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COMPANY LAW
The Companies Act, 2013
RTP MAY 18
Q1. The paid-up share capital of Saras Private Limited is ` 1 crore, consisting of 8 lacs Equity Shares of ` 10 each, fully paid-
up and 2 lacs Cumulative Preference Shares of `10 each, fully paid-up. Jeevan (JVN) Private Limited and Sudhir Private
Limited are holding 3 lacs Equity Shares and 50,000 Equity Shares respectively in Saras Private Limited. Jeevan Private
Limited and Sudhir Private Limited are the subsidiaries of Piyush Private Limited. With reference to the provisions of the
Companies Act, 2013 examine whether Saras Private Limited is a subsidiary of Piyush Private Limited? Would your
answer be different if Piyush Private Limited has 8 out of 9 Directors on the Board of Saras Private Limited?

ANSWER:
In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary", in relation to any other company
(that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of
its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of
subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-
clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other
company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the
directors.
In the present case, Jeevan Pvt. Ltd. and Sudhir Pvt. Ltd. together hold less than one half of the total share capital.
Hence, Piyush Private Ltd. (holding of Jeevan Pvt. Ltd. and Sudhir Pvt) will not be a holding company of Saras
Pvt. Ltd.
However, if Piyush Pvt. Ltd. has 8 out of 9 Directors on the Board of Saras Pvt. Ltd. i.e. controls the
composition of the Board of Directors; it (Piyush Pvt. Ltd.) w ill be treated as the holding company of Saras
Pvt. Ltd.

Q2. In a General Meeting of Amit Limited, the Chairman directed to exclude certain matters detrimental to the interest
of the company from the minutes. Manoj, a shareholder contended that the minutes must contain fair and correct
summary of the proceedings thereat. Decide, whether the contention of Manoj is maintainable under the provisions of
the Companies Act, 2013?

ANSWER: Under Section 118 (5) of the Companies Act, 2013, there shall not be included in the Minutes of a meeting,
any matter which, in the opinion of the Chairman of the meeting:
(i) is or could reasonably be regarded as defamatory of any person;
(ii) is irrelevant or immaterial to the proceeding; or

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(iii) is detrimental to the interests of the company;
Further, under section 118(6) the chairman shall exercise absolute discretion in regard to the inclusion or non-
inclusion of any matter in the Minutes on the grounds specified in sub- section (5) above.
Hence, in view of the above, the contention of Manoj, a shareholder of Amit Limited is not valid because the
Chairman has absolute discretion on the inclusion or exclusion of any matter in the minutes for aforesaid
reasons.

Q3. Mr Nilesh has transferred 1000 shares of Perfect Ltd. to Ms. Mukta. The company has refused to register transfer of
shares and does not even send a notice of refusal to Mr. Nilesh or Ms. Mukta respectively within the prescribed
period. Discuss as per the provisions of the Companies Act, 2013, whether aggrieved party has any right(s) against the
company for such refusal?

ANSWER: The problem as asked in the question is governed by Section 58 of the Companies Act, 2013 dealing with the
refusal to register transfer and appeal against refusal.
In the present case the company has committed the wrongful act of not sending the notice of refusal of
registering the transfer of shares.
Under section 58 (4), if a public company without sufficient cause refuses to register the transfer of securities
within a period of thirty days from the date on which the instrument of transfer is delivered to the company, the
transferee may, within a period of sixty days of such refusal or where no intimation has been received from
the company, within ninety days of the delivery of the instrument of transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub-section (4), may,
after hearing the parties, either dismiss the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such
order within a period of ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party
aggrieved;
In the present case Ms. Mukta can make an appeal before the tribunal and claim damages.

Q4. The Director of Happy Limited proposed dividend at 12% on equity shares for the financial year 2016-17. The same was
approved in the annual general meeting of the company held on 20th September, 2017. The Directors declared the
approved dividends. Analysing the provisions of the Companies Act, 2013, give your opinion on the following matters:

(i) Mr. A, holding equity shares of face value of ` 10 lakhs has not paid an amount of ` 1 lakh towards call money on shares.
Can the same be adjusted against the dividend amount payable to him?
(ii) Ms. N was the holder of 1,000 equity shares on 31st March, 2017, but she has transferred the shares to Mr. R,
whose name has been registered on 20th May, 2017. Who will be entitled to the above dividend?
ANSWER:
(i) The given problem is based on the proviso provided in the section 127 (d) of the Companies Act, 2013. As per the
law where the dividend is declared by a company and there remains calls in arrears and any other sum due from a
member, in such case no offence shall be deemed to have been committed where the dividend has been lawfully
adjusted by the company against any sum due to it from the shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of` 10 Lakhs and has not paid an
amount of ` 1 lakh towards call money on shares. Referring to the above provision, Mr. A is eligible to get ` 1.20

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lakh towards dividend, out of which an amount of ` 1 lakh can be adjusted towards call money due on his
shares. ` 20,000 can be paid to him in cash or by cheque or in any electronic mode.
According to the above mentioned provision, company can adjust sum of ` 1 lakh due towards call money on
shares against the dividend amount payable to Mr. A.
(ii) According to section 123(5), dividend shall be payable only to the registered shareholder of the share
or to his order or to his banker. Facts in the given case state that Ms. N, the holder of equity shares transferred
the shares to Mr. R whose name has been registered on 20th May 2017. Since, he became the registered
shareholder before the declaration of the dividend in the Annual general m eeting of the company held on 20th
September 2017, so, Mr. Raj will be entitled to the dividend.

Q5. Tirupati Limited, a listed company has made the following profits, the profits reflect eligible profits under the relevant
section of the Companies Act, 2013.

Financial year Amount (` In crores)

2012-13 20
2013-14 40
2014-15 30
2015-16 70
2016-17 50
(i) Calculate the amount that the company has to spend towards CSR for the financial year 2017-18.
(ii) State the composition of the CSR committee unlisted company and a private company.
ANSWER:
Section 135 read with Companies (Corporate Social Responsibility Policy) Rules, 2014 of the Companies Act,
2013 deals with the provisions related to the Corporate Social Responsibility.
As per the given facts, following are the answers in the given situations -
(i) Amount that Company has to spend towards CSR: According to section 135 of the Companies Act, 2013, the
Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the average
net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.
Accordingly, net profits of Tirupati Ltd. for three immediately preceding financial years is 150 crores (30+70+50)
and 2% of the average net profits of the company made during these three immediately preceding financial
years will constitute 1 crore, can be spent towards CSR in financial year 2017-2018.
(ii) Composition of CSR Committee: The CSR Committee shall be consisting of 3 or more directors, out of which
at least one director shall be an independent director.
(a) an unlisted public company or a private company covered under section 135(1) which is not required to appoint
an independent director, shall have its CSR Committee without such director;
(b) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

Q6. Kavish Ltd., desirous of buying back of all its equity shares from the existing shareholders of the company, seeks your
advice. Examining the provisions of the Companies Act, 2013 discuss whether the above buy back of equity shares by the
company is possible. Also, state the sources out of which buy-back of shares can be financed?

ANSWER:

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In terms of section 68 (2) (c) of the Companies Act, 2013 a company is allowed to buy back a maximum of 25% of the
aggregate of its paid- up capital and free reserves. Hence, the company in the given case is not allowed to buy back its
entire equity shares.
Section 68 (1) of the Companies Act, 2013 specifies the sources of funding buy back of its shares and other
specified securities as under:
(a) Free reserves or
(b) Security Premium account or

(c) Proceeds of the issue of any shares or other specified securities

However, under the proviso to section 68 (1) no buy back of shares or any specified securities can be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of specified securities.

Q7. Altar Limited has on its Board, four Directors viz. W, X, Y and Z. In addition, the company has Mr. D as the Managing
Director. The company also has a full time Company Secretary, Mr. Wise, on its rolls. The financial statements of the
company for the year ended 31st March, 2017 were authenticated by two of the directors, Mr. X and Y under their sig natures.
Referring to the provisions of the Companies Act, 2013:
(i) Examine the validity of the authentication of the Balance Sheet and Statement of Profit & Loss and the Board’s
Report.
(ii) What would be your answer in case the company is a One Person Company (OPC) and has only one Director, who has
authenticated the Balance Sheet and Statement of Profit & Loss and the Board’s Report?

ANSWER:
In accordance with the provisions of the Companies Act, 2013, as contained under section 134 (1),
The financial statement, including consolidated financial statement, if any,
• shall be approved by the Board of Directors
• before they are signed on behalf of the Board
• at least by the chairperson of the company where he is authorised by the Board or
by 2 directors out of which one shall be managing director, *if any,

and the Chief Executive Officer,

 the Chief Financial Officer and
 the company secretary of the company,
wherever they are appointed,
or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon

The Board’s report and annexures thereto shall be signed by its Chairperson of the company, if he is
authorized by the Board and where he is not so authorized, shall be signed by at least two directors one of
whom shall be a managing director or by the director where there is one director.
(i) In the given case, the Balance Sheet and Profit & Loss Account have been signed by Mr. X and Mr. Y, the directors. In
view of the provisions of Section 134 (1), the Managing Director Mr. D should be one of the two signatories. Since, the
company has also employed a full time Secretary, he should also sign the Balance Sheet and Profit & Loss Account.
Therefore, authentication done by two directors is not valid.
(ii) In case of OPC, the financial statements should be signed by one director and hence, the authentication is in order.

Q8. (a) A company issued a prospectus. All the statements contained therein were literally true. It also stated that the
company had paid dividends for a number of years, but did not disclose the fact that the dividends were not paid out of

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trading profits, but out of capital profits. An allottee of shares wants to avoid the contract on the ground that the
prospectus was false in material particulars. Discuss can he do so?

(b) Mr Akshat entered into an agreement for purchasing a commercial property in Delhi belonging to NRT Ltd.
At the time of registration, Mr Akshat comes to know that the title deed of the company is not free and the
company expresses its inability to get the title deed transferred in the name of Mr Akshat saying that he ought
to have had the knowledge of charge created on the property of the company. Examine with the help of ‘Notice
of a charge’, whether the contention of NRT LTD. is correct?
ANSWER:
(a) The non disclosure of the fact that dividends were paid out of capital profits is a concealment of material fact as a
company is normally required to distribute dividend only from trading or revenue profits and under exceptional
circumstances can do so out of capital profits. Hence, a material misrepresentation has been made. Hence, in the given case
the allottee can avoid the contract of allotment of shares. REX V LORD KYSLANT
(b) According to section 80 of the Companies Act, 2013, where any charge on any property or assets of a
company or any of its undertakings is registered under section 77 of the Companies Act, 2013, any person
acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to
have notice of the charge from the date of such registration.

Thus, the section clarifies that if any person acquires a property, assets or undertaking for which a charge is
already registered, it would be deemed that he has complete knowledge of charge from the date the charge is
registered.
Thus, the contention of NRT Ltd. is correct
Q9. Kapoor Builders Limited decides to pay 2.5 percent of the value of debentures as underwriting commission to the
underwriters but the Articles of the company authorize only 2.0 percent underwriting commission on debentures. The
company further decides to pay the underwriting commission in the form of flats. Examine the validity of the above
arrangements under the provisions of the Companies Act,2013.
ANSWER:
Section 40 (6) of the Companies Act 2013, provides that a company may pay commission to any person in connection with
the subscription or procurement of subscription to its securities, whether absolute or conditional, subject to a number
of conditions which are prescribed under Companies (Prospectus and Allotment of Securities) Rules, 2014. In
relation to the case given, the conditions applicable under the above Rules are as under:
(a) The payment of such commission shall be authorized in the company’s articles of association;
(b) The commission maybepaid out ofproceeds ofthe issueorthe profit ofthecompany or both;
(c) The rate of commission paid or agreed to be paid shall not exceed, in case of shares, five percent (5%) of the price at
which the shares are issued or a rate authorised by the articles, whichever is less, and in case of debentures, shall not
exceed two and a half per cent (2.5 %) of the price at which the debentures are issued, or as specified in the company’s
articles, whichever is less;
Thus, the Underwriting commission is limited to 5% of issue price in case of shares and 2.5% in case of
debentures. The rates of commission given above are maximum rates.
In view of the above, the decision of Kapoor Builders Ltd. to pay underwriting commission exceeding 2% as
prescribed in the Articles is invalid.
The company may pay the underwriting commission in the form of flats as both the Companies Act and the
Rules do not impose any restriction on the mode of payment though the source has been restricted to either
the proceeds of the issue or profits of the company.

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Q10. Explain how the auditor will be appointed in the following cases:
(i) A Government Company within the meaning of section 394 of the Companies Act, 2013.
(ii) The Auditor of the company (other than government company) has resigned on 31 st December, 2016, while the
Financial year of the company ends on 31st March, 2017.
ANSWER:
(i) The appointment and re-appointment of auditor of a Government Company or a government controlled company
is governed by the provisions of section 139 of the Companies Act, 2013 which are summarized as under:
The first auditor shall be appointed by the Comptroller and Auditor General of India within 60 days from the
date of incorporation and in case of failure to do so, the Board shall appoint auditor within next 30 days and on
failure to do so by Board of Directors, it shall inform the members, who shall appoint the auditor within 60
days at an extraordinary general meeting (EGM), such auditor shall hold office till conclusion of first Annual
General Meeting.
In case of subsequent auditor for existing government compani es, the Comptroller & Auditor General of India
shall appoint the auditor within a period of 180 days from the commencement of the financial year and the
auditor so appointed shall hold his position till the conclusion of the Annual General Meeting.

(ii) The situation as stated in the question relates to the creation of a casual vacancy in the office of an auditor
due to resignation of the auditor before the AGM in case of a company other government company. Under section
139 (8)(i) any casual vacancy in the office of an auditor arising as a result of his resignation, such vacancy can
be filled by the Board of Directors within thirty days thereof and in addition the appointment of the new
auditor shall also be approved by the company at a general meeting convened within three months of the
recommendation of the Board and he shall hold the office till the conclusion of the next annual general
meeting.

RTP NOV 18
Q11. Prakhar Ltd. intends to raise share capital by issuing Equity Shares in different stages over a certain period of time.
However, the company does not wish to issue prospectus each and every time of issue of shares. Considering the
provisions of the Companies Act, 2013, discuss what formalities Prakhar Ltd. should follow to avoid repeated issuance
of prospectus?
ANSWER:
Shelf prospectus means a prospectus in respect of which the securities or class of securities included therein are
issued for subscription in one or more issues over a certain period without the issue of a further prospectus
(1) According to Section 31 of the Company Act, 2013 any class or classes of companies, as the Securities and Exchange Board
may provide by regulations in this behalf, may file a shelf prospectus with the Registrar at the stage—
(A) of the first offer of securities included therein which shall indicate a period not exceeding one year as the period of
validity of such prospectus which shall commence from the date of opening of the first offer of securities under that
prospectus, and
(B) in respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further
prospectus is required.
(2) The other formalities related to such repeated/subsequent issue of shares- A company filing a shelf prospectus
shall be required to file an information memorandum containing all material facts relating to new charges created,
changes in the financial position of the company as have occurred between the first or previ ous offer of securities and the
succeeding offer of securities and such other changes as may be prescribed, with the Registrar within the prescribed time,
prior to the issue of a second or subsequent offer of securities under the shelf prospectus .
Thus, Prakhar Ltd. can follow the above provisions and can issue a shelf prospectus.

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Q12. Earth Ltd., a Public Company offer the new shares (further issue of shares) to persons other than the existing
shareholders of the Company. Explain the conditions when shares can be issued to persons other than existing
shareholders. Discuss whethe r these shares can be offered to the Preference Shareholders?
ANSWER:
Issue of Further Shares: Section 62 (1) (a) of the Companies Act, 2013 provides that if, at any time, a company
having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares should be
offered to the existing equity shareholders of the company as at the date of the offer, in proportion to the capital paid up
on those shares.
However, certain exceptions have been provided in the Companies Act, 2013 when such further shares of a company
may-be offered to other persons as well. These are as under-
(a) Under section 62 (1) (b) issue of further shares may be offered to employees under a scheme of employees’ stock
option subject to a special resolution passed by the company and subject to such conditions as may be prescribed.

(b) Under section 62 (1) (c) such shares may be offered to any persons, if it is authorised by a special resolution, either for
cash or for a consideration other tha n cash, if the price of such shares is determined by the valuation report of a
registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other
conditions as may be prescribed.
(c) if any equity shareholder to whom the shares are offered in terms of section 62 (1) (a) as described above, declines
such offer, the Board of Directors may dispose of the shares in such manner as is not disadvantageous to the shareholders
or to the company.
Preference Shareholders: From the wordings of Section 62 (1) (c), it is quite clear that these shares can
be issued to any persons who may be preference shareholders as well provided such issue is authorized by a
special resolution of the company and are issued on such conditions as may be prescribed.

Q13. Examine the validity of the following with reference to the relevant provisions of the Companies Act, 2013:
(i) The Board of Directors of Shrey Ltd. called an extraordinary general meeting upon the requisition of members.
However, the meeting was adjourned on the ground that the quorum was not present at the meeting. Advise the
company.

(ii) Mary Ltd is a listed company having turnover of ` 1200 crores during the financial year 2016-17. The CSR
committee of the Board formulated and recommended a CSR project which was approved by the Board. The company
finalised the project under its CSR initiatives which require funds @ 5 % of average net profit of the company for
last three financial years. Will such excess expense be counted in subsequent financial years as a part of CSR
expenditure? Advise the company.

ANSWER:

(i) According to section 100 (2) of the Companies Act 2013, the Board of directors must convene a general meeting upon
requisition by the stipulated minimum number of members.
As per Section 103 (2) (b) of the Companies Act, 2013, if the quorum is not present within half an hour from the
appointed time for holding a meeting of the company, the meeting, if called on the requisition of members, shall
stand cancelled. Therefore, the meeting stands cancelled and the stand taken by the Board of Directors to adjourn
it, is not proper.
(ii) In terms of Section 135(5) of the Companies Act, 2013, the Board of every company to which section 135 is
applicable, shall ensure that the company spends, in every Financial year at least 2 per cent of average net
profits of the company made during the three immediately preceding financial years, in pursuance of its CSR
policy.

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As per Rule 7(3) Where a company spends an amount in excess of requirement provided under sub-section
(5) of section 135 , such excess amount may be set off against the requirement to spend under sub-section (5)
of section 135 up to immediate succeeding three financial years subject to the conditions that —

(i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if
any, in pursuance of sub-rule (2) of this rule.

(ii) the Board of the company shall pass a resolution to that effect.

Q14. Examine the validity of the following decisions of the Board of Directors with reference of the provisions of the
Companies Act, 2013.
(i) In an Annual General Meeting of Vrinda Ltd. having share capital, 80 members present in person or by proxy
holding more than 1/10th of the total voting power, demanded for poll. The chairman of the meeting rejected the
request on the ground that only the members present in person can demand for poll.
(ii) In an annual general meeting, during the process of poll, the members who earlier demanded for poll want to
withdraw it. The chairman of the meeting rejected the request on the ground that once poll started, it cannot be
withdrawn.
ANSWER:
Section 109 of the Companies Act, 2013 provides for the demand of poll before or on the declaration of the result of the
voting on any resolution on show of hands. Accordingly law says that:-
Order of demand for poll by the chairman of meeting: Before or on the declaration of the result of
the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the
meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf:-
(a) In the case a company having a share capital, by the members present in person or by proxy, where allowed, and having
not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh
rupees or such higher amount as may be prescribed has been paid-up; and
(b) in the case of any other company, by any member or members present in person or by proxy, where allowed, and having
not less than one tenth of the total voting power.
Withdrawal of the demand: The demand for a poll may be withdrawn at any time by the persons who made the
demand.
Hence, on the basis on the above provisions of the Companies Act, 2013:
(i) The chairman cannot reject the demand for poll as poll can be demanded by the members present in person or by
proxy. subject to provision in the articles of company.
(ii) The chairman cannot reject the request of the members for withdrawing the demand of the Poll.

Q15. Growmore Limited’s share capital is divided into different classes. Now, Growmore Limited intends to vary the rights
attached to a particular class of shares. Explain the provisions of the Companies Act, 2013 to Growmore Limited as to
obtaining consent from the shareholders in relation to variation of rights.

ANSWER:
According to section 48 of the Companies Act, 2013-
(1) Variation in rights of shareholders with consent: Where a share capital of the company is divided into
different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the
holders of not less than three-fourths of the issued shares of that class or by means of a special resolution passed at a
separate meeting of the holders of the issued shares of that class,—

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(a) if provision with respect to such variation is contained in the memorandum or articles of the company; or
(b) in the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the
terms of issue of the shares of that class:
Provided that if variation by one class of shareholders affects the rights of any other class of shareholders, the
consent of three-fourths of such other class of shareholders shall also be obtained and the provisions of this
section shall apply to such variation.
(2) No consent for variation: Where the holders of not less than ten per cent of the issued shares of a class did
not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal to
have the variation cancelled, and where any such application is made, the variation shall not have effect unless and until it
is confirmed by the Tribunal:
Provided that an application under this section shall be made within twenty-one days after the date on which
the consent was given or the resolution was passed, as the case may be, and may be made on behalf of the
shareholders entitled to make the application by such one or more of their number as they may appoint in
writing for the purpose.

Q16. Heavy Metals Limited wants to provide financial assistance to its employees, to enable them to subscribe for
certain number of fully paid shares. Considering the provision of the Companies Act, 2013, what advice would you give to
the company in this regard?

ANSWER:
Under section 67 (2) of the Companies Act, 2013 no public company is allowed to give, directly or indirectly and whether
by means of a loan, guarantee, or security, any financial assistance for the purpose of, or in connection with, a purchase or
subscription, by any person of any shares in it or in its holding company.

However, section 67 (3) makes an exception by allowing companies to give loans to their employees other than
its directors or key managerial personnel, for an amount not exceeding their salary or wages for a period of
six months with a view to enabling them to purchase or subscribe for fully paid-up shares in the company or its
holding company to be held by them by way of beneficial ownership.
It is further provided that disclosures in respect of voting rights not exercised directly by the employees in
respect of shares to which the scheme relates shall be made in the Board's report in such manner as may be
prescribed.
Hence, Heavy Metals Ltd can provide financial assistance upto the specified limit to its employees to enable
them to subscribe for the shares in the company provided the shares are purchased by the employees to be held
for beneficial ownership by them.
However, the directors or key managerial personnel will not be eligible for such assistance.

Q17. Lemon & Company, Chartered Accountants a Limited Liability Partnership firm with CA. L, CA. M and CA. N as partners,
is the statutory auditor of a listed company M/s Big Limited for past 6 years as on 01.04.2014.
CA.M is also a partner in other Chartered Accountant firm Dew & Company, Chartered Accountants. Advise
under the provisions of the Companies Act, 2013 :
(1) Upto how many years can Lemon & Company continue as statutory auditors of M/s Big Limited?
(2) What shall be the cooling-off period for Lemon & Company with respect to M/s Big Limited?
(3) Can Dew & Company; be appointed as statutory auditors of M/s Big Limited and it's another listed subsidiary M/s

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Dark Limited during such cooling-off period?
(4) Can Lemon & Company be appointed as internal auditors of M/s Big Limited and it's another listed subsidiary M/s
Dark Limited, during such cooling-off period?

ANSWER: According to Section 139 (2) of the Companies Act, 2013,

(I) Listed companies and other prescribed class or classes of companies (except one person companies and small
companies) shall not appoint or re-appoint an audit firm as auditor for more than two terms of 5 consecutive years.
(II) An audit firm which has completed its term (i.e. two terms of five consecutive years) shall not be eligible for re-
appointment asauditor inthe same company for five years from the completion of such term.
(III) Further, as on the date of appointment no audit firm having a common partner or partners to the other audit firm,
whose tenure has expired in a company immediately preceding the financial year, shall be appointed as an auditor of the
same company for a period of five years.
(IV) For the purpose of the rotation of auditors, in case of an auditor (whether an individual or audit firm), the period for
which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account
for calculating the period of 5 consecutive years or 10 consecutive years, as the case may be.
Applying the above provisions,
(1) Lemon & Company can continue as statutory auditors of M/s Big Limited for 4 more years from 1.4.2014, i.e. they can
continue in office only till 31.3.2018.
(2) The cooling- off period shall be of 5 years.
(3) Dew & Company cannot be appointed as a statutory auditor of M/s Big Limited during the cooling – off period of Lemon
& Company, as CA. M is the common partner in both Lemon & Company and Dew & Company.
However, Dew & Company can be appointed as a statutory auditor of M/s Dark Limited (a listed subsidiary of
M/s Big Limited), during the cooling – off period.

(4) As per Section 138 (1) of the Companies Act, 2013, every listed company and other prescribed class of companies,
shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or
such other professional (which may be either an individual or a partnership firm or a body corporate) as may be
decided by the Board to conduct internal audit of the functions and activities of the company.
Accordingly, M/s Lemon & Company can be appointed as an internal auditors of M/s Big Limited and in its
subsidiary M/S Dark Limited (a listed company). The provision of cooling off period as given under Section 139
of the Companies Act, 2013, shall not be applicable on the Internal auditors.

Q18. Mrs. Sita, wife of CA. ‘Arjun' the statutory auditor of Stellar Builders Limited, acquired shares in the company for a
face value of `75000/- on 15th March, 2018. CA. ‘Arjun’, issued his audit report on 25th April, 2018. Examine the validity of
this transaction under the Companies Act, 2013. Would your answer be different if face value of the shares
have been ` 150000/- (market value ` 95000/-)?
ANSWER:
As per Section 141(3)(d)(i) of the Companies Act, 2013, a person who, or his relative or partner is holding any security
of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding
company, shall not be appointed as an auditor of the company.
However, Rule 10 of the Companies (Audit and Auditors) Rules, 2014, states that a relative of an auditor may hold
securities in the company of face value not exceeding rupees one lakh.

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In the given case Mrs. Sita, wife of CA. Arjun acquired shares in Stellar Builders Limited, in which he was a
statutory auditor on 15th March, 2018. Since, the securities held by Mrs. Sita is within the prescribed limit of ` 1
lakh, such a transaction is valid.
Yes, the answer will be different in case where the face value of acquired shares is` 1,50,000. Then in that
case:
(i) Corrective action to maintain the limit specified (i.e., 1 lac) shall be taken by the auditor within 60 days of such
acquisition, or
(ii) Auditor has to vacate his office.

Q19. The Board of Directors of Sindhu Limited wants to make some changes and to alter some Clauses of the Articles of
Association which are to be urgently carried out, which include the increase in Authorized Capital of the company, issue of
shares, increase in borrowing limits and increase in the number of directors.
Discuss about the provisions of the Companies Act, 2013 to be followed for alteration of Articles of Association.
ANSWER:
Alteration in Articles of Association: Section 14 of the Companies Act, 2013, vests companies with power to
alter or add to its articles. The law with respect to alteration of articles is as follows:
(1) Alteration by special resolution: Subject to the provisions of this Act and the conditions contained in its
memorandum, if any, a company may, by a special resolution alter its articles.
(2) Filing of alteration with the registrar: Every alteration of the articles and a copy of the order of the CG
approving the alteration, shall be filed with the Registrar, together with a printed copy of the altered articles, within a
period of fifteen days in such manner as may be prescribed, who shall register the same.
(3) Any alteration made shall be valid: Any alteration of the articles registered as above shall, subject to the
provisions of this Act, be valid as if it were originally contained in the articles.
(4) Alteration noted in every copy: Every alteration made in articles of a company shall be noted in every copy of
the articles, as the case may be. If a company makes any default in complying with the stated provisions, the company and
every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the articles issued
without such alteration. [Section 15]

Q20. The directors of Element Ltd. want to voluntary revise the Financial statements of the company. They have
approached you to state to them the provisions of the Companies Act, 2013 regarding voluntary revision of financial
statements.
ANSWER: SEC. 131
(1) Preparation of revised financial statement or revised report on the approval of
Tribunal: If it appears to the directors of a company that—
(a) the financial statement of the company; or
(b) the report of the Board,
do not comply with the provisions of section 129 or section 134, they may prepare revised financial statement
or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal
on an application made by the company in such form and manner as may be prescribed and a copy of the order
passed by the Tribunal shall be filed with the Registrar:
Tribunal to serve the notice: Provided that the Tribunal shall give notice to the Central Government
and the Income tax authorities and shall take into consideration the representations, if any, made by that
Government or the authorities before passing any order under this section:

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Number of times of revision and recast: Provided further that such revised financial statement or report
shall not be prepared or filed more than once in a financial year:
Reason for revision to be disclosed: Provided also that the detailed reasons for revision of such
financial statement or report shall also be disclosed in the Board's report in the relevant financial year in
which such revision is being made.
(2) Limits of revisions: Where copies of the previous financial statement or report have been sent out to members or
delivered to the Registrar or laid before the company in general meeting, the revisions must be confined to—
(a) the correction in respect of which the previous financial statement or report do not comply with the provisions of
section 129 or section 134; and
(b) the making of any necessary consequential alternation.
(3) Framing of rules by the Central Government in relation to revised financial statement or
director's report: The Central Government may make rules as to the application of the provisions of this Act in
relation to revised financial statement or a revised director's report and such rules may, in particular—
(a) make different provisions according to which the previous financial statement or report are replaced or are
supplemented by a document indicating the corrections to be made;
(b) make provisions with respect to the functions of the company's auditor in relation to the revised financial statement or
report;
(c) require the directors to take such steps as may be prescribed.

RTP MAY 19
Q21. MNO a One Person company (OPC) was incorporated during the year 2015 -16 with an
authorised capital of ` 45 lakhs (4.5 lakhs shares of ` 10 each). The capital was fully subscribed
and paid up. Turnover of the company during 2015-16 and 2016-17 was ` 2 crores and ` 2.5
crores respectively. Promoter of the company seeks your advice in the following circumstances,
whether MNO (OPC) can convert into any other kind of company during 2017-18. Please, advise
with reference to relevant provisions of the Companies Act, 2013 in the below mentioned
circumstances:
(i) If promoter increases the paid up capital of the company by ` 10 lakhs during 2017-18
(ii) If turnover of the company during 2017-18 was ` 3 crores.
ANSWER:
As per Amendment Effective From 1st April 2021 {the cos. Incorporation Second amendment rules, 2021} there is no restraint on conversion
except conversion into Sec. 8 company.

Besides, Section 18 of the Companies Act, 2013 provides that a company of any class registered
under this Act may convert itself as a company of other class under this Act by alteration of
memorandum and articles of the company in accordance with the provisions of the Chapter II
of the Act.
According to the above provisions, following are the answers to the given circumstances:
(i) Where, if the promotors increase the paid up capital of the company by ` 10.00 lakh during 2017-2018
i.e., to ` 55 lakh (45+10= 55), MNO (OPC) may convert itself voluntarily into any other kind of company
without any limit as to the paid up share capital . This could be done by the MNO by alteration of
memorandum and articles of the company in compliance with the Provisions of the Act.
(ii) Where if the turnover of the MNO during 2017-18 was ` 3.00 crore, there will be no change in the
answe,.

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Q22. The paid-up share capital of Altar Private Limited is ` 1 crore, consisting of 8 lacs Equity Shares of `
10 each, fully paid-up and 2 lacs Cumulative Preference Shares of `10 each, fully paid-up. New Private
Limited and Ultra Private Limited are holding 3 lacs Equity Shares and 50,000 Equity Shares respectively
in Altar Private Limited. New Private Limited and Ultra Private Limited are the subsidiaries of PQR Private
Limited. With reference to the provisions of the Companies Act, 2013 examine whether Altar Private
Limited is a subsidiary of PQR Private Limited? Would your answer be different if PQR Private Limited
has 8 out of 9 Directors on the Board of Altar Private Limited?
ANSWER:
In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary", in relation to
any other company (that is to say the holding company), means a company in which the holding
company—
(i) controls the composition of the Board of Directors; or
(ii) 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:
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding companyeven if the control
referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at its discretion can appoint
or remove all or a majority of the directors.
In the present case, New Pvt. Ltd. and Ultra Pvt. Ltd. together hold less than one half of the total
share capital i.e. less than one-half of total voting power. Hence, PQR Private Ltd. (holding of New
Pvt. Ltd. and Ultra Pvt. Ltd) will not be a holding company of Altar Pvt. Ltd.
However, if PQR Pvt. Ltd. has 8 out of 9 Directors on the Board of Altar Pvt. Ltd. i.e. controls the
composition of the Board of Directors; it (PQR Pvt. Ltd.) will be treated as the holding company of
Altar Pvt. Ltd.

Q23. Data Limited (listed on Stock Exchange) was incorporated on 1 st October, 2018 with a paid- up share
capital of ` 200 crores. Within this small time of 4 months it has earned huge profits and has topped the
charts for its high employee friendly environment. T he company wants to issue sweat equity to its
employees. A friend of the CEO of the company has told him that they
ANSWER: Sweat equity shares of a class of shares already issued.
According to section 54 of the Companies Act, 2013, a company may issue sweat equity shares of
a class of shares already issued, if the following conditions are fulfilled, namely—
(i) the issue is authorised by a special resolution passed by the company;
(ii) the resolution specifies the number of shares, the current market price, consideration, if any, and
the class or classes of directors or employees to whom such equity shares are to be issued;
(iii) where the equity shares of the company are listed on a recognised stock exchange, the sweat
equity shares are issued in accordance with the regulations made by the Securities and Exchange Board in
this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as
prescribed under Rule 8 of the Companies (Share and Debentures) Rules, 2014,

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The rights, limitations, restrictions and provisions as are for the time being applicable to equity
shares shall be applicable to the sweat equity shares issued under this section and the holders of
such shares shall rank pari passu with other equity shareholders.

Data Limited can issue Sweat equity shares by following the conditions as mentioned above. It
does not make a difference that the company is just a few months old.

Q24. Walnut Limited has an authorized share capital of 1,00,000 equity shares of ` 100 per share and an
amount of ` 3 crores in its Share Premium Account as on 31-3-2018. The Board of Directors seeks your
advice about the application of share premium account for its business purposes. Please give your
advice.
ANSWER: According to section 52 of the Companies Act, 2013, where a company issues shares at a
premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received
on those shares shall be transferred to a "securities premium account" and the provisions of this Act
relating to reduction of share capital of a company shall, except as provided in this section, apply as if the
securities premium account were the paid-up share capital of the company.
The securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company as fully paid
bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or
debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of
any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68

[Link] Ltd. having a net-worth of ` 80 crores and turnover of ` 30 crores wants to accept deposits from
public other than its members. Referring to the provisions of the Companies Act, 2013, state the
conditions and the procedures to be followed by Ashish Ltd. for accepting deposits from public other
than its members.
ANSWER: Acceptance of deposit from public: According to section 76 of the Companies Act, 2013, a
public company, having net worth of not less than 100 crore rupees or turnover of not less than 500
crore rupees, can accept deposits from persons other than its members subject to compliance with the
requirements provided in sub-section (2) of section 73 and subject to such rules as the Central
Government may, in consultation with the Reserve Bank of India, prescribe.
Provided that such a company shall be required to obtain the rating (including its net-worth,
liquidity and ability to pay its deposits on due date) from a recognised credit rating agency for
informing the public the rating given to the company at the time of invitation of deposits from the
public which ensures adequate safety and the rating shall be obtained for every year during the
tenure of deposits.
Provided further that every company accepting secured deposits from the public shall within
thirty days of such acceptance, create a charge on its assets of an amount not less than the
amount of deposits accepted in favour of the deposit holders in accordance with such rules as
may be prescribed.

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Since, Ashish Ltd. has a net worth of ` 80 crores and turnover of ` 30 crores, which is less than
the prescribed limits, hence, it cannot accept deposit from public other than its members. If the
company wants to accept deposits from public other than its members,

it has to fulfill the eligibility criteria of net worth or Turnover or both and then the other
conditions as stated above.

Q26. RST Ltd. declared dividend at the rate of 20% for the financial year 2017-2018 in the AGM scheduled
on 15th June 2018. As RST Ltd. is left with certain unpaid and unclaimed dividend, it transferred amount
of unpaid and unclaimed dividend to UDA (unpaid dividend account). After remaining unpaid and
unclaimed for more than 2 years in the UDA, some of the entitled shareholders made liable RST Ltd. for
noncompliance of section 124, and claimed for their unpaid dividend amount. RST Ltd. denies saying that
there were certain legal issues on the entitlement of the dividend amount to the respective shareholders.

State in the light of the given facts, whether the allegation marked by shareholders and claim for
the divided amount, against RST Ltd. is justifiable?
ANSWER: As per section 124 of the Companies Act, 2013, where a dividend has been declared by a
company but has not been paid/claimed to/by shareholder within 30 days from the date of the
declaration, the company shall, within 7 days from the date of expiry of the said period of 30 days,
transfer the total amount of dividend which remains unpaid/unclaimed to the Unpaid Dividend Account.
The company shall, within a period of 90 days of making any transfer of an amount, prepare a
statement containing the names, their last known addresses and the unpaid dividend to be paid
to each person and place it on the web-site of the company, if any, and also on any other web-
site approved by the Central Government for this purpose, in such form, manner and other
particulars as may be prescribed.
Accordingly, in the given situation, RST Ltd. failed to give statement of Unpaid/unclaimed
dividend and so liable for the said non compliance of section 124 of the Companies Act, 2013.
Any person claiming to be entitled to any money transferred under section 124(1) to the Unpaid
Dividend Account of the company may apply to the company for payment of the money
claimed.
Since RST Ltd. failed to comply with the requirements of this section as to the preparing of a
statement of unpaid dividend, so
company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of
five hundred rupees for each day after the first during which such failure continues, subject to a maximum of ten
lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five
thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after
the first during which such failure continues, subject to a maximum of two lakh rupees.".

Q27. Examine the following situations in the light of the Companies Act, 2013
(i) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the Annual General
Meeting of the company held in September, 2018, in which he accepted the assignment. Subsequently, in
January, 2019 he joined B, as a partner for the consultancy firm of Mr. B. Mr. B is working also working
as a Finance Executive of X Ltd.
(ii) “Mr. Abhi”, a practicing Chartered Accountant, is holding securities of “Abhiman Ltd.” having face value
of ` 1000/-. Whether Mr. Abhi is qualified for appointment as an Auditor of Abhiman Ltd.”?
ANSWER:

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(i) Provisions and Explanation: Section 141(3) (c) of the Companies Act, 2013 prescribes that any
person who is a partner or in employment of an officer or employee of the company will be disqualified
to act as an auditor of a company. Sub - section (4) of Section 141 provides that an auditor who becomes
subject, after his appointment, to any of the disqualifications specified in sub-sections (3) of Section 141,
he shall be deemed to have vacated his office as an auditor.
Conclusion: In the present case, Ayush, an auditor of X Ltd., joined as partner with B, who is
Finance executive of X Ltd., has attracted clause (3) (c) of Section 141 and, therefore, he shall be
deemed to have vacated office of the auditor of X Limited.
(ii) As per section 141 (3)(d) (i) an auditor is disqualified to be appointed as an auditor if he, or
his relative or partner holding any security of or interest in the company or its subsidiary, or of
its holding or associate company or a subsidiary of such holding company:
In the present case, Mr. Abhi. is holding security of ` 1000 in the Abhiman Ltd, therefore he is not
eligible for appointment as an Auditor of “Abhiman Ltd.”

Q28. Primal Limited is a company incorporated in India. It owns two subsidiaries- Privy Limited (in
which it holds 75% shares) and Malvy Limited (a wholly owned subsidiary). Both the subsidiaries are
incorporated outside India. T he Board of Directors of Primal Limited intends to call an Extraordinary
General Meeting (EGM) of Primal Limited on urgent basis. Advise the Board of Directors on the following:
(i) EGM be held in India
(ii) EGM be held in Netherlands

ANSWER:

According to section 100 of the Companies Act, 2013, the Board may, whenever it deems fit, call an
extraordinary general meeting of the company.
Provided that an extraordinary general meeting of the company, other than of the wholly owned
subsidiary of a company incorporated outside India, shall be held at a place within India.
In the light of the above provisions:
(i) The Board of Directors can call the EGM in India.
(ii) The Board of Directors cannot call the EGM of Primal Limited outside India as it is a company
incorporated in India.

RTP NOV 19

Q29. S Ltd. is a company in which H Ltd. is holding 60% of its paid up share capital. One of the shareholder of H Ltd. made a
charitable trust and donated his 10% shares in H Ltd. and`50 crores to the trust. He appoints S Ltd. as the trustee. All the
assets of the trust are held in the name of S Ltd. Can a subsidiary hold shares in its holdingcompany in this way?
ANSWER: According to section 19 of the Companies Act, 2013 a company shall not hold any shares in its holding company
either by itself or through its nominees. Also, holding company shall not allot or transfer its shares to any of its
subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be
void.
Following are the exceptions to the above rule—
(a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding

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company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company
but in this case it will not have a right to vote in the meeting of holding company.
In the given case one of the shareholders of holding company has transferred his shares in the holding company
to a trust where the shares will be held by subsidiary company. It means now subsidiary will hold shares in the
holding company. But it will hold shares in the capacity of a trustee. Therefore, we can conclude that in the given
situation S Ltd. can hold shares in H Ltd.

Q30. Vintage security equipments limited is a manufacturer of CCT V cameras. It has raised ` 100 crores through public
issue of its equity shares for starting one more unit of CCT V camera manufacturing. It has utilized 10 crores rupees and
then it realized that its existing business has no potential for expansion because government has reduced customs duty on
import of CCT V camera hence imported cameras from china are cheaper than its own manufacturing. Now it wants to
utilize remaining amount in mobile app development business by adding a new object in its memorandum of
association.
Does the Companies Act, 2013 allow such change of object. If not then what advise will you give to company. If
yes, then give steps to be followed.

ANSWER: According to section 13 of the Companies Act, 2013 a company, which has raised money from public through
prospectus and still has any unutilised amount out of the money so raised, shallnotchangeits objectsfor whichitraisedthe
moneythrough prospectus unless a special resolution is passed by the company and—
(i) the details in respect of such resolution shall also be published in the newspapers (one in English and one in
vernacular language) which is in circulation at the place where the registered office of the company is situated and shall
also be placedon the website of the company, if any, indicating therein the justification for such change;
(ii) the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having
control in accordance with SEBI regulations.
Company will have to file copy of special resolution with ROC and he will certify the registration within a
period of thirty days. Alteration will beeffective only after this certificate by ROC.
Looking at the above provision we can say that company can add the object of mobile app development in its
memorandum and divert public money into that business. But for that it will have to comply with above
requirements.

Q31. What are the powers of Registrar to make entries of satisfaction and release of charges in the absence of any
intimation from the company. Discuss this matter in the light of provisions of the Companies Act, 2013.

ANSWER: Section 83 of the Act of 2013 empowers the Registrar to make entries with respect to the satisfaction and
release of charges even if no intimation has been received by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the satisfaction of Registrar
that the debt secured by charge has been paid or satisfied in whole or in part or that the part of the property or
undertaking charged has been released from the charge or has ceased to form part of the company’s property
or undertaking, then he may enter in the register of charges a memorandum of satisfaction that:
• the debt has been satisfied in whole or in part; or
• the part of the property or undertaking has been released from the charge or has

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ceased to form part of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been received by him from
the company.
Information to affected parties: T he Registrar shall inform the affected parties within 30 days of making the
entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of satisfaction of
charge in full, he shall issue a certificate of registration of satisfaction of charge.

Q32. Neemrana Infotech Ltd. was incorporated on 1.4.2017. No General Meeting of the company has been held so
far. Explain the provisions of the Companies Act, 2013 regarding the time limit for holding the first annual general
meeting of the Company and the power of the Registrar to grant extension of time for the First Annual General Meeting.
ANSWER: According to Section 96 of the Companies Act, 2013, every company shall be required to hold its first annual
general meeting within a period of 9 months from the closing of its first financial year.
Also, if a company holds its first annual general meeting as aforesaid, it shall not be necessary for the
company to hold any annual general meeting in the year of its incorporation:
It also provide that the Registrar may, for any special reason, extend the time within which any annual general
meeting, other than the first annual general meeting, shall be held, by a period not exceeding three months.
In the given case, taking the first financial year of Neemrana Infotech Ltd is for the period 1st April 2017 to 31st
March 2018, the first annual general meeting of the company should be held on or before 31st December,
2018.
According to section 99, if any default is made in holding a meeting of the company in accordance with
section 96, the company and every officer of the company who is in default shall be punishable with fine
which may extend to one lakh rupees and in the case of a continuing default, with a further fine which may
extend to five thousand rupees for every day during which such default continues.
Even though the Registrar of Companies is empowered to grant extension of time for a period not exceeding 3
months for holding the annual general meetings, such power does not apply in the case of the first annual
general meeting. T hus, the company and its directors will be liable under section 99 of the Companies Act,
2013 for the default if the annual general meeting was held after 31st December, 2018.

Q33. Mr. Pink held 100 partly paid up shares of Red Limited. T he company asked him to pay the final call money on the
shares. Due to some unavoidable circumstances he was unable to pay the amount of call money to the company. At a general
meeting of the shareholders, the chairman disallowed him to cast his vote on the ground that the articles do not permit a
shareholder to vote if he has not paid the calls on the shares held by him. Mr. Pink contested the decision of the
Chairman. Referring to the provisions of the CompaniesAct, 2013 decide whether the contention of Mr. Pink is valid.
ANSWER: Section 106 (1) of the Companies Act, 2013 states that the articles of a company may provide that no
member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums
presently payable by him have not been paid, or in regard to which the company has exercised any right of lien.
In the present case the articles of the company do not permit a shareholder to vote if he has not paid the calls
on the shares held by him. T herefore, the chairman at the meeting is well within its right to refuse him the right
to vote at the meeting and Mr. Pink’s contention is not valid.

Q34. Red Limited was incorporated on 1st April, 2014 is facing severe effects of depression of the economy. Owing to its
bad financial status most of the members have started withdrawing their holding from the company. T he company
had 250 members on 10th January, 2019. By 15th January, 2019, 244 members had withdrawn their holding. No new

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member has invested in the company after 15th February till date. Now, Mr. A, an existing member has approached you to
advise him regarding his liabilities in such a situation.
ANSWER: According to section 3A of the Companies Act, 2013, If at any time the number of members of a company is
reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company
carries on business for more than six months while the number of members is so reduced, every person who is a member
of the company during the time that it so carries on business after those six months and is cognisant of the fact that it
is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the
payment of the whole debts of the company contracted during that time, and may be severally sued therefor.
Hence, in the given situation, the number of member in the said public company have fallen below 7 [250-244=6]
and these members have continued beyond the specified limit of 6 months, the reduced members of the
company during the period of 1 month shall be severally liable for the payment of the whole debts of the
company contracted during that time, and may be severally sued therefor.

Q35. Rijwan Limited, a listed company, is in the business of garment manufacturing and has its registered office at 123, N T
ower, Commercial Beta Complex, Biwadi, Rajasthan. The company has called its 6th Annual General Meeting at 3 PM on
22nd August, 2019 at Ansal Plaza, Bhiwadi. Some of the members of the company have opposed to calling of the meeting
at Ansal Plaza. Thecompany has approached you to advise them in this regard.
Suppose, Rijwan Limited is an unlisted company and wants to call their 6th AGM at Jaipur, will your answer
differ.
ANSWER: According to section 96(2) of the Companies Act, 2013, every annual general meeting shall be called during
business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at the
registered office of the company or at some other place within the city, town or village in which the registered office
of the company issituate.
Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given
in writing or by electronic mode by all the members in advance.
Thus, in the first case, the company is rightful in calling the Annual G eneral meeting at Ansal Plaza.
In the second scenario, in case of an unlisted company, annual general meeting may be held at any place in
India if consent is given in writing or by electronic mode by all the members in advance. Hence, if consent is
given in writing or by electronic mode by all the members in advance, the AGM can be called at Jaipur,
otherwise not.
Q36. Yellow limited has prepared its financial statements for the year 2018-19. Mr. Prateek, the Managing director the
company is declining to sign these financial statements on the grounds that it is only the duty of the Board of the directors
to sign the financial statements as approved by the Board and he is not liable to sign the same. Now, Mr. Prateek
has approached you advise him regarding his responsbilty for signing the financial statement. Advise Mr.
Prateek regarding his responsibility for signing the financial statements as per the provisions of the
Companies Act, 2013.
Mr. Prateek has also provided to you the following more informations:
1. TheBoard as a policy does not authorise the chairperson of the companyto sign the financial statements
2. The company has appointed Ms. Sunanina as its Company Secretary
ANSWER:
According to section 134(1) of the Companies Act, 2013, the financial statement, including consolidated
financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the
Board by the chairperson of the company where he is authorised by the Board or by two directors out of which
one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the
company secretary of the company, wherever they are appointed, or in the case of One Person Company, only

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by one director, for submission to the auditor for his report thereon. As per the facts of the question, the
Board has not authorised the chairperson of the company to sign the financial statements. Hence, the financial
statement shall be signed by two directors out of which one shall be managing director [i.e. Mr. Prateek].

RTP MAY 2020

Q37. CASE SCENARIO / MULTIPLE CHOICE QUESTIONS

1 A private company by the name of Neha Pvt. Limited was incorporated in the year 2002. The registered office
of the company Neha Pvt. Limited was situated in city K of state Y. During the financial year beginning on
01/04/2018 and ending on 31/03/2019 the turnover of the company Neha Pvt. Limited was ` 1010 crore. The
net profit of the company Neha Pvt. Limited for the financial year 2018-19 was ` 4 crore. The Board of Directors
of Neha Pvt. Limited consisted of only two directors namely Mr. M and Mr. N. Mr. M and Mr. N were the only
directors of company Neha Pvt. Limited since its incorporation in the year 2002. Mr. M one of the two directors
of Neha Pvt. Limited was of the opinion that no Corporate Social Responsibility Committee of the Board was
required to be formed as for the financial year 2019 – 20 due to the reason that net profit of the company
Neha Pvt. Limited for financial year 2018-19 was ` 4 crore which was less than ` 5 crore. Mr. N the other
director of Neha Pvt. Limited was not having the same opinion as Mr. M. He was of the opinion that Corporate
Social Responsibility Committee of the Board must be formed for the company Neha Pvt. Limited. The net
profit of the company Neha Pvt. Limited for the financial year 2015-16, 2016-17 and 2017-18 were ` 1 crore, ` 2
crore and ` 3 crore respectively. Keeping the basic provisions of Companies Act in mind answer the following
multiple choice questions:

(A) Mr. M one of the director of Neha Pvt. Limited was of the opinion that no Corporate Social Responsibility
Committee of Board was required to be formed for financial year 2019-20 but Mr. N other director was of
opinion that it was required to be formed. According to your understanding which one of the two director is
right and why:
(a) Mr. M because net profit of Neha Pvt. Limited for financial year 2018-19 was less than ` 5 crore.
(b) Mr. N because turnover of Neha Pvt. Limited for financial year 2018-19 was more than ` 1,000 crore.
(c) Mr. N because net profit of Neha Pvt. Limited for financial year 2018-19 was more than ` 2 crore.
(d) Mr. M because turnover of Neha Pvt. Limited for financial year 2019-19 was less than ` 1,500 crore.
(B) The company Neha Pvt. Limited must give preference to spend the amount of contribution towards
Corporate Social Responsibility in area of:
(a) City O of State Y
(b) City A of State Z
(c) City G of State Z
(d) City K of State Y

(C) According to law Corporate Social Responsibility Committee shall consist of three or more directors, so for
company Neha Pvt. Limited the Corporate Social Responsibility Committee will:
(a) Not be formed as it has only two directors namely Mr. M and Mr. N
(b) Be formed only after appointing one more director apart from Mr. M and Mr. N
(c) Be formed with two directors only namely Mr. M and Mr. N
(d) Be formed only after appointing two more directors apart from Mr. M and Mr. N

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(D) The company Neha Pvt. Limited shall spend during financial year 2018-19 on Corporate Social
Responsibility an amount of atleast:
(a) ` 0.04 crore
(b) ` 0.12 crore
(c) ` 0.18 crore
(d) ` 0.06 crore

2. GHWX Private Limited was incorporated in the year 2009. The registered office of the company GHWX
Private Limited was situated in city T of state V. The Board of Directors of GHWX Private Limited comprised of
five directors namely Mr. K, Mr. N, Mr. R, Mr. U and Mr. W. During the financial year beginning on 01/04/2018
and ending on 31/03/2019 the second meeting of Board of Directors of GHWX Private Limited was held on 7
September, 2018.
Out of 5 directors, Mr. K, Mr. N, Mr. R and Mr. W were present for the said meeting. During the meeting of
Board of Directors a resolution on one of the important matters was passed. While three directors namely Mr.
K, Mr. N and Mr. R agreed with the resolution and voted in favour of resolution, however, Mr. W did not agree
with the resolution and voted against the resolution. The minutes of the second meeting of Board of Directors
of GHWX Private Limited held on 7 September, 2018 were prepared and they were entered in Minutes Book of
meeting of Board of Directors of GHWX Private Limited. One of the director Mr. K was of the opinion that
minutes of second meeting of Board of Directors of GHWX Private Limited must be prepared and entered in
Minute Book of meeting of Board of Directors of GHWX Private Limited by end of October, 2018. The remaining
four directors namely Mr. N, Mr. R, Mr. U and Mr. W did not agree with the opinion of Mr. K because they
thought that it was not within the time limit as prescribed by the law. One of the directors, Mr. N. opined that
minute books of meetings of Board of Directors of GHWX Private Limited for the years starting with 2009 to
2015 should be shredded to ruins as these papers were taking a lot of space. He further added that since the
Companies Act, 2013 is silent as to maintaining the minute book of meetings of Board of Directors, it is not
necessary to maintain such minute books. The Board of Directors of GHWX Private Limited did not decide any
place where minute book of meetings of Board of Directors of GHWX Private Limited will be kept.
Keeping the provisions of the Companies Act, 2013, in mind answer the following multiple choice questions:
(A) The second meeting of Board of Directors of GHWX Private Limited was held on 7 September, 2018 for the
financial year 2018-19. The minutes of second meeting of Board of Directors of GHWX Private Limited for
financial year 2018-19 must contain:
(a) Name of director Mr. U who was absent from the meeting of Board of Directors held on 7 September, 2018.
(b) Names of all the directors Mr. K, Mr. N, Mr. R, Mr. U and Mr. W comprising Board of Directors of GHWX
Private Limited.
(c) Name of one director Mr. U who was absent and atleast one director who was present in the meeting of
Board of Directors held on 7 September, 2018.
(d) Names of directors Mr. K, Mr. N, Mr. R and Mr. W who were present in the meeting of Board of Directors
held on 7 September, 2018.

(B) In case of the resolution talked in the case study, the minutes of second meeting of Board of Directors of
GHWX Private Limited for financial year 2018-19 held on 7 September, 2018 must contain:
(a) Name of any two directors who were present in meeting and voted in the resolution.
(b) Name of director Mr. W who voted against the resolution.
(c) Name of directors Mr. K, Mr. N and Mr. R who voted in favour of the resolution
(d) Names of all the directors Mr. K, Mr. N, Mr. R, Mr. U and Mr. W who all had the right to attend the meeting

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and vote in the resolution.

(C) The opinion of one of the director, Mr. K was that minutes of second meeting of Board of Directors of
GHWX Private Limited for financial year 2018-19 must be prepared and entered in minutes book of meeting of
Board of Directors of GHWX Private Limited by the end of October, 2018 is incorrect. The opinion of Mr. K is
incorrect because:
(a) Minutes of second meeting of Board of Directors of GHWX Private Limited for financial year 2018-19 must
be entered in minute book of meeting of Board of Directors within thirty days of the conclusion of meeting on 7
September, 2018.
(b) Minutes of second meeting of Board of Directors of GHWX Private Limited for the financial year 2018-19
must be entered in minute book of meeting of Board of Directors within sixty days of the conclusion of meeting
on 7 September, 2018.
(c) Minutes of second meeting of Board of Directors of GHWX Private Limited for the financial year 2018-19
must be entered in minute book of meeting of Board of Directors within ninety days of the conclusion of
meeting on 7 September, 2018.
(d) Minutes of second meeting of Board of Directors of GHWX Private Limited for financial year 2018-19 must
be entered in minute book of meeting of Board of Directors within one twenty days of the conclusion of
meeting on 7 September, 2018.

3. G Ltd. (a company having CSR Committee as per the provision of Section 135 of the Companies Act, 2013)
decides to spend and utilize half of the amount of Corporate Social Responsibility on the activities for the
benefit of all the employees of G Limited and the remaining half of the amount of Corporate Social
Responsibility on the activities for the benefit of family members of employees of G Limited As per the
provision of Companies Act, 2013 this would mean that:-
(a) This is the total amount spent on Corporate Social Responsibility activities by G Limited for that financial
year
(b) No amount spent on Corporate Social Responsibility activities by G Limited for that financial year
(c) Half amount spent on Corporate Social Responsibility activities by G Limited for that financial year
(d) Half amount spent on Corporate Social Responsibility activities and remaining half amount spent on Other
Activities by G Limited for that financial year

4. The minute book of General meetings of Alpha Limited will be kept at:
(a) That place where members of Alpha Limited will decide.
(b) That place where all employees of Alpha Limited will decide.
(c) Registered office of the company Alpha Limited.
(d) That place where senior officials of Alpha Limited will decide.

ANSWERS/HINTS - ANSWER TO CASE SCENARIO / MULTIPULE CHOICE QUESTIONS

1. (A) (b) (B) (d) (C) (c) (D) (a) 2. (A) (d) (B) (b) (C) (a) 3. (b) 4. (c

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Q38. MNP Ltd. has a paid up share capital of ` 10 crore and free reserves of ` 50 crore, as on 31st
March, 2019. The company made a loss of ` 40 lakh after providing for depreciation for the year ended
31st March, 2019 and as a result, the company was not in a position to declare any dividend for the said
year out of profits. However, the Board of directors of the company announced the declaration of
dividend of 20% on the equity shares payable out of free reserves. The average dividend declared by the
company in the last three years is 25%. Referring to the provisions of the Companies Act, 2013, examine
the validity of declaration of dividend.

ANS.
As per Second Proviso to Section 123 (1), in the event of inadequacy or absence of profits in any
financial year, a company may declare dividend out of the accumulated profits of previous years which
have been transferred to the free reserves. However, such declaration shall be subject to the following
conditions as per Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014.

(i) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared
by the company in the immediately preceding three years .
As per facts of the question the present rate of dividend is 20% and average dividend declared in the last
three years is 25%. So, this condition is fulfilled.

(ii) The total amount to be drawn from free reserves shall not exceed one-tenth i.e., 10% of its paid-up
share capital and free reserves as per the latest audited financial statement.
Amount of dividend proposed: ` 2 Crores (20% of ` 10 Crore i.e on paid up capital)
10% of paid up share capital and free reserves: 10% of (10 crore + 50 crore) = ` 6 Crore.
This condition is fulfilled as amount of dividend is not exceeding 10% of its paid-up share capital and
free reserves.

(iii) The amount so drawn shall first be utilized to set off the losses incurred in the financial year in
which dividend is declared and only thereafter, any dividend in respect of equity shares shall be declared.

(iv) After such withdrawal from free reserves, the residual reserves shall not fall below 15% of its paid-
up share capital as per the latest audited financial statement.
Balance of reserves after payment of dividend: ` 48 crore (50 crore – 2 crore) 15% of paid up share
capital: 1.5 crore (15% of 10 crore)
This condition is fulfilled. Taking into account all the conditions, it can be said that declaration of
dividend by MNP Limited is valid.

Q39. New Limited appointed an individual firm, Naresh & Company, Chartered Accountants, a s
Auditors of the company at the Annual General Meeting held on 30 September 201 9. Mrs. Reena, wife
of Mr. Naresh, invested in the equity shares face value of ` 1 lakh of New Limited on 15 October 2019.
But Naresh & Company continues to function as statutory auditors of the company. Advice, Naresh &
Company on the continuation of such appointment, as per provisions of the Companies Act, 2013.
ANS.
Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013, a person
who, or his relative or partner holds any security of the company or its subsidiary or of its holding or
associate company or a subsidiary of such holding company, which carries voting rights, such person
cannot be appointed as auditor of the company.
Provided that the relative of such person may hold security or interest in the company of face value not
exceeding 1 lakh rupees as prescribed under the Companies (Audit and Auditors) Rules, 2014.

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In the case Mr. Naresh, Chartered Accountants, did not hold any such security. But Mrs. Reena, his
wife held equity shares of New Limited of face value ` 1 lakh, which is within the specified limit. Further
Section 141(4) provides that if an auditor becomes subject, after his appointment, to any of the
disqualifications specified in sub-section 3 of section 141, he shall be deemed to have vacated his office
of auditor. Hence, Naresh & Company can continue to function as auditors of the Company even after 15
October 2019 i.e. after the investment made by his wife in the equity shares of New Limited.

Q40. The Board of Directors of Vishwakarma Electronics Limited consists of Mr. Ghanshyam
(Director), Mr. Hyder (Director) and Mr. Indersen (Managing Director). The company has also
employed a full time Secretary. The Profit and Loss Account and Balance Sheet of the company were
signed by Mr. Ghanshyam and Mr. Hyder. Examine whether the authentication of financial statements of
the company was in accordance with the provisions of the Companies Act, 2013?
ANS.
According to section 134(1) of the Companies Act, 2013, the financial statement, including consolidated
financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf
of the Board by the chairperson of the company where he is authorised by the Board or by two directors
out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial
Officer and the company secretary of the company, wherever they are appointed, or in the case of One
Person Company, only by one director, for submission to the auditor for his report thereon.
In the instant case, the Balance Sheet and Profit and Loss Account have been signed by Mr. Ghanshyam
and Mr. Hyder, the directors. In view of Section 134(1) of the Companies Act, 2013, Mr. Indersen, the
Managing Director should be one of the two signing directors. Since, the company has also employed a
full- time Secretary, he should also sign the Balance Sheet and Profit and Loss Account.

Q41. EFG Ltd. was incorporated on 1.4.2017. No General Meeting of the company has been held till
30.4.2019. Discuss the provisions of the Companies Act, 2013 regarding the time limit for holding the
first annual general meeting of the Company and the power of the Registrar to grant extension of time
for the First Annual General Meeting.
ANS.
According to Section 96 of the Companies Act, 2013, every company shall be required to hold its first
annual general meeting within a period of 9 months from the date of closing of its first financial year.
The first financial year of EFG Ltd is for the period 1st April 2017 to 31st March 2018, the first annual
general meeting (AGM) of the company should be held on or before 31st December, 2018. The section
further provides that the Registrar may, for any special reason, extend the time within which any annual
general meeting, other than the first annual general meeting, shall be held, by a period not exceeding
three months. Thus, the first AGM of EFG Ltd. should have been held on or before 31st December,
2018. Further, the Registrar does not have the power to grant extension to time limit for the first AGM.

Q42. Green Ltd. was dealing in export of rubber to specified foreign countries. The company was willing
to purchase rubber trees in A.P. State. The prospectus issued by the company contained some important
extracts of the expert report and number of trees in A.P. St ate. The report was found untrue. Mr. Andrew
purchased the shares of Green Ltd. on the basisof the expert’s report published in the prospectus.
However, he did not suffer any loss due to purchase of such shares. Will Mr. Andrew have any remedy
against the company? State also the circumstances where an expert is not liable under the Companies
Act, 2013.
ANS.
Under section 35 (1) of the Companies Act 2013, where a person has subscribed for securities of a
company acting on any statement included in the prospectus which is misleading and has sustained any

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loss or damage as a consequence thereof, the company and every person including an expert shall, be
liable to pay compensation to the person who has sustained such loss or damage.
In the present case, Mr. Andrew purchased the shares of Green Ltd. on the basis of the expert
report published in the prospectus. Mr. Andrew can claim compensation for any loss or damage that he
might have sustained from the purchase of shares. However, he did not suffer any loss due to purchase of
such shares. Hence, Mr. Andrew will have no remedy against the company. Circumstances when an
expert is not liable:
An expert will not be liable for any misstatements in the prospectus under the following
situations:
(i) Under section 26 (5), that having given his consent, but withdrew it in writing before delivery
of the copy of prospectus for filing, or
(ii) Under section 35 (2), that the prospectus was issued without his knowledge / consent and that
on becoming aware of it, he forthwith gave a reasonable public notice that it was issued without his
knowledge or consent;
(iii) An expert will not be liable in respect of any statement not made by him in the capacity of
an expert and included in the prospectus as such;
(iv) that, as regards every misleading statement purported to be made by an expert or contained in
what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and
fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or
valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus
believe, that the person making the statement was competent to make it and that the said person had
given the consent required by section 26(5) to the issue of the prospectus and had not withdrawn that
consent before filing of a copy of the prospectus with the Registrar or, to the defendant's knowledge,
before allotment thereunder.

Q43. The Articles of Association of Ajad Ltd. require the personal presence of 7 members to
constitute quorum of General Meetings. The company has 965 members as on the date of meeting. The
following persons were present in the extra-ordinary meeting to consider the appointment of Managing
Director:
(i) A, the representative of Governor of Uttar Pradesh.
(ii) B and C, shareholders of preference shares,
(iii) D, representing Y Ltd. and Z Ltd.
(iv) E, F, G and H as proxies of shareholders.
Can it be said that the quorum was present in the meeting?
ANS.
According to section 103 of the Companies Act, 2013, unless the articles of the company provide
for a larger number in case of a public company, five members personally present if the number of
members as on the date of meeting is not more than one thousand, shall be the quorum. In this case the
quorum for holding a general meeting is 7 members to be personally present (higher of 5 or 7).
For the purpose of quorum, only those members are counted who are entitled to vote on
resolution proposed to be passed in the meeting. Again, only members present in person and not by
proxy are to be counted.
Hence, proxies whether they are members or not will have to be excluded for the purposes of
quorum. If a company is a member of another company, it may authorize a person by resolution to act as
its representative at a meeting of the latter company, then such a person shall be deemed to be a member
present in person and counted for the purpose of quorum Where two or more companies which are
members of another company, appoint a single person as their representative then each such company
will be counted as quorum at a meeting of the latter company.

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Further the President of India or Governor of a State, if he is a member of a company, may
appoint such a person as he thinks fit, to act as his representative at any meeting of the company. A
person so appointed shall be deemed to be a member of such a company and thus considered as member
personally present.
In view of the above there are only three members personally present. ‘A’ will be included for the
purpose of quorum. B & C have to be excluded for the purpose of quorum because they represent the
preference shares and since the agenda being the appointment of Managing Director, their rights cannot
be said to be directly affected and therefore, they shall not have voting rights. D will have two votes for
the purpose of quorum as he represents two companies ‘Y Ltd.’ and ‘Z Ltd.’ E, F, G and H are not to be
included as they are not members but representing as proxies for the members.
Thus, it can be said that the requirements of quorum has not been met and it shall not constitute a
valid quorum for the meeting.

Q44. K Limited, a subsidiary of Old Limited, decides to give a loan of ` 4,00,000 to the Human Resource
Manager, who is not a Key Managerial Personnel of K Limited, drawing salary of ` 30,000 per month, to
buy 500 partly paid-up equity Shares of ` 1000 each in K Limited. Examine the validity of company's
decision under the provisions of the Companies Act, 2013.
ANS.
Restrictions on purchase by company or giving of loans by it for purchase of its share: As per
section 67 (3) of the Companies Act, 2013 a company is allowed to give a loan to its employees subject
to the following limitations:
(a) The employee must not be a Key Managerial Personnel;
(b) The amount of such loan shall not exceed an amount equal to six months’ salary of the employee.
(c) The shares to be subscribed must be fully paid shares
In the given instance, Human Resource Manager is not a Key Managerial Personnel of the K Ltd. He is
drawing salary of ` 30,000 per month and took loan taken to buy 500 partly paid up equity shares of `
1000 each in K Ltd.
Keeping the above provisions of law in mind, the company’s (K Ltd.) decision is invalid due to two
reasons:
i. The amount of loan being more than 6 months’ salary of the HR Manager, which should have
restricted the loan to ` 1.8 Lakh.
ii. The shares subscribed are partly paid shares whereas the benefit is available only for subscribing fully
paid shares.

Q45. Yadav Dairy Products Private limited has registered its articles along with memorandum at the time
of registration of company in December, 2014. Now directors of the company are of the view that
provisions of articles regarding forfeiture of shares should not be changed except by a resolution of 90%
majority. While as per section 14 of the Companies Act, 2013 articles may be changed by passing a
special resolution only. Hence, one of the directors is of the view that they cannot make a provision
against the Companies Act, 2013. You are required to advise the company on this matter.
ANS.
As per section 5 of the Companies Act, 2013 the article may contain provisions for entrenchment to the
effect that specified provisions of the articles may be altered on ly if more restrictive conditions than a
special resolution, are met. The provisions for entrenchment shall only be made either on formation of a
company, or by an amendment in the articles agreed to by all the members of the company in the case of
a private company and by a special resolution in the case of a public company. 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.

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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 Register of Companies regarding entrenchment of articles.

Rtp nov. 2020

Q46 Vijay, a member of Mayur Electricals Ltd. gave in writing to the company that the notice for any general meeting be sent to him
only by registered post at his residential address at Kanpur for which he deposited sufficient money. The company sent notice to him
by ordinary mail under certificate of posting. Vijay did not receive this notice and could not attend the meeting and contended that
the notice was improper.
Decide:
(i) Whether the contention of Vijay is valid.
(ii) Will your answer be the same if Vijay remains in London for two months during the notice of the meeting and
the meeting held?
Ans.
According to section 20(2) of the Companies Act, 2013, a document may be served on Registrar or any member by
sending it to him by post or by registered post or by speed post or by courier or by delivering at his office or address, or
by such electronic or other mode as may be prescribed.
Provided that a member may request for delivery of any document through a particular mode, for which he
shall pay such fees as may be determined by the company in its annual general meeting.
Thus, if a member wants the notice to be served on him only by registered post at his residential address at
Kanpur for which he has deposited sufficient money, the notice must be served accordingly, otherwise service
will not be deemed to have been effected.
Accordingly, the questions as asked may be answered as under:
(i) The contention of Vijay shall be tenable, for the reason that the notice was not properly served.
(ii) In the given circumstances, the company is bound to serve a valid notice to Vijay by registered post at his
residential address at Kanpur and not outside India.

Q47. Shekhar Limited appointed an individual firm, Suresh & Company, Chartered Accountants, as Auditors of the company
at the Annual General Meeting held on 30 th September, 2019. Mrs. Kamala, wife of Mr. Suresh, invested in the equity
shares having face value of1 lakh of Shekhar Limited on 15th October, 2019. But Suresh & Company continues to function
as statutory auditors of the company. Advice.
Ans.
Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013, a person who, or his
relative or partner holds any security of the company or its subsidiary or of its holding or associate company a subsidiary
of such holding company, which carries voting rights, such person cannot be appointed as auditor of the company.
Provided that the relative of such person may hold security or interest in the company of face value not exceeding 1
lakh rupees as prescribed under the Companies (Audit and Auditors) Rules, 2014.
In this case, Mr. Suresh, Chartered Accountants, did not hold any such security. But Mrs. Kamala, his wife
held equity shares of Shekhar Limited of face value 1 lakh, which is within the specified limit.
Further Section 141(4) provides that if an auditor becomes subject, after his appointment, to any of the
disqualifications specified in sub-section 3 of section 141, he shall be deemed to have vacated his office of

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auditor. Hence, Suresh & Company can continue to function as auditors of the Company even after 15 th

October, 2019 i.e. after the investment made by his wife in the equity shares of Shekhar Limited.

Q48. The Board of Directors of Ramesh Ltd. proposes to issue the prospectus inviting offers from the public for
subscribing the shares of the Company. State the reports which shall be included in the prospectus for the purposes of
providing financial information under the provisions of the Companies Act, 2013.
Ans.
As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on behalf of a public company either
with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or
interested in the formation of a public company, shall be dated and signed and shall state such information and set out
such reports on financial information as may be specified by the Securities and Exchange Board in consultation with
the Central Government.
Provided that until the Securities and Exchange Board specifies the information and reports on financial
information under this sub-section, the regulations made by the Securities and Exchange Board under the
Securities and Exchange Board of India Act, 1992, in respect of such financial information or reports on
financial information shall apply.

Prospectus issued make a declaration about the compliance of the provisions of this Act and a statement to
the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts
(Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules and regulations
made thereunder.
Accordingly, the Board of Directors of Ramesh Ltd. who proposes to issue the prospectus shall provide such
reports on financial information as may be specified by the Securities and Exchange Board in consultation with
the Central Government in compliance with the above stated provision and make a declaration about the
compliance of the above stated provisions.
Q49. Surya Ltd. is engaged in the manufacture of consumer goods and has got a good brand value. Over the years, it has built a
good reputation and its Balance Sheet as at March 31, 2019 shows the following position:
Authorized Share Capital (25,00,000 equity shares of face value of 10/- each) 2,50,00,000
Issued, subscribed and paid-up capital (10,00,000 equity shares of face value of 10/- each, fully paid-up)
1,00,00,000
Free Reserves 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares held by the
existing shareholders. The Board wants to know the conditions and the manner of issuing bonus shares
under the provisions of the Companies Act, 2013. Discuss.
ANS.
According to Section 63 of the Companies Act, 2013, a company may issue fully paid-up bonus shares to its members, in
any manner whatsoever, out of -
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of
assets.

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Conditions for issue of Bonus Shares: No company shall capitalise its profits or reservesfor the purpose
of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued
by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, suchas, contribution to
provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(vi) it complies with such conditions as may be prescribed.
But the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
To issue bonus shares, company will need reserves of 50,00,000 (half of `1,00,00,000), which is available with
the company. Hence, after following the above compliances on issuing bonus shares under the Companies Act,
2013, Surya Ltd. may proceed for a bonus issue of 1 share for every 2 shares held by the existing shareholders.

Q 50. State, with reasons, whether the following statements are true or false?
(i) XYZ Private Limited may accept the deposits from its members to the extent of 60.00 Lakh, if the aggregate
of its paid-up capital, free reserves and security premium account is 60.00 Lakh.
(ii) A Government Company, which is eligible to accept deposits under Section 76 of the Companies Act, 2013 cannot
accept deposits from public exceeding 25% of the aggregate of its paid- up capital, free reserves and security
premium account.
ANS.
i) As per the provisions of Section 73(2) of the Companies Act, 2013 read with Rule 3 of the Companies
(Acceptance of Deposits) Rules, 2014, as amended by the Companies (Acceptance of Deposits) Amendment
Rules, 2016, a company shall accept any deposit from its members, together with the amount of other deposits
outstanding as on the date of acceptance of such deposits not exceeding thirty five per cent of the aggregate
of the Paid-up share capital, free Reserves and securities premium account of the company.
Provided that a private company may accept from its members monies not exceeding one hundred per cent of
aggregate of the paid up share capital, free reserves and securities premium account and such company shall file
the details of monies so accepted to the Registrar in such manner as may be specified.
Therefore, the given statement of eligibility of XYZ Private Ltd. to accept deposits from its members to
the extent of 60.00 lakh is True.
(ii) A Government company is not eligible to accept or renew deposits under section 76, if the amount of
such deposits together with the amount of other deposits outstanding as on the date of acceptance or
renewal exceeds thirty five per cent of the aggregateof its Paid-up share capital, free Reserves and
securities premium account of the company.
Therefore, the given statement prescribing the limit of 25% to accept deposits is False.

Q 51. What are the powers of Registrar to make entries of satisfaction and release of charges in the absence of any intimation
from the company. Discuss this matter in the light of provisions of the Companies Act, 2013.
ANS.

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Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to the satisfaction and release of
charges even if no intimation has been received by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the satisfaction of Registrar
that the debt secured by charge has been paid or satisfied in whole or in part or that the part of the property or
undertaking charged has been released from the charge or has ceased to form part of the company’s property
or undertaking, then he may enter in the register of charges a memorandum of satisfaction that:
 the debt has been satisfied in whole or in part; or
 the part of the property or undertaking has been released from the charge or has ceased to form part of the
company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been received by him from
the company.
Information to affected parties: The Registrar shall inform the affected parties within 30 days of making
the entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of satisfaction of
charge in full, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.

Q 52. Chetan Ltd. issued a notice for holding its Annual general meeting on 7th November 2019. The notice was posted to the
members on 16th October 2019. Some members of the company allege that the company had not complied with the provisions of
the Companies Act, 2013 with regard to the period of notice and as such the meeting was valid. Referring to the provisions of
the Act, decide:
i) Whether the meeting has been validly called?
ii) If there is a shortfall, state and explain by how many days does the notice fall shortof the statutory
requirement?
iii) Can the delay in giving notice be condoned?
ANS.
According to section 101(1) of the Companies Act, 2013, a general meeting of a company may be called by giving not less than clear
twenty-one days' notice either in writing or through electronic mode in such manner as may be prescribed.

Also, it is to be noted that 21 clear days mean that the date on which notice is served and the date of meeting
are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in case of delivery by post, such
service shall be deemed to have been effected in the case of a notice of a meeting, at the expiration of forty
eight hours after the letter containing the same is posted.
Hence, in the given question:
i) A 21 days’ clear notice must be given. In the given question, only 19 clear days’ notice is served (after excluding 48
hours from the time of its posting and the day of sending and date of meeting). Therefore, the meeting was
not validly called.
ii) As explained in (i) above, notice falls short by 2 days.
iii) The Companies Act, 2013 does not provide anything specific regarding the condonation of delay in giving of
notice. Hence, the delay in giving the notice calling the meeting cannot be condoned.

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Rtp MAY 2021

Q 53. The Board of Directors of Amit Ltd. requested its Statutory Auditor to accept the assignment of designing and
implementation of suitable financial information system to strengthen the internal control mechanism of the Company. How will
you approach to this proposal, as an Statutory Auditor of Amit Ltd., taking into account the consequences, if any, of accepting
this proposal?
ANS.
According to section 144 of the Companies Act, 2013, an auditor appointed under this Act shall provide to the company only
such other services as are approved by the Board of Directors or the audit committee, as the case may be. But such services
shall not include designing and implementation of any financial information system.
In the said instance, the Board of directors of Amit Ltd. requested its Statutory Auditor to accept the
assignment of designing and implementation of suitable financial information system to strengthen the internal
control mechanism of the company. As per the above provision said service is strictly prohibited.
In case the Statutory Auditor accepts the assignment, he will attract the penal provisions as specified in
Section 147 of the Companies Act, 2013.
In the light of the above provisions, we shall advise the Statutory Auditor not to take up the above stated
assignment.

Q54. The Income Tax Authorities in the current financial year 2019-20 observed, during the assessment proceedings, a need to
re-open the accounts of Qurie Ltd. for the financial year 2008-09 and, therefore, filed an application before the National
Company Law Tribunal (NCLT) to issue the order to Qurie Ltd. for re-opening of its accounts and recasting the financial statements
for the financial year 2008-09. Examine the validity of the application filed by the Income Tax Authorities to NCLT.
ANS.
As per section 130 of the Companies Act, 2013, a company shall not re-open its books of account and not recast its financial statements,
unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange
Board, any other statutory body or authority or any person concerned and an order is made by a court of competent jurisdiction or
the Tribunal to the effect that—
(i) the relevant earlier accounts were prepared in a fraudulent manner; or

(i) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of
financial statements:
However, no order shall be made in respect of re-opening of books of account relating toa period earlier than
eight financial years immediately preceding the current financial year.
In the given instance, an application was filed for re-opening and re-casting of the financial statements of Qurie Ltd.
for the financial year 2008-2009 which is beyond 8 financial years immediately preceding the current financial
year.
Though application filed by the Income Tax Authorities to NCLT is valid, its recommendation for
reopening and recasting of financial statements for the period earlier than eight financial years immediately
preceding the current financial year i.e. 2019 -2020, is invalid.

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Q55.
(i) Mr. Bindra is holding 950 equity shares of Bio safe Herbals, a section 8 company. Bio safe Herbals is planning to declare dividend
in the Annual General Meeting for the Financial Year ended 31-03-2020. Examine whether the act of the company is in accordance
with the provisions of the Companies Act, 2013.
(ii)Kiara, holder of 5000 equity shares of ` 100 each of Kanpur Leather Shoes Limited did not pay final call of ` 10 per
share. Kanpur Leather Shoes Limited declared dividend @ 10%. Examine with reference to relevant provisions of the
Companies Act, 2013, the amount of dividend Kiara should receive.
Ans.
(i) According to Section 8(1) of the Companies Act, 2013, the companies licenced under Section 8 of the Act (Formation of companies
with Charitable Objects, etc.) are prohibited from paying any dividend to their members. Their profits are intended tobe applied
only in promoting the objects for which they are formed.
Hence, in the instant case, the proposed act of Bio safe Herbals, a company licenced under Section 8 of the Companies Act,
2013, which is planning to declare dividend, is not in accordance to the provisions of the Companies Act, 2013.
(ii) As per the proviso to section 127 of the Companies Act, 2013, no offence will be deemed to have been committed by a
director for adjusting the calls in arrears remaining unpaid or any other sum due from a member against the dividend
declaredby the company.
Thus, as per the given facts, Kanpur Leather Shoes Limited can adjust the unpaid call money of 50,000 against the
declared dividend of 10%, i.e. 5,00,000 x 10/100= 50,000. Hence, call money of 50,000 not paid by Kiara can be adjusted
fully fromthe entitled dividend amount of ` 50,000 payable to her.

Q 56. A General Meeting was scheduled to be held on 15th April, 2019 at 3.00 P.M. As per the notice the members who are
unable to attend a meeting in person can appoint a proxyand the proxy forms duly filled should be sent to the company
so as to reach at least 48 hours before the meeting. Mr. X, a member of the company appoints Mr. Y as his proxy and the
proxy form dated 10-04-2019 was deposited by Mr. Y with the company at its registered Office on 11-04-2019.
Similarly, another member Mr. W also gives two separate proxies to two individuals named Mr. M and Mr. N. In the
case of Mr. M, the proxy dated 12-04-2019 was deposited with the company on the same day and the proxy form in favour
of Mr. N was deposited on 14-04-2019. All the proxies viz., Y, M and Nwere present before the meeting.
According to the provisions of the Companies Act, 2013, who would be the persons allowed to represent as
proxies for members X and W respectively?
ANS. SEC. 105
A Proxy is an instrument in writing executed by a shareholder authorizing another person to attend a meeting and to
vote thereat on his behalf and in his absence. As per the provisions of Section 105 of the Companies Act, 2013, every
shareholder who is entitled to attend and vote has a statutory right to appoint another person as his proxy. It is not
necessary that the proxy be a member of the company. Further, any provision in the articles of association of the company
requiring instrument of proxy to be lodged with the company more than 48 hours before a meeting shall have effect as if 48
hours had been specified therein. The members have a right to revoke the proxy’s authority by voting himself before the
proxy has voted but once the proxy has voted the member cannot retract his authority.
Where two proxy instruments by the same shareholder are lodged of in such a manner that one is lodged before and
the other after the expiry of the date fixed for lodging proxies, the former will be counted.
Thus, in case of member X, the proxy Y will be permitted to vote on his behalf as form forappointing proxy
was submitted within the permitted time.

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However, in the case of Member W, the proxy M (and not Proxy N) will be permitted to vote as the proxy
authorizing N to vote was deposited in less than 48 hours before the meeting.

Q57. Shiva Cement Limited is engaged in the manufacture of different types of cements and has got a good brand value. Over the
years, it has built a good reputation and its Balance Sheet as at March 31, 2020 showed the following position:
1. Authorized Share Capital (25,00,000 equity shares of 10/- each) 2,50,00,000
2. Issued, subscribed and paid-up Share Capital (10,00,000 equity shares of10/- each, fully paid-up) 1,00,00,000
3. Free Reserves 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares held by the
existing shareholders. The Board wants to know the conditions and the manner of issuing bonus shares
under the provisions of the Companies Act, 2013.
ANS. According to Section 63 of the Companies Act, 2013, a company may issue fully paid-upbonus shares
to its members, in any manner whatsoever, out of -
(ii) its free reserves;
(iii) the securities premium account; or
(iv) the capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalising reserves created bythe revaluation of
assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves for the purpose
of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by
it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such as, contribution to
provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any, outstanding on the date of allotment, are made fully paid-up;
(vi) it complies with such conditions as are prescribed by Rule 14 of the Companies (Share Capital and debentures)
Rules, 2014 which states that the company which has once announced the decision of its Board recommending a
bonus issue, shall not subsequently withdraw the same.
Further, the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
For the issue of bonus shares Shiva Cement Limited will require reserves of 50,00,000 (i.e. half of `
1,00,00,000 being the paid-up share capital), which is readily available with the company. Hence, after
following the above conditions relating to the issue of bonus shares, the company may proceed for a bonus
issue of 1 share for every 2 shares held by the existing shareholders.
Q 58. Pristine Limited, a listed public company, conducted its Annual General Meeting on 31st August, 2020. However, 10
days have passed since 31st August, 2020, but it hasstill not filed report on Annual General Meeting. The Accountant of the
company has approached you to advise them whether Pristine Limited is required to file report on Annual General Meeting?
ANS.

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According to Section 121, every listed public company shall prepare a report on each annual general meeting
including the confirmation to the effect that the meeting was convened held and conducted as per the
provisions of the Act and the rules made thereunder. A copy of the report is to be filed with the Registrar in
Form No. MGT. 15 within thirty days of the conclusion of AGM along with the prescribed fee. If the company
does not file such report on Annual General Meeting within 30 days of the conclusion of the Annual General
Meeting then the company and defaulting officers are liable for prescribed penalties.
Since, Pristine Ltd. is a listed company, hence it has to file a copy of 1annual Report with the Registrar
within 30 days from 31st August, 2020.
Q 59. Keya Limited decides to issue 1,00,000 securities of the company. The company decides to publish an advertisement of
the prospectus. Enumerate to the company about necessary contents of its memorandum to be specified therein.
ANS.
According to Section 30, where an advertisement of any prospectus of a company is published in any manner, it shall
be necessary to specify therein the contents of its memorandum as regards the following:
(v) the objects,
(vi) the liability of members and the amount of share capital of the company,
(vii) the names of the signatories to the memorandum,
(viii) the number of shares subscribed for by the signatories, and
(ix) the capital structure of the company.

Q60. Nadeem incorporated a "One Person Company" making his sister Nisha as the nominee. Nisha is leaving India permanently
due to her marriage abroad. Due to this fact, she is withdrawing her consent of nomination in the said One Person Company.
Taking into considerations the provisions of the Companies Act, 2013 answer the questions given below.
(A) If Nisha is leaving India permanently, is it mandatory for her to withdraw her nomination in the said One
Person Company?
(B) If Nisha maintained the status of Resident of India after her marriage, then can she continue her nomination in the
said One Person Company?
ANS.
As per Rule 3 & 4 of the Companies (Incorporation) Rules, 2014 following the answers:
(A) Yes, it is mandatory for Nisha to withdraw her nomination in the said OPC as she is leaving India permanently as
only a natural person who is an Indian citizen and resident in India shall be a nominee in OPC.
(B) Yes, Nisha can continue her nomination in the said OPC, if she maintained the status of Resident of India after her
marriage by staying in India for a period of not less than 120 days during the immediately preceding financial
year.

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Rtp dec. 2021

1. The Board of Directors of GEN X Fashions Limited at its meeting recommended a dividend on its paid-up equity share
capital which was later on approved by the shareholders at the Annual General Meeting. Thereafter, the directors at
another meeting of the Board passed a board resolution for diverting the total dividend to be paid to the
shareholders for purchase of certain short-term investments in the name of the company. As a result, dividend
was paid to shareholders after 45 days.
Examining the provisions of the Companies Act, 2013, state whether the act of directors isin violation
of the provisions of the Act and if so, state the consequences that shall follow for the above violative
act.
Ans.
According to section 124 of the Companies Act, 2013, where a dividend has been declared by a company but has not
been paid or claimed within 30 days from the date of the declaration, the company shall, within 7 days from the
date of expiry of the said period of 30 days, transfer the total amount of dividend which remains unpaid or
unclaimed to a special account to be opened by the company in any scheduled bank to be called the Unpaid
Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has been declared by a company
but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of
declaration to any entitled shareholder, every director of the company shall, if he is knowingly a party to the
default, be liable for punishment.
In the present case, the Board of Directors of GEN X Fashions Limited at its meeting recommended a
dividend on its paid-up equity share capital which was later on approved by the shareholders at the Annual
General Meeting. Thereafter, the directors at another meeting of the Board decided by passing a board
resolution for diverting the total dividend to be paid to the shareholders for purchase of certain short-term
investments in the name of the company. As a result, dividend was paid to shareholders after 45 days.
Since, declared dividend has not been paid within 30 days from the date of the declaration to any
shareholder entitled to the payment of dividend, the company shall, within 7 days from the date of expiry
of the said period of 30 days, transfer the total amount of dividend which remains unpaid or
unclaimed to a special account to be opened by the company in any scheduled bank to be called the
Unpaid Dividend Account.
(i) The Board of Directors of GEN X Fashions Limited has violated section 127 of the Companies Act, 2013 as it
failed to pay dividend to shareholders within 30 days due to its decision to divert the total dividend to be paid
to shareholders for purchase of certain short-term investments in the name of the company.
Consequences: The following are the consequences for violation of the aboveprovisions:
(a) Every director of the company shall, if he is knowingly a party to the default, be punishable with maximum
imprisonment of two years and shall also be liable for a minimum fine rupees one thousand for every day
during which such default continues.
(b) The company shall also be liable to pay simple interest at the rate of 18% p.a. during the period for
which such default continues.

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2. **The Board of Directors of Moon Light Limited, a listed company appointed Mr. Teja, Chartered Accountant as its
first auditor within 30 days of the date of registration of the Company to hold office from the date of
incorporation to conclusion of the first Annual General Meeting (AGM). At the first AGM, Mr. Teja was re-
appointed to hold office from the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the
provisions of the Companies Act, 2013, examine the validity of appointment/ reappointment in the following
cases:
(i) Appointment of Mr. Teja by the Board of Directors.
(ii) Re-appointment of Mr. Teja at the first AGM in the above situation.
Ans.
As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other than a Government
company, shall be appointed by the Board of Directors within thirty days from the date of registration of the company
and such auditor shall hold office till the conclusion of the first annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at the first annual
general meeting (AGM), appoint an individual or a firm as an auditor of the company who shall hold office
from the conclusion of 1st AGM till the conclusion of its6th AGM and thereafter till the conclusion of
every sixth AGM.
As per section 139(2), no listed company or a company belonging to such class or classes of companies as
may be prescribed, shall appoint or re-appoint an individual as auditor for more than one term of five
consecutive years.
As per the given provisions following are the answers:
(i) Appointment of Mr. Teja by the Board of Directors is valid as per the provisions of section 139(6).
(ii) Appointment of Mr. Teja at the first Annual General Meeting is valid due to the fact that the appointment of the
first auditor made by the Board of Directors is a separate appointment and the period of such appointment is not
to be considered, while Mr. Teja is appointed in the first Annual General Meeting, which is for the period from the
conclusion of the first Annual General Meeting to the conclusion of the sixth Annual General Meeting.

3. Kim Private Limited was incorporated on 30th September 2016. It has a paid up share capital of 45 crore. The
company had a turnover of 250 crore for the financial year 2019-20. The accounts manager of the company has
intimated to the company that they are not required to appoint internal auditor for the financial year 2020 -21. The
management of the company have approached you to advise them about the appointment of internal auditor.
Advise them as per the provisions of the Companies Act, 2013.
Ans.
According to section 138 read along with Rules of the Companies Act, 2013, every private company having—
(A) turnover of 200 crore rupees or more during the preceding financial year; or
(B) outstanding loans or borrowings from banks or public financial institutions exceeding100 crore rupees or more at
any point of time during the preceding financial year.
shall be required to appoint an internal auditor which may be either an individual or apartnership firm or
a body corporate.
In the given question, the company has a paid up capital of 45 crore and turnover of

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250 crore for the financial year 2019-20.
Since, the company is fulfilling the criteria of turnover (i.e. 200 crore), hence, it is required to appoint an
internal auditor for the financial year 2020 -21.

4. Define the term “charge” and also explain what is the punishment for default with respect
to registration of charge as per the provisions of the Companies Act, 2013 .
Ans.
The term charge has been defined in section 2 (16) of the Companies Act, 2013 as ‘a n interest or lien created on the
property or assets of a company or any of its undertakings or both as security and includes a mortgage’.
Punishment for contravention – According to section 86 of the Companies Act, 2013, if any company
is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty
of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty
thousand rupees.
Further, if any person willfully furnishes any false or incorrect information or knowingly suppresses any
material information which is required to be registered under section 77, he shall be liable for action under
section 447 (punishment for fraud).
5. Yellow Pvt Ltd. is an unlisted company incorporated in the year 2012. The company have share capital of rupees
fifty crores. The company has decided to issue sweat equity shares to its directors and employees. The company
decided to issue 10% sweat equity shares (which in total will add up to 30% of its paid up equity shares), with a locking
period of five years, as it is a start-up company. How would you justify these facts in relation to the provision for
issue of sweat equity shares by a start-up company, with reference to the provision of the Company Act, 2013.
Explain?
Ans.
Sweat Equity Shares is governed by Section 54 of the Companies Act, 2013 and Rule 8of Companies (Share capital
and debentures) Rules, 2014. According to Section 54 the company can issue sweat equity shares to its director and
permanent employees of the company.
According to rule 8 (4) proviso, states that a start up company, is defined in a notification number Ministry
of Commerce and industry Government of India, may issue sweat equity share not exceeding 50% of its paid
up share capital up to 10 years from the date of its in incorporation or registration.
According to Rule 8(5), the sweat equity shares issued to directors or employees shall be locked in/ non
transferable for a period of three years from the date of allotment and the fact that the share certificates
are under lock-in too.
Hence, in the above case the company can issue sweat equity shares by passing special resolution at its
general meeting. The company as a startup company is right in issue of 10% sweat equity share as it is
overall within the limit of 50% of its paid up share capital. But the lock in period of the shares is limited to
maximum three years period from the date of allotment.
6. **AB Limited issued equity shares of 1,00,000 (10000 shares of 10 each) on 01.04.2020 which have been fully
subscribed whereby XY Limited holds 4000 shares and PQ Limited holds 2000 shares in AB Limited. AB Limited is
also holding 20% equity shares of RS Limited before the date of issue of equity shares stated above. RS Limited
controls the composition of Board of Directors of XY Limited and PQ Limited from 01.08.2020. Examine with
relevant provisions of the Companies Act, 2013:
(i) Whether AB Limited is a subsidiary of RS Limited?
(ii) Whether AB Limited can hold shares of RS Limited?

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(iii) Whether AB Limited can vote at Annual General Meeting of RS Limited held on 30.09.2020?
Ans.
This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the Companies Act, 2013.
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or "subsidiary", in
relation to any other company (i.e., the holding company), means a company in which the holding
company—
(ii) controls the composition of the Board of Directors; or
(iii) 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.
For the purposes of this clause, Explanation is given providing that a company shall be deemed to be a
subsidiary company of the holding company even if the control referred to in point (i) or point (ii) above, is
of another subsidiary company of the holding company.
Whereas Section 19 provides that, no company shall, hold any shares in its holding company and no holding
company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or
transfer of shares of a company to its subsidiary company shall be void.
Provided that nothing in this sub-section shall apply to a case where the subsidiarycompany is a shareholder
even before it became a subsidiary company of the holding company.
Here in the instant case, AB Ltd. issued 10,000 equity shares on 1.4.2020 whereby XYLtd. & PQ Ltd.
holds 4000 & 2000 shares respectively in AB Ltd., Considering 1 share = 1 vote, XY Ltd. and PQ Ltd.
together holds more than one-half (50%) of the total voting power. Therefore, AB Ltd. will be subsidiary to
XY Ltd. & PQ Ltd. from 1.4.2020.
Whereas AB Ltd. is already holding 20% equity shares of RS Ltd. before the date of issue of equity shares
i.e. 1.4.2020.
Further, RS Ltd. controls the composition of Board of Directors of XY Ltd. and PQ Ltd. from 01.08.2020. In the
light of sub-clause (87) of Clause 2, RS Ltd. is a holding company of XY Ltd. and PQ Ltd. (Subsidiary
companies).
Following are the answers to the questions:
(i) Yes. In this case AB Ltd. shall be deemed to be a subsidiary company of the holding company (RS Ltd.) as RS Ltd.
controls the composition of subsidiary companies XY Ltd. & PQ Ltd. as per explanation to sub-clause (87) of
Clause 2.
(ii) Yes. In this case AB Limited is a subsidiary of RS Limited as AB Ltd. was holding 20% of equity shares of RS Ltd.
even before it became a subsidiary company of the RS Ltd. (i.e. on 01.08.2020), according to the exception to
section 19.
(iii) No. The subsidiary company shall have a right to vote at a meeting of the holding company only in respect of
the shares held by it as a legal representative or as a trustee but not where the subsidiary company is a
shareholder even before it became a subsidiary company of the holding company.
Therefore, AB Ltd. cannot vote at AGM of RS Ltd. held on 30.9.2020.

7. Nutty Buddy Limited is manufacturing premium quality milk based ice cream in two flavors-first chocolate and second
butter scotch. The company called its Annual General Meeting (AGM) in order to lay down the financial statements
for Shareholders’ approval. However, due to want of quorum, the meeting was cancelled. Also, the Directors of the

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company did not file the Annual Return with the Registrar. The directors were of the idea that the time for filing of
returns within 60 days from the date of AGM would not apply, as AGM was cancelled. Has the company
contravened the provisions of Companies Act, 2013? If the company has contravened the provisions of the Act,
how will it be penalized?
Ans.
According to section 92(4) of the Companies Act, 2013, every company shall file with the Registrar a copy of the
annual return, within sixty days from the date on which the annual general meeting is held or where no annual
general meeting is held in any year within sixty days from the date on which the annual general meeting
should have beenheld together with the statement specifying the reasons for not holding the annual general meeting.
Sub-section (5) of Section 92 also states that if any company fails to file its annual return under sub-section
(4), before the expiry of the period specified therein, such company and its every officer who is in default
shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of
one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh
rupees in case of a company and fifty thousand rupees in case of an officer who is in default.
In the instant case, the idea of the directors that since the AGM was cancelled, the provisions requiring the
company to file annual returns within 60 days from the date of AGM would not apply, is incorrect.
In the above case, the annual general meeting of Nutty Buddy Limited should have been held within a
period of six months, from the date of closing of the financial year but it didnot take place. Thus, the
company has contravened the provisions of section 92 of the Companies Act, 2013 for not filing the annual
return and shall attract the penal provisions along with every officer of the company who is in default as
specified in Section 92(5) of the Act.

8. *500 equity shares of ABC Limited were acquired by Mr. Amit, but the signature of Mr. Manoj, the transferor, on the transfer
deed was forged. Mr. Amit, after getting the shares registered by the company in his name, sold 250 equity shares to Mr.
Abhi on the strength of the share certificate issued by ABC Limited. Mr. Amit and Mr. Abhi were not aware of the forgery.
What are the liabilities/rights of Mr. Manoj, Amit and Abhi against the company with reference to the aforesaid shares?

Ans.
According to Section 46(1) of the Companies Act, 2013, a share certificate once issued under the common seal, if
any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has
appointed a Company Secretary, specifying the shares held by any person, shall be prima facie evidence of the title of
the person to such shares. Therefore, in the normal course the person named in the share certificate is for all
practical purposes the legal owner of the shares therein and the company cannot deny his title to the shares.
However, a forged transfer is a nullity. It does not give the transferee (Mr. Amit) any titleto the shares.
Similarly, any transfer made by Mr. Amit (to Mr. Abhi) will also not give a good title to the shares as the
title of the buyer is only as good as that of the seller.
Therefore, if the company acts on a forged transfer and removes the name of the real owner (Mr. Manoj)
from the Register of Members, then the company is bound to restore the name of Mr. Manoj as the holder of
the shares and to pay him any dividends which he ought to have received.
In the above case, therefore, Mr. Manoj has the right against the company to get the shares recorded in his name.
However, neither Mr. Amit nor Mr. Abhi have any rights against the company even if they are bona fide
purchasers.

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But as Mr. Abhi acted on the faith of share certificate issued by company, he can demand compensation from
Mr. Amit.
Note :- ICAI answer as to Liability of Mr. Amit is wrong because forgery is nullity.
If the company has been put to a loss by reason of the forged transfer, it may recover the loss from the person
[transfree] who procured registration, even though he might have acted in good faith.
As held in the case of;- Sheffield Corp. Vs. Barclay

RTP DEC. 2021 [IPCC]

Sudarshan Exports Limited was dealing in export of rubber to specified foreign countries. The company
was willing to purchase rubber trees in A.P. State. The prospectus issued by the company contained
some important extracts of the expert’s report and number of trees in A.P. State. The report was found
untrue. Mr. Alok purchased the shares of Sudarshan Exports Limited on the basis of the expert’s report
published in the prospectus. Will Mr. Alok have any remedy against the company?

Ans.
Under section 35 (1) of the Companies Act 2013, where a person has subscribed for securities of a
company acting on any statement included in the prospectus which is misleading and has sustained any
loss or damage as a consequence thereof, the company and every person including an expert shall be
liable to pay compensation to the person who has sustained such loss or damage.

In the present case, Mr. Alok purchased the shares of Sudarshan Exports Limited on the basis of the
expert’s report published in the prospectus. Mr. Alok can claim compensation for any loss or damage
that he might have sustained from the purchase of shares, which has not been mentioned in the given
case. Further, Section 35 also mentions punishment prescribed by section 36 i.e. punishment for fraud
under section 447.

RTP DEC. 2021 [IPCC]

Define the term “charge” and also explain what is the punishment for default with respect to registration
of charge as per the provisions of the Companies Act, 2013.

The term charge has been defined in section 2 (16) of the Companies Act, 2013 as ‘an interest or lien
created on the property or assets of a company or any of its undertakings or both as security and includes
a mortgage’.
Punishment for contravention – According to section 86 of the Companies Act, 2013, if any company is
in default in complying with any of the provisions of this Chapter, the company shall be liable to a
penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty
of fifty thousand rupees.
Further, if any person willfully furnishes any false or incorrect information or knowingly suppresses any
material information which is required to be registered under section 77, he shall be liable for action
under section 447 (punishment for fraud).

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