannot have any insurable interest in the property of CPL
Private Limited neither as member nor as creditor. Hence, the insurance company is not liable
to pay to Mr. Sunny for the claim for the loss of stock by fire.
Quest-11 Examine the validity of the following different decisions/proposals regarding change of
office by A Limited under the provisions of the Companies Act, 2013:
1. The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar
(Local limit of Mumbai District), both places falling within the jurisdiction of the
Registrar of Mumbai, by passing a special resolution but without obtaining the
approval of the Regional Director.
2. The registered office situated in certain place of a city is proposed to be shifted to
another place within the local limits of the same city under the authority of Board
Resolution.
Solution Regarding the validity of Proposals w.r.t change of registered office by A Limited in the
light of section 12 of the Companies Act, 2013:
(i) In the first case, the Registered office is shifted from Thane to Dadar (one
District to another District) falling under jurisdiction of same ROC i.e. Registrar of
Mumbai.
As per Section 12 (5) of the Act which deals with the change in registered office outside
the local limit from one town or city to another in the same state, may take place by virtue
of a special resolution passed by the company. No approval of regional director is required.
Accordingly, said proposal is valid.
In the second case, change of registered office within the local limits of the same city. Said
proposal is valid in terms it has been passed under the authority of Board resolution.
Quest-12 MNO Ltd., a foreign Joint Venture Company having its established place of business in India
and following International Financial Reporting Standards (IFRS) and its financial statement
being prepared in German language desires to know the following with regards to submission of
its financial statements to the Registrar of Companies in India. Its area office is located at
Mumbai:
(i) Submission of financial statements in German Language
(ii) Format of financial statements as per IFRS;
(iii) How authentication of its financial statements is to be done?
(iv) Whether the documents can be submitted at the Registrar’s office at Mumbai?
Solution (i) All the documents required to be filed with the Registrar by the foreign companies shall be
in English language. If the financial statements are in German language and not in the English
language, a certified translation thereof in the English language shall be annexed and submitted
to Registrar [Section 381]
(b) a Notary (Public) of the country (or part of the country) where the company is
incorporated:
Provided that where the company is incorporated in a country outside the Commonwealth, the
signature or seal of the person so certifying shall be authenticated by a diplomatic or consular
officer empowered under section 3 of the Diplomatic and Consular Officers (Oaths and Fees)
Act, 1948, or, where there is no such officer, by any of the officials mentioned in section 6, of
the Commissioners of Oaths Act, 1889, or in any relevant Act for the said purpose.
(3) Where such translation is made within India, it shall be authenticated by—
(a) an advocate, attorney or pleader entitled to appear before any High Court; or
(b) an affidavit, of a competent person having, in the opinion of the Registrar, an adequate
knowledge of the language of the original and of English.
(iv) According to the Companies (Registration of Foreign Companies) Rules, 2014, any document
which any foreign company is required to deliver to the Registrar shall be delivered to the
Registrar having jurisdiction over New Delhi. Hence, the documents of MNO Ltd. cannot be
submitted at the Registrar’s office at Mumbai.
2. In order to answer part (iii) of the question, it may be considered in independent situation,
then only the authentication of its financial statement can be answered according to the
Companies (Registration of Foreign Companies) Rules, 2014. According to which every foreign
company shall prepare financial statement of its Indian business operations in accordance with
Schedule III or as near thereto as possible for each financial year including documents that
are required to be annexed should be in accordance with Chapter IX i.e. Accounts of Companies.]
Quest-13 In the light of the provisions of the Companies Act, 2013, examine whether the following
Companies can be considered as a ‘Foreign Company’:
(i) M/s Red Stone Limited is a Company registered in Singapore. The Board of Directors meets
and executes business decisions at their Board Meeting held in India.
(ii) M/s Blue Star Public Company Limited registered in Thailand has authorized Mr. ‘Y’ in India
to find customers and to enter contracts with them on behalf of the company.
(iii) M/s Xex Limited Liability Company registered in Dubai has installed its main server in
Dubai for maintaining office automation software by cloud computing for its client in India.
Solution According to section 2(42) of the Companies Act, 2013, “Foreign company” means any company
or body corporate incorporated outside India which-
(a) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
(b) conducts any business activity in India in any other manner.
According to the Companies (Registration of Foreign Companies) Rules, 2014, “electronic
mode” means carrying out electronically based, whether main server is installed in India or
not, including, but not limited to-
(a) business to business and business to consumer transactions, data interchange and other
digital supply transactions;
(b) offering to accept deposits or inviting deposits or accepting deposits or subscriptions in
securities, in India or from citizens of India;
(c) financial settlements, web-based marketing, advisory and transactional services, database
services and products, supply chain management;
(d) online services such as telemarketing, telecommuting, telemedicine, education and
information research; and
(e) all related data communication services, whether conducted by e-mail, mobile devices, social
media, cloud computing, document management, voice or data transmission or otherwise.
Now, based on above definition read with rules, we may conclude as follows: -
(i) In the given situation, M/s Red Stone Limited
• is registered in Singapore.
• it does not have a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
• does not conduct any business activity in India in any other manner.
Thus, mere holding of board meetings and executing business decisions in India cannot be
termed as conducting business activity in India. Hence, M/s Red Stone Limited is not a foreign
company as per the Companies Act, 2013.
(ii) In the given situation, M/s Blue Star is registered in Thailand.
• It has authorised Mr. Y in India to find customers and enter into contract on behalf of
the company.
• Thus, it can be said that M/s Blue Star Limited has both place of business in India
through an agent, physically or through electronic mode; and is conducting business
activity in India.
• Hence, M/s Blue Star Limited is a foreign company as per the Companies Act, 2013.
(iii) In the given situation, M/s Xex Limited Liability Company is registered in Dubai and
• has installed its main server in Dubai for maintaining office automation software by Cloud
Computing for its client in India.
• Thus, it can be said that M/s Xex Limited Liability Company has a place of business in
India through electronic mode and is conducting business activity in India.
Hence, M/s Xex Limited Liability Company is a foreign company as per the Companies Act,
2013.
Quest-14 Examine the validity of the following different decisions/proposals regarding change of office
by A Limited under the provisions of the Companies Act, 2013:
(i) The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar (Local
limit of Mumbai District), both places falling within the jurisdiction of the Registrar of Mumbai,
by passing a special resolution but without obtaining the approval of the Regional Director.
(ii) The registered office situated in certain place of a city is proposed to be shifted to another
place within the local limits of the same city under the authority of Board Resolution.
Solution Regarding the validity of Proposals w.r.t change of registered office by A Limited in the light
of section 12 of the Companies Act, 2013:
(i) In the first case, the Registered office is shifted from Thane to Dadar (one District to
another District) falling under jurisdiction of same ROC i.e. Registrar of Mumbai.
As per Section 12 of the Act which deals with the change in registered office outside the local
limit from one town or city to another in the same state, may take place by virtue of a special
resolution passed by the company. No approval of regional director is required. Accordingly,
said proposal is valid.
(ii) In the second case, change of registered office within the local limits of the same city.
Said proposal is valid in terms it has been passed under the authority of Board resolution.
Quest-15 Examine and state whether the following Companies can be considered as ‘Foreign Company’
under the Companies Act, 2013:
(i) A company which is incorporated outside India employs agents in India but has no place of
business in India.
(ii) A company incorporated outside India having shareholders who are all Indian citizens.
(iii) A company incorporated in India but all the shares are held by foreigners.
(iv) A company which has no place of business established in India, yet, is doing online
business through telemarketing in India.
Solution As per Section 2(42) of the Companies Act, 2013, a foreign company means any company or
body corporate incorporated outside India which-
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.
(i) A company incorporated outside India and have not established a place of business in India,
Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in prescribed
manner.
In the present case, Yadav dairy products Private Limited is a private company and wants to
protect provisions of articles regarding forfeiture of shares. It means it wants to make
entrenchment of articles, which is allowed. But the company will have to pass a resolution
taking permission of all the members and it should also give notice to ROC regarding
entrenchment of articles.
Quest-17 Gato Limited dealing in coloured contact lenses, is a company incorporated in Singapore.
The said company is operating in India through its branch office in Kolkata. The company
has approached its legal department to state the relevant provisions of the Companies
Act, 2013 and rules made thereunder relating to preparation and filing of financial
statements in case of such a company.
Solution
According to section 381 of the Companies Act, 2013:
(a ) make out a balance sheet and profit and loss account in such form, containing such
particulars and including or having attached or annexed thereto such documents as may
be prescribed, and
foreign company shall prepare financial statement of its Indian business operations
in accordance with Schedule III or as near thereto as possible for each financial year
including:
(1 ) documents that are required to be annexed should be in accordance with Chapter IX i.e.
Accounts of Companies.
(ii) The Central Government is empowered to direct that, in the case of any foreign company
or class of foreign companies, the requirements of clause (a) of section 381(1) shall
not apply, or shall apply subject to such exceptions and modifications as may be
If any of the specified documents are not in the English language, a certified translation
thereof in the English language shall be annexed
(iv) Every foreign company shall send to the Registrar along with the documents required
to be delivered to him, a copy of a list in the prescribed form, of all places of business
established by the company in India as at the date with reference to which the balance sheet
referred to in section 381(1) is made.
According to the Companies (Registration of Foreign Companies) Rules, 2014, every foreign
company shall file with the Registrar, along with the financial statement, in Form FC-3 with
such fee as provided under Companies (Registration Offices and Fees) Rules, 2014 a list of
all the places of business established by the foreign company in India as on the date of
balance sheet.
Quest-18 Country Pool Club was formed as a Limited Liability Company under Section 8 of the Companies
Act, 2013 with the object of promoting cricket by arranging introductory cricket courses at
district level and friendly matches. The club has been earning a surplus. Lately, the affairs of
the company are conducted fraudulently and dividends are paid to its members. Mr. New, a
member, decided to make a complaint with the Regulatory Authority to curb the fraudulent
activities by cancelling the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state
the provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the Country Pool Club can be merged with Cool Net Private Limited, a
company engaged in the business of networking?
Solution (1) According to section 8 of the Companies Act, 2013,
the Central Government may by order revoke the licence of the company where
• the company contravenes any of the requirements or the conditions of section 8 subject
to which a licence is issued or
• where the affairs of the company are conducted fraudulently, or in violation of the
objects of the company or prejudicial to public interest,
and on revocation, the Registrar shall put ‘Limited’ or ‘Private Limited’ against the company’s
name in the register. But before such revocation, the Central Government must give it a written
notice of its intention to revoke the licence and opportunity to be heard in the matter.
Conclusion: - Hence, in the instant case, the Central Government can revoke the license given to
Country Pool Club as section 8 company, as the affairs of the company are conducted
fraudulently and dividend was paid to its members which is in contravention to the conditions
given under section 8.
(2) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it
is essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of
being heard.
Conclusion:- Thus in the given case, the stated company may be wound up.
(3) A company registered under this section shall amalgamate only with another company
registered under this section and having similar objects.
Conclusion:- In the instant case, Country Pool Club cannot be merged with Cool Net Private
Limited as the objects of both the companies are different and not similar.
Quest-19 The Secretary of a Company issued a share certificate to 'A' under the Company's seal with
his own signature and the signature of a Director forged by him. Borrowed money from 'B' on
the strength of this certificate. 'B' wanted to realise the security and requested the company
to register him as a holder of the shares. Explain whether 'B' will succeed in getting the share
registered in his name.
Solution Given problem is based on doctrine of indoor management
▪ Every person dealing with the company is presumed to have understood the contents of
company's memorandum and articles of association.
▪ If he enters into a contract with the company which is contrary to the provisions of
memorandum articles of association, then he will not get any right under such contract.
▪ Such rule has one exception which is known as 'doctrine of indoor management'.
▪ According to this doctrine, a person dealing with the company is not presumed to the
knowledge of internal proceedings of the company
▪ This doctrine was first evolved in the case of Royal British Bank v Turquand
▪ However, benefit under this doctrine cannot be claimed in case of forgery as it was held in
the case of [Rubben v Great Fingal Consolidated]
This doctrine is important to persons dealing with a company through its directors or other
persons.
As such other person is entitled to assume that the acts of the directors or other officers of
the company are validly performed, if they are within the scope of their apparent authority.
In the given question, Mr. X has made payment to Mr. Z and he (Mr. Z) gave to receipt of the
same to Mr. X. Thus, it will be rightful on part of Mr. X to assume that Mr. Z was also authorised
to receive money on behalf of the company.
Thus, Mr. X will be free from liability for payment of goods purchased from M/s ABC Limited,
as he has paid amount due to an employee of the company
Quest-21 The composition of the Board of Directors of a listed company as on 31-03-2017 comprised of
(i) Mr. A, Director, (ii) Mr. B, Director (iii) Mr. C, Director (iv) Mr.· D, Director, (v) Mrs. E, Independent Director,
(vi) Mr. F, Independent Director and (vii) Mr. G, Independent Director. Mr. D & Mrs. E vacated their office of
Director on 15-04-2017.
You are required to examine with reference to the provisions of the Companies Act, 2013 and what course
of action would you suggest which can be taken up by the Company in this regard?
Solution Women director [2nd Proviso to Section 149(1)]: At least one-woman director shall be on the Board of
following class of companies
[Rule 3:- According to the Companies (Appointment and Qualification of Directors) Rules, 2014,]
✓ every listed company;
✓ every other public company having
:-paid-up share capital of 100.0 Cr rupees or more; Or
:-turnover of 300.0 Cr rupees or more:
Provided further that 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.
Every listed public company shall have at least one-third of the total number of directors as independent
directors. [Section 149(4)]
Incase of vacation of Directorship by Mr. D & Mrs. E. company shall still continue to have required number
of Independent Director
Even though, company shall left with no woman director, thus intermittent vacancy of woman director
need to be filled.
Conclusion: - Thus board have to fill up the intermittent vacancy at the earliest but not later than
immediate next board meeting or three months from the date of such vacancy whichever is later.
Quest-21A Examine the validity of the following appointments with reference to the provisions of the
Companies Act, 2013:
(i) Mr. Person together with one of his relatives holds 3% of the total voting power of XYZ Ltd.
The Board of Directors of the company appointed him as an independent director.
(ii) ABC Ltd., a listed company having 5,000 small shareholders, upon receiving notice from 400
of such small shareholders has refused to appoint a small shareholders’ director under section
151 of the Companies Act, 2013.
(iii) Mr. D, who fails to get appointed as a director in the general meeting of AJD Limited, subsequently
was appointed as an additional director by the Board of Directors of the company.
Solution (i) An independent director means a director who, neither himself nor any of his relatives holds
together with his relatives 2% or more of the total voting power of the company [Section
149(6) of the Companies Act, 2013].
In the given problem, Mr. Person holds together with his relatives 3% of the total voting power
of XYZ Ltd. Hence his appointment as an independent director is not valid.
(ii) According to section 151 of the Companies Act, 2013, a listed company may have one
director elected by such small shareholders in such manner and on such terms and conditions
as given in rule 7 of the Companies (Appointment and Qualification of directors) Rules, 2014.
As per the rule, 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.
Thus, according to the provisions stated above, since the number of small shareholders of ABC
Ltd. who applied is less than 1000 and 500 (1/10th of the total 5000) small shareholders, ABC
Ltd. can validly refuse to appoint such a director.
(iii) According to section 161(1) of the Companies Act, 2013, a person who fails to get
appointed as a director in a General Meeting, cannot be appointed as an additional director.
Hence the appointment of Mr. D as an additional director in AJD Ltd. is not valid.
Quest-22 Annual general meeting of Hero Ltd. has been scheduled in compliance with the requirements of the
Companies Act, 2013. In this connection, it has some directors who are rotational and out of which some
have been appointed long back, some have been appointed on the same day.
Decide in this connection:
(i) Which of the directors shall be retiring by rotation and be eligible for re-election?
(ii) In case two directors were appointed on the same day, how would you decide their retirement by
rotation?
(iii) In case the meeting could not decide how the vacancies caused by retirement to be dealt with, what
shall be consequences?
Solution (i) According to Section 152(6)(a) of the Companies Act, 2013
Unless the Articles provide for retirement of all the directors at every general meeting, not less than two-
thirds of the total number of directors of a public company, shall be persons whose period of office is liable
to be determined by retirement by rotation.
According to section 152(6)(c) of the Act, one- third or nearest of the directors liable to retire by rotation
shall retire at the Annual General Meeting of the Company.
In order to determine the directors who shall retire by rotation at every general meeting, section provide
that the persons who have been longest in office since their last appointment shall be liable to retire.
(ii) As between the persons who became directors on the same day, the directors who shall retire may be
determined by agreement among themselves or through draw by lot.
In the absence of any such agreement the persons liable to retire shall be chosen by lot.
(iii) Section 152(7) (a) provides that if the vacancy of the director retiring by rotation, is not so filled-up and
the meeting has not expressly resolved not to fill the vacancy,
the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that
day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place.
Section further provides that if at the adjourned meeting also, no decision could be taken on
appointment of director, then the retiring director shall be deemed to have been re-appointed at the
adjourned meeting
Quest-22A ADJ Company Limited has 10 directors on its board. Two of the directors have retired by rotation at an
Annual General Meeting. The place of retiring directors is not so filled up and the meeting has also not
expressly resolved 'not to fill the vacancy'. Since the AGM could not complete its business, it is adjourned
to a later date. At this adjourned meeting also the place of retiring directors could not be filled up, and the
meeting has also not expressly resolved 'not to fill the vacancy'.
Referring to the provisions of the Companies Act, 2013, decide:
(i) Whether in such a situation the retiring directors shall be deemed to have been re-appointed at the
adjourned meeting?
(ii) What will be your answer in case at the adjourned meeting, the resolutions for re-appointment of
these directors were lost?
Solution Retirement by rotation [Section 152(6)]
(a) Unless the articles provide for the retirement of all directors at every annual general meeting, not less
than two-thirds of the total number of directors of a public company shall—
➢ be persons whose period of office is liable to determination by retirement of directors by rotation;
and
➢ be appointed by the company in general meeting.
(b) The remaining directors in the case of any such company shall, in default of, and subject to any
regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general
meeting at which the first directors are appointed and at every subsequent annual general meeting,
one-third or nearest of such of the directors are liable to retire by rotation
(d) The directors to retire by rotation at every annual general meeting shall be those who have been
longest in office since their last appointment, but as between persons who became directors on the
same day, those who are to retire shall, in default of and subject to any agreement among themselves,
be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the
vacancy by appointing the retiring director or some other person thereto.
“Total number of directors” shall not include independent directors, whether appointed under this Act or
any other law for the time being in force, on the Board of a company.
Vacancy in case of retiring director [Section 152(7)]
(a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved
not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the
same time and place, or if that day is a national holiday, till the next succeeding day which is not a
holiday, at the same time and place.
(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting
also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have
been re-appointed at the adjourned meeting, unless—
I. at that meeting or at the previous meeting a resolution for the re-appointment of such director has
been put to the meeting and lost;
II. the retiring director has, by a notice in writing addressed to the company or its Board of directors,
expressed his unwillingness to be so re-appointed;
III. he is not qualified or is disqualified for appointment;
IV. a resolution, whether special or ordinary, is required for his appointment or re appointment by
virtue of any provisions of this Act; or
V. section 162 is applicable to the case.
Based upon the above provisions, we may conclude as follow:-
(i) In the first case, the retiring directors shall be deemed to have been re-appointed.
(ii) In the second case, where the resolutions for the reappointment of the retiring directors were lost,
the retiring directors shall not be deemed to have been re-appointed.
Quest-23 The Promoters of M/s Frontline Limited, a listed public company propose to have the strength of the Board
of Directors as eleven. They also propose to make the Managing Director and whole-time directors as
directors not liable to retire by rotation. Advise on the following matters as per the provisions of the
Companies Act, 2013:
(i) Maximum number of persons, who can be appointed as directors not liable to retire by rotation.
(ii) How many of the remaining directors will have to retire by rotation every year at the Annual General
Meeting (AGM)?
(iii) For the purpose of increasing the strength, certain nominations were received to nominate candidates
for contesting elections. One of the nominations was rejected by the directors as it was received after
sending the notice of AGM and that too after the working hours of the last day on which nomination
should have been received.
(iv) Can the Board of Directors increase the strength of companies' directors to 18 from 11 by appointing
additional directors through passing single resolution?
Solution Refer the provisions of Sec 152(6)
Based on Sec 152(6), we may conclude as follow:—
(i) Directors liable to retire by rotation: 11 × 2/3 =7.3 i.e 8
So, maximum number of persons, who can be appointed as directors not liable to retire by rotation: 11-8
= 3.
(ii) As per Section 152(6)(c) of the Companies Act, 2013, 1/3rd of such of the Directors for the time being
as are liable to retire by rotation, or their number is neither three nor a multiple of three, then, the number
nearest to the 1/3rd shall retire from office. Therefor the Directors liable to retire at AGM are: 8 × 1/3 i.e.
2.67 i.e. 3
(iii) According to Section 160 of the Companies Act, 2013, a person who is not a retiring director in terms
of Section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a
director at any general meeting, if he has, not less than 14 days before the meeting, left at the registered
office of the company, a notice in writing under his hand signifying his candidature as a director.
In given case, one nomination was rejected by the directors as it was received after sending the notice of
AGM and that too after the working hours of the last day on which nomination should have been received
i.e. 14th day.
Conclusion:—Based on provision of Sec 160, we may conclude that the contention of the directors are
valid.
(iv) According to 1st proviso to Section 149(1) of the Companies Act, 2013, if the company wants to appoint
more than 15 directors, it can do so after passing a special resolution.
Thus, the Board of directors of Frontline Limited have to pass a special resolution for increase in directors
from 11 to 18.
However, these appointments cannot be done through single resolution. As per Sec 162, each director shall
be appointed by a separate resolution unless the meeting first agreed that the appointment shall be made
by a single resolution and no vote has been cast against such agreement. A resolution moved in
contravention of this provision shall be void
Quest-23A Prince Ltd. desires to appoint an additional director on its Board of directors. The Articles of the company
confer upon the Board to exercise the power to appoint such a director. As such M is appointed as an
additional director. In the light of the provisions of the Companies Act, 2013, examine:
(i) Whether M can continue as director if the annual general meeting of the company is not held within
the stipulated period and is adjourned to a later date?
(ii) Can the power of appointing additional director be exercised by the Annual General Meeting?
(iii) As the Secretary of the company what checks would you make after M is appointed as an additional
director?
Solution Additional Director [Section 161(1)]
• The articles of a company may confer on its Board of Directors the power to appoint any person as an
additional director at any time.
• A person, who fails to get appointed as a director in a general meeting, cannot be appointed as an
additional director.
• 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.
Based upon the provisions of section 161(1), we can conclude as follow:-
(i) M cannot continue as director till the adjourned annual general meeting, since he can hold the office
of directorship only 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. Such an additional director shall
vacate his office latest on the date on which the annual general meeting could have been held
(ii) The power to appoint additional directors vests with the Board of Directors and not with the members
of the company. The only condition is that the Board must be conferred such power by the articles of
the company.
(iii) As a company secretary, following checks shall be put in place in respect of M’s appointment as an
additional director:
(a) He must have got the Directors Identification Number (DIN) or other number as prescribed;
(b) He must furnish the DIN and a declaration that he is not disqualified to become a director under
the Companies Act, 2013;
(c) He must have given his consent to act as director and such consent has been filed with the Registrar
Sec 167(1)(a) The office of a director shall become vacant in case he incurs any of the disqualifications
specified in section 164;
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director
shall become vacant in all the companies, other than the company which is in default under that sub-section
Conclusion:—
(i) Since, Mr. Kishore has become disqualification under section 164(2) of the Companies Act, 2013, thus
he is not eligible to be re-appointed in AB Ltd, even though immediate vacation in AB Ltd is not required
[As per proviso to Sec 167(1)(a)]
Mr. Kishore shall vacate his office immediately in PQ Ltd
(ii) In view of his disqualification under section 164(2), Mr. Kishore is not eligible to be appointed as
additional director in XY Ltd. in June 2014
Quest-27 Mr. Vikram, a director of M/s Tubelight Limited has made default in filing of annual accounts and annual
returns with Registrar of Companies for a continuous period of 3 financial years ending on 31st March 2016.
Examine the validity of the following under the Companies Act,2013:
(i) Whether Mr. Vikram can continue to be a director of M/s Tubelight Limited (defaulting company)
and also M/s Green Light Limited, where he is also a director? Also state whether he can be re-
appointed as director in these two companies.
(ii) What would your answer be in case Mr. Vikram is a nominee director of a Public Financial Institution?
What would be your answer in case the defaulting company (i.e. M/s. Tubelight Limited) is a private limited
company?
Solution Sec 164(2) No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years;
or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on
the due date or pay interest due thereon or pay any dividend declared and such failure to pay or
redeem continues for one year or more,
• shall be eligible to be re-appointed as a director of that company or
• appointed in other company
• for a period of five years from the date on which the said company fails to do so.
Provided that where a person is appointed as a director of a company which is in default of clause (a) or
clause (b), he shall not incur the disqualification for a period of 6 months from the date of his appointment
Sec 167(1)(a) The office of a director shall become vacant in case he incurs any of the disqualifications
specified in section 164;
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director
shall become vacant in all the companies, other than the company which is in default under that sub-section
Based upon the above provisions, we may conclude as follow:-
(i) M/s Vikram can continue to be a director in M/s Tubelight Limited i.e. a defaulting company, but he shall
vacate his office immediately in M/s Green light Limited
(ii) In Case Mr. Vikram is a nominee director of a Public Financial Institution, then in such case, section
164 is not applicable.
(iii) As per Sec 164(3), a private company may by its articles provide for any further ground for
disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2) of
section 164.
Thus, in this case the answer would be same as above i.e. Mr. Vikram has to vacate his office of directorship
from Tubelight Limited and Green Light Limited and cannot be reappointed in both the companies for a
period of five years from the date on which the said company incurs the default.
Quest-27A State with reference to the relevant provisions of the Companies Act, 2013 whether the following persons
can be appointed as a Director of a company:
(i) Mr. A, who has huge personal liabilities far in excess of his Assets and Properties, has applied to the
court for adjudicating him as an insolvent and such application is pending.
(ii) Mr. B, who was caught red-handed in a shop lifting case two years ago, was convicted by a court and
sentenced to imprisonment for a period of eight weeks.
(iii) Mr. C, a Former Bank Executive, was convicted by a court eight years ago for embezzlement of funds
and sentenced to imprisonment for a period of one year.
Mr. D is a Director of DLT Limited, which has not filed its Annual Returns pertaining to the Annual General
Meetings held in the calendar years 2011, 2012 and 2013.
Solution Based on the provisions of Section 164, we can conclude as follow:-
(i) Section 164(1)(c) states that a person shall not be eligible for appointment as a director of a company
if he has applied to be adjudicated as an insolvent and his application is pending.
Therefore, in the present case, Mr. A cannot be appointed as a Director of a Company – whether
public or private.
(ii) Section 164(1)(d) states that a person shall not be eligible for appointment as a director of a company
if he has been convicted by a court for any offence involving moral turpitude or otherwise and
sentenced in respect thereof to imprisonment for not less than six months, and a period of five years
has not elapsed from the date of expiry of the sentence.
In the present case, although the sentence was only two years ago, but the period of sentence was
only eight weeks, i.e., less than six months. Hence, Mr. B does not come under the purview of this
disqualification and can be appointed as a director of a company.
(iii) The third case also falls within the provisions of section 164(1)(d). In this case the imprisonment was
for a period of one year, i.e., for more than six months, but since more than five years have elapsed
from the expiry of the sentence, Mr. C is no longer disqualified and can be appointed as a director of
a company
(iv) Refer provisions for Sec 164(2)
In the present case, DLT Limited has failed to file annual returns. Hence, the disqualification for Mr. D is
attracted and he cannot be appointed as a director in other company nor can he be reappointed in the
same company, moreover, read with sec 167(1), we may conclude that Mr D shall vacate his office from
any other company, where he is holding directorship
Quest-28 State with reference to the provisions of the Companies Act, 2013, whether the following persons can be
appointed as a Director of a company.
(i) Mr. L, who has not paid any calls in respect of any shares of the company held by him and five months
have passed from the last day fixed for the payment of calls.
(ii) Mr. G is Director of LDT Limited, who has not filed the company’s annual return pertaining to the annual
general meeting held in the calendar years 2014, 2015 and 2016.
Solution (i) According to section 164(1)(f) of the Companies Act, 2013, a person shall not be eligible for appointment
as a director of company, if he has not paid any calls in respect of any shares of the company held by him
and 6 months have elapsed from the last day fixed for the payment of the call.
In the given case, Mr. L who has not paid any calls in respect of any shares of the company held by him and
five months have passed from the last day fixed for the payment of calls.
Thus, we may conclude that Mr. L can be appointed as a Director of a company as only five months have
passed from the last day fixed for the payment of calls.
(ii) According to section 164(2)(a) of the Companies Act, 2013, no person who is or has been a director of
a company which has not filed financial statements or annual returns for any continuous period of three
financial years shall be eligible to be re-appointed as a director of that company or appointed in other
company, for a period of five years from the date on which the said company fails to do so.
In the present case, Mr. G is director of LDT Limited, who has not filed the company’s annual return
pertaining to the annual general meeting held in the calendar years 2014, 2015 and 2016.
Thus, Mr. G who is a director of LDT Limited cannot be appointed as a Director of any other company for
5 years
Quest-28A Mr. Influential is already a director of 19 companies out of which 10 are public limited companies and 9 are
private companies. He is being appointed as a director of another company named Expensive Remedies
Ltd. Advise Mr. Influential in regard to the following:
(i) Restrictions on the number of directorships to be held by an individual and whether he can accept the
new appointment in view thereof.
(ii) What are the companies to be excluded for the purpose of calculating the ceiling on the appointment
of directors in a public company?
Solution According to section 165(1):
No person shall hold office as director, including any alternate directorship, in more than 20 companies at
the same time.
Provided that out of the limit of 20, the maximum number of public companies in which a person can be
appointed as a director shall not exceed 10.
Explanation I.—Private companies that is either holding or subsidiary company of a public company shall
be included in reckoning the limit of public companies in which a person can be appointed as a director.
Explanation II.—For reckoning the limit of directorships of twenty companies, the directorship in a dormant
company shall not be included
Similarly, In case of section 8 company - Section 165 (1) shall not apply
(i) In the said question, Mr. Influential is already a director in 10 public companies and as Expensive
Remedies Ltd is a public company, he cannot be appointed as a director therein, even though his
directorships are less than 20.
For calculating the limit of 10 public companies, Dormant Company, Section 8 Company, a private
company which is neither a subsidiary nor a holding company of a public company will be excluded
Quest-29 Mr. fortune is holding directorship in the following types of companies:
(i) 4 Public companies
(ii) 10 private companies
(iii) 2 companies registered under section 8 of the Companies Act, 2013.
Mr. Fortune further received offer from 7 public companies, 6 private companies and 2 companies
registered under section 8 of the Companies Act, 2013. He wants to take up maximum permissible
directorship.
His order of preference is as follows:
(1) Public companies
(2) Private companies (not being holding or subsidiary of any public company) and
(3) Companies registered under section 8 of the Companies Act, 2013
Decide the number of companies in which Mr. Fortune can hold the directorship.
Solution Refer to the provisions of Sec 165(1) of companies Act 2013
We may conclude as follow about directorship of Mr Fortune:-
(i) 7 Public companies. Not allowed, as the maximum number of public companies in which one can be a
director is 10 only, thus Mr Fortune can accept further directorship in 6 more public companies
(ii) No more private company. Upon acceptance of directorship in 6 more public companies, he can not
accept any other directorship in any other private limited or public limited company, as total holding has
already reached the maximum permissible 20 companies
(iii) 2 more companies registered under section 8 of the companies Act, 2013. No restriction on the
number of directorship in Sec 8 companies. Thus a person can hold in the companies registered under
section 8 of the Companies Act, 2013.
Quest-29A Mr. Raj, a director of POL Ltd., submitted his resignation from the post of director to the Board of Directors
on 30th June, 2014 and obtained a receipt therefore on the same day. The Board of Directors of POL Ltd.
neither accepted the resignation nor did it file the required form with the Registrar of Companies. You are
required to state whether Mr. Raj ceases to be the Director of POL Ltd. and if yes, since when?
Solution Section 168(2) of the Companies Act, 2013 states that the resignation of a director shall take effect from
the date on which the notice is received by the company or the date, if any, specified by the director in the
notice, whichever is later.
Validity of the resignation of the director is in no way connected to its acceptance by the Company or the
Board nor is it linked to the filing of required form with the Registrar.
Therefore, in the given case, the resignation of Mr. Raj is valid and he will cease to be a director of PQL
Ltd with effect from the date of notice i.e. 30th June 2014 as he has obtained the receipt of the notice on
the same day.
Quest-30 State the legal positions as to the valid appointment of the directors in the given situations in the light of
the Companies Act, 2013-
(i) Shiksham Ltd. was formed for prompting the girls education with 15 directors in its Board. Due to
expansion of its objective at large scale, the company increased the strength of its directors to 20 without
passing SR.
(ii) Mr. Kabir was appointed as an alternate director on behalf of Mr. Robert, as Mr. Robert goes abroad and
comes back to India temporarily and leaves country again.
(iii) PQR Ltd., who failed to file a financial statement in 3 previous financial year, appointed Mr. Khurana as
a director in July 2018.
Solution (i) As per section 149(1) of the Companies Act, 2013,
• Every public company must have at least three directors.
• A private limited company should have minimum two directors.
• A one person company (OPC) will have minimum one director.
• Maximum directors can be 15.
• Maximum number of directors can be increased beyond 15 by passing a special resolution.
• However the upper limit of 15 directors is not applicable to section 8 companies.
• Therefore, increase in the strength of directors to 20 in the Shiksham Ltd. without passing SR is valid.
Assumption- Company has complied provisions of Sec 137 and Sec 92
(ii) As per section 161(2) of the Companies Act, 2013, the alternate director will vacate his office
as soon as the foreign director comes to India.
However, in given case, since Mr. Robert goes abroad and comes back to India temporarily and
leaves country again, thus, becoming unable to transact business, thus alternate director (Mr.
Kabir) would continue for such temporary period.
(iii) As per section 164(2) of Companies Act, 2013, since PQR Ltd. is a defaulted company u/s
164(2) (a) as it failed to filed financial statement in 3 financial year.
Thus any person appointed as director will not be disqualified for first six months after joining i.e.,
from date of his appointment.
Hence the appointment of Mr. Khurana as a director is valid uptil January 2019.
Quest-30A You are the CFO and in- charge of legal compliance of a large multi-national company in India. The Board
of Directors of the company are board and comprise of competent directors who are Indian as well as
Foreign National Mr. ‘X’, who is a Director (Business Development) on the Board is very often on business
tour abroad. He approached you and wants to know from you the regulatory provisions of the Companies
Act, 2013 relating to appointment of Alternate Directors Analyse the following situations and advise
suitably, Mr. X referring to the provisions of the Companies Act, 2013.
(a) To how many directors can a person be appointed as an alternate director and how many votes does,
he have in one Board Meeting?
(b) if the original director joins the Board Meeting through video conferencing without returning to India,
then can the alternate director appointed in his place attend the same board meeting? if yes, whose
presence and vote will be counted?
(c) In case of a private company, where an alternative director is appointed in place of a non- executive
director whose term is indefinite, then, what will be the tenure of such alternative director, provided
the original director does not return to India for a longer period say 3-4 years?
(d) Can an Executive Director/Whole Time Director/Managing Director appoint alternative directors?
Solution (A) (a) According to Section 161(2) of the Companies Act, 2013, the Board of Directors of a company may,
if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a
person, not being a person holding any alternate directorship for any other director in the company or
holding directorship in the same company, to act as an alternate director for a director during his absence
for a period of not less than three months from India.
According to section 165, no person shall hold office as a director, including any alternate directorship, in
more than twenty companies at the same time. However, the maximum number of public companies in
which a person can be appointed as a director shall not exceed ten.
Hence, in the instant case, a person can be appointed as an alternate director for only one director in the
same company but maximum twenty different companies.
An alternate director will have only one vote as he can hold alternate directorship for one director only in
the same company.
(b) The office of alternate director is separate from the attendance of the original director in the Board
Meeting and as per section 161(2) of the Companies Act, 2013, an alternate director is appointed to hold
the office of original director during his absence from India. Accordingly, as far as attendance in Board
Meeting by the original director is concerned, an alternate director may continue to hold office even if the
original director joins the meeting by video conferencing, but the original director will be deemed to have
joined only as a invitee and the attendance of the alternate director shall be counted for the purpose of
the Board Meeting. This is specific only with respect to matters which shall not be dealt with through video
conferencing. In such matters where video conferencing is allowed, voting of original director will be
counted.
(c) According to second proviso to section 161(2), an alternate director shall not hold office for a period
longer than that permissible to the director in whose place he has been appointed and shall vacate the
office if and when the director in whose place he has been appointed returns to India.
Third proviso says that if the term of office of the original director is determined before he so returns to
India, any provision for the automatic re-appointment of retiring directors in default of another
appointment shall apply to the original, and not to the alternate director.
Hence, in the instant case, the alternate director shall hold office till the time original director returns to
India, even if the period is as long as 3-4 years.
(d) As per section 161(2), the Board of Directors of a company may, if so authorised by its articles or by a
resolution passed by the company in general meeting, appoint a person, not being a person holding any
alternate directorship for any other director in the company or holding directorship in the same company,
to act as an alternate director for a director during his absence for a period of not less than three months
from India.
From the above provision, it is clear that an alternate director can be appointed for any director. Hence,
an alternate director can be appointed for Executive director/ Whole time Directors/ Managing Director
however, not by them but by the board of directors.
Quest-31 The Articles of Association of M/s DEF Limited (Non-Government Company) restricts the company to
contribute to National Defence Fund in any financial year for a sum not exceeding Rs. 5 Lakhs. The Articles
is silent about contribution to bonafide Charitable Fund and to a political Party. The Company earned net
profit during the last five financial years as under:
2018-19 45
2017-18 25
2016-17 20
2015-16 15
2014-15 10
The Board of Directors proposes to contribute in July 2019 for the first time during the financial year 2019-
20:
(i) Rs. 7 Lakhs to National Defence Fund
(ii) Rs. 3 Lakhs to bona fide Charitable Fund
(iii) Rs. 5 Lakhs to Political Party
The company seeks your advice on the following matters in respects of each of the above proposals
under the provisions of the Companies Act, 2013.
(i) The appropriate approving authority;
(ii) The quantum of contribution that can be made;
(iii) The mode of payment of such contribution.
Solution (a) In case of National Defence Fund: As per section 183(1), the Board of Directors of any company or any
person or authority exercising the powers of the Board of Directors of a company, or of the company in
general meeting, may, contribute such amount as it thinks fit to the National Defence Fund or any other
Fund approved by the Central Government for the purpose of national defence.
(b) In case of Bonafide Charitable Fund: As per section 181(1), the Board of Directors of a company may
contribute to bona fide charitable and other funds. However, prior permission of the company in general
meeting shall be required for such contribution in case any amount the aggregate of which, in any financial
year, exceed five per cent of its average net profits for the three immediately preceding financial years.
(c) In case of Political Party: As per section 182(1), a company may contribute any amount directly or
indirectly to any political party. However, no such contribution shall be made by a company unless a
resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and
such resolution shall, subject to the other provisions of this section, be deemed to be justification in law
for the making of the contribution authorised by it.
(ii) Quantum of contribution
a. In case of National Defence Fund: As per section 183, the Board of Directors of any company or any
person or authority exercising the powers of the Board of Directors of a company, or of the company in
general meeting, may, notwithstanding anything contained in sections 180, 181 and 182 or any other
provision of this Act or in the memorandum, articles or any other instrument relating to the company,
contribute such amount as it thinks fit to the National Defence Fund or any other Fund approved by the
Central Government for the purpose of national defence.
Hence, the company can contribute ` 7 Lakhs to National Defence Fund inspite of restriction by the
company to contribute in any financial year for a sum not exceeding ` 5 lakhs as the Section 183 prevails
over Articles of the company and there is no limit on such contribution.
b. Bonafide Charitable Fund: According to section 181, the Board of Directors of a company may contribute
to bona fide charitable and other funds. However, prior permission of the company in general meeting shall
be required for such contribution in case any amount the aggregate of which, in any financial year, exceed
five per cent of its average net profits for the three immediately preceding financial years. Average Net
profit: ` 30 Lakhs [(45+25+20)/3] 5% of average net profit: ` 1.5 Lakhs Since, the amount of contribution
exceeds five per cent of its average net profits for the three immediately preceding financial years, hence
it requires prior permission of the company in general meeting for contributing ` 3 Lakhs to a bonafide
Charitable Fund.
c. Political party: Section 182 specifies that a company other than a Government company and a company
which has been in existence for less than three financial years, may contribute any amount directly or
indirectly to any political party.
Hence, the company can contribute ` 5 Lakhs to a political party.
Mode of payment of such contribution:
(a) National Defence fund: No mode of payment is provided under section 183.
(b) Bonafide Charitable Fund: No mode of payment is provided under section 181.
Political Party: According to Section 182(3A), notwithstanding anything contained in sub-section (1), the
contribution under this section shall not be made except by an account payee cheque drawn on a bank or
an account payee bank draft or use of electronic clearing system through a bank account. However, a
company may make contribution through any instrument, issued pursuant to any scheme notified under
any law for the time being in force, for contribution to the political parties.
Quest-31A 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 as director of LMN Limited on 10th October, 2020 in place of Ms. Rachana, who
resigned from her office on 31st May, 2020 six months before expiry of tern 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 directors on 30th July,
2020. Mr. Sarvesh continued to hold his office till 15th October, 2020 which should have held on 30th
September, 2020. Whether Mr. Sarvesh can hold office till 15th October, 2020?
Solution (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 given 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.
Quest-32 Mr. Ramakant, the non-independent director of Superb Industries Limited (SIL) is planning to go abroad for
4 months for resolving of some family issues related to her daughter. The Board of Directors of SIL proposed
to appoint Mr. Subh as an alternate director in the company in place of Mr. Ramakant.
Following were the legal issues in the given situation:
(1) Mr. Subh does not satisfy the eligibility criteria to become Independent Director of SIL as given under
section 149(6) of the Companies Act, 2013.
(2) Mr. Ramakant returned to India within 2 months before the scheduled arrival.
(3) Mr. Subh (in addition to Mr. Ramakant), to be included in the "total number of directors" used for
calculating rotational directors under sec 152(6).
Examine in the given scenario, the aforementioned legal issues in the light of the Companies Act, 2013.
Solution As per Section 161(2) of the Companies Act, 2013, the Board of Directors of a company may, if so authorised
by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a
person holding any alternate directorship for any other director in the company, to act as an alternate
director for a director during his absence for a period of not less than three months from India.
Provided that no person shall be appointed as an alternate director for an independent director unless he
is qualified to be appointed as an independent director under the provisions of this Act.
Provided further that an alternate director shall not hold office for a period longer than that permissible
to the director in whose place he has been appointed and shall vacate the office if and when the director
in whose place he has been appointed returns to India.
Provided also that if the term of office of the original director is determined before he so returns to India,
any provision for the automatic re-appointment of retiring directors in default of another appointment
shall apply to the original, and not to the alternate director.
2. Since Mr. Ramakant has returned to India within 2 months before his scheduled arrival, Mr. Subh shall
vacate the office on return of Mr. Ramakant (Original Director) to India.
3. The alternate director, Mr. Subh, shall not be included in the “total number of directors” for the
purpose of section 152(6), as alternate director is holding alternate directorship in place of the original
director.
Quest-32A The Petitioners were directors in NPP Limited. Due to default in NPP Limited under section 164(2)(a) of the
Companies Act, 2013 on the account of non-filing of financial statements for continuous period of three
financial years, the said Petitioners were disqualified to be as director in one or the other companies.
They came for the legal counselling against their holding of disqualifications as directors in order to
challenge before the Tribunal. Following were the position of the petitioners: One of the petitioner, Mr. X,
was also holding directorship in GPS Ltd. and CDM Ltd. Whereas the petitioner, Mr. Y was appointed one
month before in NPP Ltd.. Whereas Petitioner, Mr. Z, was within a year of commission of default, offered
directorship by RSM Ltd.
Advise, in the light of the given facts, the following legal issues:
(a) On the validity of attracting of disqualification of Petitioners in NPP Ltd. and vacation of their
directorship.
(b) What will be consequences of default caused in NPP Ltd. on the holding of Mr. X’s directorship in GPS
Ltd. and CDM Ltd.
(c) On the validity of offered directorship to Mr. Z by RSM Ltd.
(d) Legal position of Mr. Y who was appointed one month before, in NPP Ltd.
Solution As per the section 164 (2) of the Companies Act, 2013, no person who is or has been a director of a company
which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years;
or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on
the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem
continues for one year or more,
-shall be eligible to be re-appointed as a director of that company or appointed in other company for a
period of five years from the date on which the said company fails to do so.
Provided that where a person is appointed as a director of a company which is in default of clause (a) or
clause (b), he shall not incur the disqualification for a period of six months from the date of his
appointment.
Further section 167 (1) of the Companies Act, 2013 states that the office of a director shall become vacant
in case he incurs any of the disqualifications specified in section 164.
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director
shall become vacant in all the companies, other than the company which is in default.
Accordingly we may conclude as follow:-
(a) Petitioners have incurred disqualification under sub-section (2) of section 164, and falling under section
167, whereby the office of the directors shall become vacant in all the companies, except in the defaulted
company i.e. NPP Ltd
(b) As per section 167(1), Mr. X has to vacate directorship in GPS Ltd. and CDM Ltd.
(c) Offer of directorship to Mr. Z by RSM Ltd. is not valid. As per section 164(2), disqualified director shall
not be eligible to be appointed in other company for a period of five years from the date on which the said
company committed the default.
(d) Since, Mr. Y was appointed one month before in NPP Ltd. which is in default, he shall not incur the
disqualification for a period of six months from the date of his appointment.
Quest33 ABC Ltd. is incorporated in December, 2010 under the Companies Act, 1956. For the year
ended on 31 st March, 2020 and 31 st March, 2021, the financial and other relevant information
of the company were as under:
(` in crores)
Particulars 31.03.2020 31.03.2021
(a) Paid-up capital 8 18#
(b) Reserves 16 6
(c) Turnover 75 98
(d) Borrowings from Banks /FIs 50 45
(The sanctioned limit is 60 crores rupees)
(e) No. of directors 10 10
# Part amount of the Reserves was capitalised, by issue of Bonus shares during the
FY 2020-21
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) “the Public Companies which have, in aggregate, outstanding loans, debentures and deposits,
exceeding fifty crore rupees”.
Here, the words used in the law is ‘exceeding 50 crore rupees’, whereas the banks borrowings in the
given case is only ` 50 crore and not exceeding ` 50 crore. Hence, no need to appoint ID on the basis of
information as on 31 st March, 2020.
Further, the words used in the said Rule is ‘Outstanding Loans’ and not the ‘Sanctioned limit’. The limit
is ` 60 crore, but the outstanding loans is only ` 50 crore.
Therefore, in line with the stated legal provision, there is no need to appoint Independent Directors as
on 31/3/2020.
2. As per Section 149(10) ‘Subject to the provisions of section 152, an independent director shall hold office
for a term up to five consecutive years on the Board of a company, and shall be eligible for re-appointment
on passing of a special resolution by the company and disclosure of such appointment in the Board's report.
As per MCA Circular , as appointment of an ID for a term of less than five years would be permissible,
appointment for any term (whether for five years or less) is to be treated as a one term under section
149(10).
Therefore, the tenure of the appointment of both the IDs for one year only, will be considered as valid.