Corporate Laws & Other Laws

Incorporation of Company and

2
Matters Incidental Thereto

Question 11
Alfa school started imparting education on 1.4.2010, with the sole objective of providing education to
children of weaker society either free of cost or at a very nominal fee depending upon the financial condition
of their parents. However, on 30th March 2018, it came to the knowledge of the Central Government that
the said school was operating by violating the objects of its objective clause due to which it was granted
the status of a section 8 company under the Companies Act, 2013. Describe what powers can be exercised
by the Central Government against the Alfa School, in such a case?
[MTP Aug 2018, MTP March 2019, ICAI Module]
OR
Mr. X, in association with his relative formed a company to promote education for the children of poor
section. A license was issued by the Central Government allowing the said company to be registered under
section 8 of the Company. Government aids and lot of funds were contributed by public for the fulfilment
of the benevolent object. However, on the compliant against the company, CG came to know about the
manipulation of the funds in the company and so order to revoke the license of the company. Further,
directed for the amalgamation with another company registered under this section with an object to save
girl child. Examine the legal position as to the order passed by the Central government in the given situation
in the light of the Companies Act, 2013.
[MTP Oct 2018]
OR
State Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013
with the object of promoting cricket by arranging introductory cricket courses at district level and friendly
matches. The club has been earning surplus. Of late, the affairs of the company are conducted fraudulently,
and dividend was paid to its members. Mr. Cool, a member decided make a complaint with Regulatory
Authority to curb the fraudulent activities by cancelling the license given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the license? If so, state the
provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the State Cricket Club can be merged with M/s. Cool Net Private Limited, a company
engaged in the business of networking?

Incorporation of Company and Matters 2.1

Corporate Laws & Other Laws

[July 2021, MTP Nov’22, MTP Nov’23 – 5 marks]

Answer
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to promote
the charitable objects of commerce, art, science, education, sports etc. Such company intends to apply its
profit in promoting its objects.

Section 8 companies are registered by the Registrar only when a license is issued by the Central Government
to them. Since, Alfa School was a Section 8 company and it had started violating the objects of its objective
clause, hence in such a situation the following powers can be exercised by the Central Government:
(i) The Central Government may by order revoke the license of the company where the company
contravenes any of the requirements or the conditions of this sections subject to which a license
is issued or where the affairs of the company are conducted fraudulently, or violative of the
objects of the company or prejudicial to public interest, and on revocation the Registrar shall put
‘Limited’ or ‘Private Limited’ against the company’s name in the register.

Provided that, no such order shall be made unless the company is given a reasonable opportunity
of being heard.

(ii) Where a license is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of being
heard.

(iii) Where a license is revoked and where the Central Government is satisfied that it is essential in
the public interest that the company registered under this section should be amalgamated with
another company registered under this section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central Government may, by order, provide for
such amalgamation to form a single company with such constitution, properties, powers, rights,
interest, authorities and privileges and with such liabilities, duties and obligations as may be
specified in the order.
Conclusion of the alternative question (Mr. X, in association with …)
According to the given situation, on revocation of license, the Central Government ordered for the
amalgamation of the company with the separate entity registered under the section 8 of the Companies
Act, 2013. However, an object for which both the Companies formed were promoting different objects.
Accordingly, the order passed by the Central Government after the revocation of license, is not in
compliance of the Section 8 of the Companies Act, 2013.

Incorporation of Company and Matters 2.2

Corporate Laws & Other Laws

Question 23
AB Limited issued equity shares of Rs. 1,00,000 (10000 shares of Rs. 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?
(iii) Whether AB Limited can vote at Annual General Meeting of RS Limited held on 30.09.2020?
[RTP Nov 2021, May 2019, Nov’23]
Answer
This given problem is based on Section 2(87) read with section 19 of the Companies Act, 2013.

As per sub-clause (87) of Section 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—
(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.
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 subsidiary company 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 XY Ltd. & 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.

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.

Incorporation of Company and Matters 2.3

Corporate Laws & Other Laws

Prospectus and Allotment of

3
Securities

Question 9
RD Ltd. issued a prospectus. All the statements contained therein were literally true. It also stated that
company had paid dividends for a number of years but did not disclose the fact that the dividends were not
paid out of trading profits but out of capital profits. An allotee of shares claims to avoid the contract on
the ground that the prospectus was false in material particulars. Decide that the argument of shareholder,
as per the provision of the Companies Act, 2013, is correct or not?
[Dec 2021]
OR
Spark Services Limited issued a prospectus inviting public offer of securities on 18th June, 2024. The
prospectus mentioned that Mr. T is one of the Directors of the Company. Mr. T is a famous social worker
who helps in educating the poor children in Rajasthan. The prospectus also mentioned that a certain
percentage of funds raised will be utilized towards that community service.

Mr. C was impressed by these statements and subscribed to the shares of the company. He was allotted
1000 shares of the company. He subsequently sold 250 shares to Mr. D. On 15 December, 2024, he came to
know that Mr. T was not a director and the company never had any intention of doing community service.
Mr. C and Mr. D want to rescind the contract. Referring to the provisions of the Companies Act, 2013,
examine whether Mr. C and Mr. D can rescind the contract.
[May’25 – 5 marks]
Answer
Relevant Provision:
According to section 34 of the Companies Act, 2013, where a prospectus, issued, circulated or distributed,
includes any statement which is untrue or misleading in form or context in which it is included or where any
inclusion or omission of any matter is likely to mislead, every person who authorises the issue of such
prospectus shall be liable under section 447.

Further, Section 35(3) provides that, where it is proved that a prospectus has been issued with intent to
defraud the applicants for the securities of a company or any other person or for any fraudulent purpose,
every person referred to in section 35(1), shall be personally responsible, without any limitation of liability,
for all or any of the losses or damages that may have been incurred by any person who subscribed to the
securities on the basis of such prospectus.

Conclusion:
In the given question, 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 it can pay dividend out of capital profits. Hence, a
material misrepresentation has been made.

Accordingly, in the given case the allottee can avoid the contract of allotment of shares.

Prospectus and Allotment of Securities 3.1

 Corporate Laws & Other Laws

Question 17
Prakash Limited wants to raise funds for its upcoming project. Accordingly, it has issued private placement
offer letters for issuing equity shares to 55 persons, of which four are qualified institutional buyers and
remaining are individuals. Before the completion of allotment of equity shares under this offer letter,
company issued another private placement offer letter to another 155 persons in their individual names for
issue of its debentures.
Being a public company is it possible for Prakash Limited to issue securities under a private placement offer?
By doing so, whether the company is in compliance with provisions relating to private placement or should
these offers be treated as public offers? What if the offer for debentures is given after allotment of
equity shares but within the same financial year?
[Dec 2021, MTP March 2021, MTP M’22, MTP N’22, MTP N’23, MTP M’25 – 5 marks]
Answer
According to section 42 of the Companies Act, 2013 any private or public company may make private
placement through issue of a private placement offer letter.

However, the offer shall be made to the persons not exceeding fifty or such higher number as may be
prescribed, in a financial year. For counting number of persons, Qualified Institutional Buyers (QIBs) and
employees of the company being offered securities under a scheme of employees’ stock option will not be
considered.

Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes
maximum of 200 persons who can be offered securities under the private placement in a financial year,
though this limit should be counted separately for each type of security.

It is to be noted that if a company makes an offer or invitation to more than the prescribed number of
persons, it shall be deemed to be an offer to the public and accordingly, it shall be governed by the provisions
relating to prospectus.

Also, a company is not permitted to make fresh offer under this section if the allotment with respect to
any offer made earlier has not been completed or otherwise, that offer has been withdrawn or abandoned
by the company. This provision is applicable even if the issue is of different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be treated as a public
offer and all provisions will apply accordingly.

In the given case Prakash Limited, though a public company but the private placement provisions allow even
a public company to raise funds through this route. The company has given offer to 55 persons out of which
4 are qualified institutional buyers and hence, the offer is given effectively to only 51 persons which is well
within the limit of 200 persons. From this point of view, the company complies the private placement
provisions.

However, as per the question, the company has given another private placement offer of debentures before
completing the allotment in respect of first offer and therefore, the second offer does not comply with
the provisions of section 42.

Hence, the offers given by the company will be treated as public offer. In case the company gives offer for
debentures in the same financial year after allotment of equity shares is complete then both the offers
can well be treated as private placement offers.

c
3.2 Prospectus and Allotment of Securities
Corporate Laws & Other Laws

4 Share Capital and Debentures

Question 2:
Mr. A was having 500 equity shares of Open Sky Aircrafts Limited. Mr. B acquired these shares of the
company from Mr. A but the signature of Mr. A, the transferor on the transfer deed was forged. The
company registered the shares in the name of Mr. B by issuing share certificate. Mr. B sold 100 equity
shares to Mr. C on the basis of share certificate issued by Open Sky Aircrafts Ltd. Mr. B and Mr. C are
not having the knowledge of forgery. State the rights of Mr. A, Mr. B and Mr. C under the Companies Act,
2013.
[MTP May 2020, RTP Nov 2021]
Answer
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. B) any title to the shares.
Similarly any transfer made by Mr. B (to Mr. C) 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. A)
from the Register of Members, then the company is bound to restore the name of Mr. A as the holder of
the shares and to pay him any dividends which he ought to have received (Barton v. North Staffordshire
Railway Co.).

In the above case, ‘therefore, Mr. A has the right against the company to get the shares recorded in his
name. However, neither Mr. B nor Mr. C have any rights against the company even though they are bona
fide purchasers.

However, since Mr. A seems to be the perpetrator of the forgery, he will be liable both criminally and for
compensation to Mr. B and Mr. C

Author’s Note – ICAI has assumed in the answer that Mr. A is the perpetrator in this forgery. Student
may choose to assume otherwise i.e.; student may write that – Any person who is the perpetrator of the
forgery will be liable both criminally and for compensation to Mr. B and Mr. C

Share Capital and Debentures 4.1

Corporate Laws & Other Laws

Question 19:
The Authorized share capital of SSP Limited is Rs. 5 crores divided into 50 Lakhs equity shares of Rs. 10
each. The Company issued 30 Lakhs equity shares for subscription which was fully subscribed. The
Company called so far Rs. 8 per share and it was paid up. Later on the Company proposed to reduce the
Nominal Value of equity share from Rs. 10 each to Rs. 8 each and to carry out the following proposals:
(i) Reduction in Authorized Capital from Rs. 5 crore divided into 50 Lakhs equity shares of Rs. 10 each
to Rs. 4 crore divided into 50 Lakhs equity shares of Rs. 8 each.
(ii) Conversion of 30 Lakhs partly paid up equity shares of Rs. 8 each to fully paid up equity shares of
Rs. 8 each there by relieving the shareholders from making further payment of Rs. 2 per share.
State the procedures to be followed by the Company to carry out the above proposals under the provisions
of the Companies Act, 2013.
[Nov 2020]
Answer
(i) In order to carry out proposals by SSP Limited to reduce the nominal value of the equity share, the
company has to comply with the procedure given under section 66 of the Companies Act, 2013 which
deals with the Reduction of share capital.

Procedure
1) Reduction of share capital by special resolution: Subject to confirmation by the Tribunal on an
application by the company, a company limited by shares or limited by guarantee and having a
share capital may, by a special resolution, reduce the share capital in any manner and in
particular, may:
a) extinguish or reduce the liability on any of its shares in respect of the share capital not
paid-up; or
b) either with or without extinguishing or reducing liability on any of its shares—
(i) cancel any paid-up share capital which is lost or unrepresented by available assets;
(ii) pay off any paid-up share capital which is in excess of the wants of the company,
alter its memorandum by reducing the amount of its share capital and of its shares
accordingly.

2) Issue of Notice from the Tribunal: The Tribunal shall give notice of every application made to
it to the Central Government, Registrar and the creditors of the company and shall take into
consideration the representations, if any, made to it by them within a period of three months
from the date of receipt of the notice.

3) Order of tribunal: The Tribunal may, if it is satisfied that the debt or claim of every creditor
of the company has been discharged or determined or has been secured or his consent is
obtained, make an order confirming the reduction of share capital on such terms and conditions
as it deems fit.

4) Publishing of order of confirmation of tribunal: The order of confirmation of the reduction of

share capital by the Tribunal shall be published by the company in such manner as the Tribunal
may direct.

5) Delivery of certified copy of order to the registrar: The company shall deliver a certified copy
of the order of the Tribunal and of a minute approved by the Tribunal to the Registrar within
thirty days of the receipt of the copy of the order, who shall register the same and issue a
certificate to that effect.

(ii) Alteration of Share Capital:

SSP Limited proposes to alter its share capital. The Present authorized share capital Rs. 5 Crore will
be altered to Rs. 4 Crore. According to Section 61 of the Companies Act, 2013, a limited company
having a share capital may alter its capital part of the memorandum.

Share Capital and Debentures 4.2

 Corporate Laws & Other Laws

A limited company having a share capital may, if so authorized by its articles, alter its memorandum in
its general meeting to -
1) Cancel shares which, at the date of the passing of the resolution in that behalf, have not been
taken or agreed to be taken by any person, and diminish the amount of its share capital by the
amount of the shares so cancelled. The cancellation of shares shall not be deemed to be
reduction of share capital.
2) A company shall within 30 days of the shares having been consolidated, converted, sub-divided,
redeemed, or cancelled or the stock having been reconverted, shall give a notice to the Registrar
in the prescribed form along with an altered memorandum [Section 64 of Companies Act, 2013].

The Company has to follow the above procedures to alter its authorized share capital.

4.3 Share Capital and Debentures

Corporate Laws & Other Laws

Acceptance of Deposit by
5
Company

Question 9:
ABC Limited having a net worth of ₹ 120 crores wants to accept deposit from its members. The directors
of the company have approached you to advise them as to what special care has to be taken while accepting
such deposit from the members in case their company falls within the category of an ‘eligible company’.
[ICAI Module, Jan 2021, May 24]
Answer
According to section 76 (1) of the Act, an “eligible company” means a public company, having a net worth of
not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees and which
has obtained the prior consent of the company in general meeting by means of a special resolution and also
filed the said resolution with the Registrar of Companies before making any invitation to the public for
acceptance of deposits.

However, an ‘eligible company’, which is accepting deposits within the limits specified under section 180 (1)
(c), may accept deposits by means of an ordinary resolution.

According to Rule 4 (a), an ‘eligible company’ shall accept or renew any deposit from its members, if the
amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or
renewal of such deposits from members does not exceed ten per cent of the aggregate of the paid-up share
capital, free reserves and securities premium account of the company.

ABC Limited is having a net worth of 120 crore rupees. Hence, it falls in the category of ‘eligible company’.
Thus, ABC Limited has to ensure that acceptance of deposits from its members together with the amount
of deposits outstanding as on the date of acceptance or renewal of such deposits from the members, in no
case, exceeds 10% of the aggregate of the paid-up share capital, free reserves and securities premium
account of the company.

Acceptance of Deposit by Company 5.1

Corporate Laws & Other Laws

6 Registration of Charges

Question 17
Naveen Tools Ltd (NTL) mortgaged its factory land and building (by equitable mortgage) on 1st March, 2023
to Goodwill Bank and availed a credit limit of ₹200 lakh. Although the credit limit was sanctioned by the
Bank, but the NTL actually availed such credit facility only in the month of August, 2023, when it issued a
cheque in favour of a creditor towards the payment of raw material purchased from it.

During the course of statutory audit, the auditor pointed out before the management of the NTL about the
non-compliance of registration of charge with the Registrar within the stipulated time. The company
officials informed that although the mortgaged-backed credit limit was sanctioned in March 2023, the
company had not availed the facility till the month of August, 2023.

So, the liability of registration of charge arises from the date of availment only when the company issued
a cheque from the mortgaged-backed credit limit account and not when the loan was sanctioned and credit
limit was assigned.

Further, the company management pleaded that it is the responsibility of the financier i.e. Goodwill Bank to
get the charges registered with the Registrar since the registration of charge is to be effected in favour
of the Bank and for Bank’s own benefit, so the NTL is in no way responsible for getting registration or for
delayed registration.

In the light of above facts, referring to the provisions of the Companies Act, 2013, discuss:
(i) When trigger point for the registration of charge shall arise,
(a) at the time of credit limit sanctioned by the Bank; or
(b) at the time of availing of credit limit when cheque was issued by the company?
(ii) What are the consequences for non-registration of charge on the Naveen Tools Ltd?
[Sept 24 – 5 marks]
Answer
(i) According to section 77(1) of the Companies Act, 2013, it shall be the duty of a company creating a
charge to register it with the Registrar of Companies within 30 days from the date of creation of the
charge. The obligation to register a charge arises not merely at the time of sanctioning the credit limit
but when the charge is created.
Whenever a company borrows money by way of loans including term loans or working capital loans from
financial institutions or banks or any other persons, by offering its property or assets, as security a
charge is created on such property or assets in favor of the lender.

The Trigger point for registration of charge arises when the Bank has sanctioned the mortgaged backed
credit limit, documentation was done, papers of the property for creation of the mortgage was tendered
by the company for creation of fixation of the credit limits.

Here, the words ‘creating a charge’ refers to the accepting of the property papers for the purpose of
creation of charge. Thus, it is the date when the credit limits were sanctioned as assigned to the company
and not the date when the company had actually drawn a cheque from such credit limit.

Registration of Charges 6.1

 Corporate Laws & Other Laws

(ii) Consequence of non-registration of charge [Section 77 (3) & (4)]

No charge created by a company shall be taken into account by the liquidator appointed under the
Companies Act, 2013 or the Insolvency and Bankruptcy Code, 2016 or any other creditor unless it is duly
registered and a certificate of registration of such charge is given by the Registrar.

This means that the charge will become void against the liquidator and other creditors of the company.
That is to say, at the time of winding up, the creditor whose charge has not been registered will be
reduced to the level of an unsecured creditor. Neither the liquidator nor any other creditor will give
legal recognition to a charge that is not registered.

Another important consequence of non-registration is that the charge-holder loses priority. Any
subsequent registration of a charge (i.e. even if it is registered within the extended period instead of
original 30 days) shall not prejudice any right acquired in respect of any property before the charge is
actually registered.

6.2 Registration of Charges

Corporate Laws & Other Laws

7 Management and Administration

Question 12
(i) The Articles of Association of DJA 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 appointment of Managing Director:
(1) A, the representative of Governor of Uttar Pradesh.
(2) D, representing Y Ltd. and Z Ltd.
(3) E, F, G and H as proxies of shareholders.
Determine whether the quorum was present in the meeting?

(ii) Sirhj, a shareholder, gives a notice for inspecting proxies, five days before the meeting is scheduled
and approaches the company two days before the scheduled meeting for inspecting the same. What is
the legal position relating to his actions (as per the provisions of the Companies Act, 2013)?
[MTP Aug 2018, RTP May 20]
OR
The Articles of Association of ABC Limited require the personal presence of 7 members to constitute
quorum of General Meetings. The company has 870 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 Karnataka.
(ii) B and C, shareholders of preference shares,
(iii) D, representing Green Limited and Blue Limited
(iv) E, F, G and H as proxies of shareholders.
Can it be said that the quorum was present in the meeting?
[MTP Nov 22, MTP-1 Nov 23- 6 marks]

Management and Administration 7.1

Corporate Laws & Other Laws

Answer
(i) 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.

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. 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.

(ii) Under section 105 (8) of the Companies Act, 2013 every member entitled to vote at a meeting of the
company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-
four hours before the time fixed for the commencement of the meeting and ending with the conclusion
of the meeting, to inspect the proxies lodged, at any time during the business hours of the company,
provided not less than three days’ notice in writing of the intention so to inspect is given to the company.

In the given case, Sirhj has given proper notice. However, such inspection can be undertaken only during
the period beginning 24 hours before the time fixed for the commencement of the meeting and ending
with the conclusion of the meeting.

So, Sirhj can undertake the inspection only during the above mentioned period and not two days prior
to the meeting.

Management and Administration 7.2

 Corporate Laws & Other Laws

Question 33
‘A’ and his wife ‘B’ has joint Demat Account in Vrinda Limited. The company’s Annual General Meeting is to
be held on 28.08.2022. In such a case, who will cast the vote in the Annual General Meeting? Give your
answer as per the provisions of the Companies Act, 2013.
[RTP Nov 22, May 24]
Answer
The voting in case of joint shareholders is done in the order of seniority, which is determined on the basis
of the order in which their names appear in the register of members/ shareholders. The joint- holders have
a right to instruct the company as to the order in which their names are to appear in the register.
As per Rule 21 of the Companies (Management and Administration) Rules, 2014, the Scrutinizers shall
arrange for Polling papers and distribute them to the members and proxies present at the meeting; in case
of joint shareholders, the polling paper shall be given to the first named holder or in his absence to the
joint holder attending the meeting as appearing in the chronological order in the folio.

Thus, in the given case, ‘A’ or his wife ‘B’, whosoever names appears first in chronological order in the
register of members/ shareholders shall be entitled to vote.

7.3 Management and Administration

Corporate Laws & Other Laws

Question 41
L k J Ltd. is a company having paid up share capital of Rs 12.50 crores with total number of members
being 3500. The board of directors have called a general meeting (the meeting) to be conducted on
06.05.2023 at 2.00 pm. On the date of the meeting the required quorum was not present within half an
hour and hence was adjourned to the next week on 13.05.2023 on same day at same venue. In reference to
the above scenario in light of the relevant provisions of the Companies Act,2013 elucidate upon the
following queries of the company:
(i) What will be the fate of the meeting in case two members, in person, were present at the adjourned
meeting held on 13.05.2023?
(ii) In case on 06.05.2023 a total of 16 members were present but the chairman owing to the unruly
behaviour of some members during the meeting had adjourned the same to 13.05.2023 and at the
adjourned meeting only 3 members, in person, are present. What will be fate of such adjourned
meeting?
(iii) In case, where such meeting was called by the requisitionists under Section 100 of the Act and at
such meeting the quorum was not present, what will be the fate of such meeting?
[May 24, RTP Sept’25 – 5 marks]
Answer
(i) According to section 103 of the Companies Act, 2013, in case of a public company, unless the articles of
the company provide for a larger number, if the number of members is more than 1000 but upto 5000,
then the quorum shall be 15 members personally present.
If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the
company:
(a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or
to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled

Provided that in case of an adjourned meeting or of a change of day, time or place of meeting under
clause (a), the company shall give not less than three days’ notice to the members either individually or
by publishing an advertisement 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.

Quorum not present at the adjourned meeting also: Where quorum is not present in the adjourned
meeting also within half an hour, then the members present shall form the quorum.
In the given question, the quorum for the given company having 3500 members shall be 15 members
personally present.
Where quorum is not present in the adjourned meeting (i.e. 13.05.2023) also within half an hour, then
the two members present shall form the quorum.

(ii) The meeting held on 6.05.2023 had 16 members present. Hence, the quorum was present. However, the
meeting was adjourned due to unruly behaviour of some members and not for want of quorum. In the
said meeting (13.05.2023), only 3 members in person were present. In such a case, these 3 members
shall not constitute the quorum and hence, shall stand further adjourned.

(iii) If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the
company, the meeting, if called by requisitionists under section 100, shall stand cancelled.

Management and Administration 7.4

Corporate Laws & Other Laws

Declaration and Payment of

8
Dividend
Question 17
A company has accumulated Free Reserves of ₹75 lakhs during last five years. It has not declared any
dividend during these years. Now, the company proposes to appropriate a part of this amount for making
payment of dividend for current year in which it has earned a profit of ₹ 12 lakhs. The Board proposes a
payment of dividend of ₹30 lakhs i.e. 30% of the paid up capital. Examine, as per the provisions of the
Companies Act, 2013, whether, the proposal of the company is valid?
[Nov 22]
Answer
In the given question, the company is intending to declare dividend out of current year profits and past
year’s profits. As per provisions of Section 123 of the Companies Act, 2013, where in any year, there are
no adequate profits for declaring dividend, the company may declare dividend out of the profits of any
previous year transferred by it to the free reserves only in accordance with the procedure laid down in Rule
3 of the Companies (Declaration and Payment of Dividend) Rules, 2014.

Conditions of Rule 3:
 Condition 1: 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.
 Condition 2: The total amount to be drawn from such accumulated profits shall not exceed 10% of its
paid-up share capital and free reserves as appearing in the latest audited financial statement.
 Condition 3: The balance of reserves after such withdrawal shall not fall below 15% of its paid up share
capital as appearing in the latest audited financial statement.

Calculations For Each Condition

 Condition 1: This condition shall not apply if the company has not declared any dividend in each of the
three preceding financial year. Thus, condition 1 shall not be applicable on the company in question as it
has not declared dividend in last 5 years.
 Condition 2: As per the facts, the Board proposes a payment of dividend of ₹ 30 lakhs i.e., 30% on the
paid up capital.
So, the Paid up Share Capital of the company = Paid-up Capital + Free Reserves
= 100+ 75 = ₹ 175 Lakh 10% thereof
= ₹ 17.5 Lakh
Hence the dividend to be declared is to be restricted to ₹ 17.5 Lakh.

 Condition 3:
Here, Free Reserves = ₹ 75 Lakh
Proposed withdrawal for declaration of dividend ₹ 17.5 Lakh
Balance of Reserves = ₹75 Lakh- 17.5 Lakh = ₹ 57.5 Lakh
This (balance of reserve) is more than 15% of paid-up capital (i.e 15% of ₹ 100 Lakh) i.e. ₹ 15 Lakh.
Thus, the company can declare a dividend of ₹ 17.5 lakh i.e. at a rate of 17.5% on its paid-up capital of
₹ 100 lakh.
Hence, the proposal of company for payment of dividend of ₹ 30 lakh i.e., 30% on the paid up capital in
the current year in which it has earned a profit of ₹ 12 lakh, is invalid.

Author’s Note – Max dividend that co. can pay in this case shall be Rs. 29.5 lakhs (Rs. 17.5 lakhs from
free reserve and Rs. 12 lakhs from CY profits)

Declaration and Payment of Dividend 8.1

Corporate Laws & Other Laws

9 Accounts of Companies

Question 1
(a) Ravi Limited maintained its books of accounts under Single Entry System of Accounting. Is it
permitted under the provisions of the Companies Act, 2013?
(b) State the person responsible for complying with the provisions regarding maintenance of Books of
Accounts of a Company.
(c) Whether a Company can keep books of Accounts in electronic mode accessible only outside India.
[MTP March 21, Oct. 20, Nov 19, MTP Oct 20, RTP Nov’22]
OR
Green Limited is a company dealing in trading of spices. It has maintained its books of accounts under Single
Entry System of Accounting. The company has recently hired a new account. The new accountant, Mr. Dubey,
is doubtful that the accounts can be maintained under Single Entry System. Advise the company whether it
is allowed to do so?
[MTP March 21, MTP March 2022, RTP Sept 2024]
Answer
(i) According to Section 128(1) of the Companies Act, 2013, every company shall prepare “books of
account” and other relevant books and papers and financial statement for every financial year.
These books of accounts should give a true and fair view of the state of the affairs of the company,
including that of its branch office(s).

These books must be kept on accrual basis and according to double entry system of accounting.

Hence, maintenance of books of account under Singly Entry System of Accounting by Ravi Limited is
not permitted.

(ii) Persons responsible to maintain books

As per Section 128 (6) of the Companies Act, 2013, the person responsible to take all reasonable steps
to secure compliance by the company with the requirement of maintenance of books of accounts etc.
shall be:
(a) Managing Director,
(b) Whole-Time Director, in charge of finance
(c) Chief Financial Officer
(d) Any other person of company charged by Board with duty of complying with provisions of sec 128.

(iii) A Company have the option of keeping such books of account or other relevant papers in electronic
mode as per Rule 3 of the Companies (Accounts) Rules, 2014. According to such Rule,
(a) such books of accounts or other relevant books or papers maintained in electronic mode shall
remain accessible in India so as to be usable for subsequent reference at any time.
(b) There shall be a proper system for storage, retrieval, display or printout of the electronic records
as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be
disposed of or rendered unusable, unless permitted by law.
(c) The back-up of the books of account and other books and papers of the company maintained in
electronic mode, including at a place outside India, if any, shall be kept in servers physically located
in India on a daily basis.
Hence, a company cannot keep books of Account in electronic mode accessible only outside India.

Accounts of Companies 9.1

 Corporate Laws & Other Laws

Question 1A
Adil is a student of CA Intermediate. His friend (who is also in CA Intermediate) has approached him to
explain to him the provisions of the Companies Act, 2013, on the following:
(i) Inspection of books of account and other books and papers of the company.
(ii) Period of preservation of books of accounts
[MTP April 2022]
OR
Sanjana joined a company named as Designers Cloths (I) Ltd. as an Independent Director. In order to know
more about the company, she wanted to inspect the books of account and minutes books of the Board
Meetings held during the previous three years.
The company is keeping the books of account and other records at its Registered Office, which is at Mumbai
whereas Sanjana resides in Kolkata. Therefore, through power of attorney, Sanjana authorised her friend
Avantika, who is a Chartered Accountant and does practice in Mumbai, to make an inspection of the books
of accounts and minutes books of the meetings of the Board.
Giving the relevant provisions of the Companies Act, 2013 and its Rules, examine whether Avantika can make
inspection on behalf of Sanjana.
[Sept’24 – 5 marks]
Answer
(i) Inspection by Directors
As per Section 128(3) of the Companies Act, 2013, any director can inspect the books of account and other
books and papers of the company during business hours. Such inspection may be done by any type of director
- nominee, independent, promoter or whole time.

The proviso to sub-section 3 provides that a person can inspect the books of account of the subsidiary, only
on authorisation by way of the resolution of Board of Directors.

Assistance by officers and Employees

As per Section 128(4), where an inspection is made under sub-section (3), the officers and other employees
of the company shall give to the person making such inspection all assistance in connection with the
inspection which the company may reasonably be expected to give.

(ii) Period for preservation of books

According to section 128(5) of the Companies Act, 2013, the books of accounts, together with vouchers
relevant to any entry in such books, are required to be preserved in good order by the company for a period
of not less than eight years immediately preceding the relevant financial year.

In case of a company incorporated less than eight years before the financial year, the books of accounts
for the entire period preceding the financial year together with the vouchers shall be so preserved.

As per proviso to sub-section 5, where an investigation has been ordered in respect of a company under
Chapter XIV of the Act related to inspection, inquiry or investigation, the Central Government may direct
that the books of account may be kept for such period longer than 8 years, as it may deem fit and give
directions to that effect.

9.2 Accounts of Companies

Corporate Laws & Other Laws

Question 18
PQR Private Limited operates as a manufacturing company, generating a turnover of Rs. 150 crore and holds
an outstanding loan of Rs. 75 crore from a public financial institution solely in the previous financial year
(with a total loan availed of Rs. 110 crore, but Rs. 35 crore were repaid during the same year). The company's
Board has delegated the authority to Chief Executive Officer (CEO) to designate an internal auditor to
conduct internal audit. However, the CEO believes that the company is not legally obligated to have an
internal auditor. Analyse the accuracy of the CEO's perspective by referring to the provisions outlined in
the Companies Act, 2013. What would be your response if the Board of Directors wanted to appoint the Mr.
Nagendra (an ex- employee who is a qualified Chartered Accountant) as an internal auditor?
[RTP May’24, RTP Nov 2021]
OR
ABC Private Limited was incorporated on 30th September 2020. It has a paid up share capital of ₹ 45 crore.
The company had a turnover of 250 crore for the financial year 2023-24. The accounts manager of the
company has intimated to the company that they are not required to appoint internal auditor for the
financial year 2024-25. The management of the company have approached you to advise them about the
appointment of internal auditor, as per the provisions of the Companies Act, 2013.
[MTP May’25 – 5 marks]
Answer
According to the provisions of section 138 of the Companies Act, 2013, read with Rule 13 of the
Companies (Accounts) Rules, 2014, 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 exceeding 100 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 a partnership firm or a
body corporate.

Internal Auditor shall either be a Chartered Accountant or a Cost Accountant, or such other professional
as may be decided by the Board to conduct internal audit of the functions and activities of the company.

The internal auditor may or may not be an employee of the company.

Thus, PQR Private Limited is required to appoint an internal auditor as the outstanding loans from public
financial institutions during the year have exceeded 100 crores (irrespective of the fact that the
outstanding loan during the year is 75 crore rupees). Hence, the advice of CEO is not correct.

Internal Auditor may be any professional as decided by the Board and may be even an employee of the
company. Hence, the Board of Directors may appoint Mr. Nagendra, an ex- employee who is a qualified
Chartered Accountant, as an internal auditor.

Accounts of Companies 9.3

Corporate Laws & Other Laws

10 Audit and Auditors

Question 2
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 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?
[RTP Nov 2018]
OR
CA. Mudit is a partner in SM & Company (Chartered Accountants) and ML & Company (Chartered
Accountants). SM & Company are statutory auditors of Liberal Ltd. (a listed company) for past ten years as
on 31st March, 2027. Advice under relevant provisions of the Companies Act, 2013, whether ML & Company
be appointed as statutory auditor of Liberal Ltd. during cooling off period (after 31st March, 2027) for SM
& Company?
[MTP Sept 24, Sept 24- 5 marks]

Audit and Auditors 10.1

 Corporate Laws & Other Laws

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 as auditor in the 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. (Author’s note - transition provision, can
be ignored)

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.

10.2 Audit and Auditors

Corporate Laws & Other Laws

Question 27
L Ltd. having 2,000 members with paid-up capital of 1 crore, decided to hold its Annual General Meeting
(AGM) on 21 August, 2022. On 2nd July, 2022, 50 members holding paid-up capital of 6 lakhs in aggregate,
has given notice of their intension for a resolution to be passed at the AGM for appointing Dawar & Co., as
its Statutory auditor from FY 2022-23 onwards, instead of its existing Statutory auditor, SNS & Co. which
was originally appointed for 5 years term and had completed only 3 years term. When such notice was
received by existing auditors, they sent a representation in writing to the company along with a request for
its notification to the members of the company. In the context of aforesaid facts, answer the following
question(s) according to provisions of the Companies Act, 2013:
(i) Whether the said notice was given by adequate number of members and within the prescribed time
limit to L Ltd.?
(ii) Whether the company was bound to send such representation to its members made by SNS & Co?
[May 2023 - 4 marks]
OR
Srinivas Iron and Steel Ltd. is a public sector listed company engaged in the manufacture of high-end steel
sheets to be supplied to various other entities country-wide. M/S CVB & Associates, Chartered
Accountants, had been appointed as the statutory auditors of the company for the term F.Y. 2023-24. Later
in the year, a financial fraud has come to the fore, not reported by the current auditors in their report,
leading to dissatisfaction amongst a group of learned members of the company.

The Next Annual General Meeting is scheduled on 28.09.2024. The members comprising of Mr. H, Mr. J,
Mr. K holding paid-up share capital ₹ 1,50,000; ₹ 1,00,000; ₹ 2,50,000 respectively have collectively decided
to send a special notice to the company regarding passing of the resolution at the next Annual General
Meeting for appointment of an auditor other than M/S CVB & Associates as the auditor for the next term.

Referring to the provisions of Companies Act, 2013 elaborate:

(i) Whether the above members can validly issue such Special Notice to the company?
(ii) What will be the last date for issue of such Special Notice by the members to the company?
(iii) Whether the co. would have to communicate about the above Special Notice to other members after
receiving the same?
[Jan’25 – 5 marks]

Audit and Auditors 10.3

 Corporate Laws & Other Laws

Answer:
(i) Special Notice: As per section 140(4) of the Companies Act, 2013, resolution for appointment of an
auditor other than retiring auditor at an Annual General Meeting requires special notice.

As per section 115 of the Companies Act, 2013, read with rule 23 of Companies (Management and
Administration) Rules, 2014:
Where, by any provision contained in this Act or in the Articles of Association of a company, special
notice is required for passing any resolution, then the notice of the intention to move such resolution
shall be given to the company by such number of members holding not less than 1% of the total voting
power, or holding shares on which such aggregate sum not exceeding Rs. 5 lakhs, has been paid-up.

Rule 23 provides, a special notice required to be given to the company shall be signed, either individually
or collectively by such number of members holding not less than 1% of total voting power or holding
shares on which an aggregate sum of not less than 5,00,000 rupees has been paid up on the date of
the notice.

The afore-mentioned notice shall be sent by members to the company not earlier than 3 months but at
least 14 days before the date of meeting at which the resolution is to be moved, exclusive of the day
on which the notice is given and the day of the meeting.

Here, L Ltd. is having 2,000 members with paid-up capital of Rs.1 crore, and it received a notice from
its 50 members holding paid-up capital of Rs. 6 lakh, in aggregate, on 2nd July, 2022 for a resolution
to be passed at the AGM to be held on 21st August, 2022.

As the members who gave the notice hold more than Rs. 5 lakh in the paid-up capital of the company,
they were eligible to give such notice.

Further, the notice should have been given not earlier than 3 months but at least 14 days before the
date of meeting - 21st Aug, 2022, and notice was given on 2nd July, 2022 i.e., within the prescribed
time limit.

Thus, it can be said that the said notice was made by adequate number of members within the
prescribed time limit to L Ltd.

[Note: In the given question 50 members are holding paid-up share capital of Rs.6 lakh. In fact they
are holding more than 1% of total voting power as the paid -up share capital of the company is Rs.1
crore. This can also be considered as fulfillment of the condition. Further, a presumption may be taken
that these members are holding equity shares carrying voting rights in absence of any specific
information given in the question regarding class of shares.]

(ii) Representation to members: Where notice is given of such a resolution and the retiring auditor makes
with respect thereto representation in writing to the company (not exceeding a reasonable length) and
requests its notification to members of the company, the company shall —
(1) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and
(2) send a copy of the representation to every member of the company to whom notice of the
meeting is sent, whether before or after the receipt of the representation by the company.

Yes, as per section 140(4) of the Companies Act, 2013, the company was bound to send the
representation made by SNS & Co., to its members.

However, if a copy of the representation is not sent as aforesaid because it was received too late or
because of the company’s default, a copy thereof shall be filed with the Registrar and the auditor may
(without prejudice to his right to be heard orally) require that representation shall be read out at the
meeting.

10.4 Audit and Auditors

Corporate Laws & Other Laws

Companies Incorporate Outside

11
India

Question 21:
(i) Tokyo Ferro Alloys Limited, a company registered in Japan, started its operations in India by
establishing a Marketing Division in Mumbai on 1st April, 2021. Recently, the Company decided to issue
certain securities in India and therefore, is planning to circulate in India, a prospectus offering for
subscription in securities of the Company. Assuming that all the other formalities in this respect have
been complied with, advise the person in-charge of Indian operations regarding the other documents
required to be annexed to the prospectus in order to registered the same, referring to the relevant
provisions of the Companies Act, 2013 and the rules made thereunder,
(ii) Vibav Pte, a company incorporated in Singapore is having a liaison office in Delhi. The Liaison office
seeks your advice regarding the documents to be filed with the Registrar along with the financial
statement under the Companies Act, 2013 read with the Companies (Registration of Foreign Companies)
Rules, 2014.
[CA Final – Dec 21, MTP May'24]
Answer:
(i) According to this Section 389 of the Companies Act, 2013 read with Rule 11 of the Companies
(Registration of Foreign Companies) Rules, 2014,

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

a. any consent to the issue of the prospectus required from any person as an expert;
b. a copy of contracts for appointment of managing director or manager and in case of a contract
not reduced into writing, a memorandum giving full particulars thereof;
c. a copy of any other material contracts, not entered in the ordinary course of business, but
entered within preceding 2 years;
d. A copy of underwriting agreement; and
e. A copy of power of attorney, if prospectus is signed through duly authorized agent of
directors.

Accordingly, the person in charge of the Indian operations shall be advised in accordance with the
above provisions.

(ii) According to Rule 4 of the Foreign Companies (Registration of Foreign Companies) Rules, 2014, every
foreign company, shall, along with the financial statement required to be filed with the Registrar,
attach thereto the following documents; namely: -
1. Statement of related party transaction
2. Statement of repatriation of profits
3. Statement of transfer of funds (including dividends, if any).

The above statement shall include such other particulars as are prescribed in the Companies (Registration
of Foreign Companies) Rules, 2014.

Companies Incorporate Outside India 11.1

Corporate Laws & Other Laws

12 The General Clauses Act, 1897

Question 3
CCTV recording of an incident can be considered as a document. Explain what do you understand by the
word document and how will you justify your answer in accordance with the provision of the General Clauses
Act, 1897?
[MTP Mar’18, MTP May’25 – 4 marks]
OR
State what do you understand by the term 'document' as per the General Clauses Act, 1897? Discuss
which of the following will be treated as a document:
(i) Power of Attorney
(ii) Cheque
[Jan’25 – 4 marks]
Answer
As per Section 3 of the Indian Evidence Act, 1872, a document refers to any matter that is expressed or
described upon a substance using letters, figures, or marks with the intention of recording information.
Similarly, Section 3(18) of the General Clauses Act, 1897, states that a document includes any material on
which information is written, expressed, or described through various means.

A document generally consists of four key elements:

1. Matter – The content or subject recorded in the document.
2. Record – The process of fixing or storing the matter on a particular medium.
3. Substance – The physical medium on which the information is recorded (paper, digital file, stone
engraving, etc.).
4. Means – The method used to record the information, such as letters, numbers, symbols, or figures.

So a contract agreement between two businesses is a document because it contains matter (terms and
conditions of the agreement). It is recorded in writing on a substance (paper or electronic document). It
is written using letters and symbols to communicate between the parties.

A CCTV recording of an incident is a document. Even though it is not written on paper, it is still a document
because it records matter (the incident), is stored on a medium (hard drive or tape) and can be used as
proof in a legal proceeding.

The General Clauses Act, 1897 12.1

Corporate Laws & Other Laws

13 Interpretation of Statutes

Question 9
'The meaning of a word is to be judged by the company it keeps'. Explain the concept of 'Noscitur A
Sociis'.
[MTP May 20, May’25 – 4 marks]
OR
“Associate words to be understood in common sense manner”. Explain this statement with reference to
rules of interpretation statutes.
[Nov 20, MTP Nov 22, MTP-2 Nov 23- 3 marks]
Answer
Associated Words to be Understood in Common Sense Manner:
Concept of 'Noscitur A Sociis' ('it is known by its associates') - that is to say 'the meaning of a word is
to be judged by the company it keeps'. When two or more words which are capable of analogous (similar
or parallel) meaning are coupled together, they are to be understood in their cognate sense (i.e. akin in
origin, nature or quality). They take their colour from each other, i.e., the more general is restricted to a
sense analogous to the less general.
It is a rule wider than the rule of ejusdem generis, rather ejusdem generis is only an application of the
noscitur a sociis. It must be borne in mind that noscitur a sociis, is merely a rule of construction and it
cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make
the scope of the defined word correspondingly wider.

For example, in the expression 'commercial establishment means an establishment which carries on any
business, trade or profession', the term 'profession' was construed with the associated words 'business'
and 'trade' and it was held that a private dispensary was not within the definition. (Devendra M. Surti
(Dr.) vs. State of Gujrat).

Interpretation of Statutes 13.1

Corporate Laws & Other Laws

The Foreign Exchange

14
Management Act, 1999

Question 17:
Mr. F, an Indian National desires to obtain foreign exchange for the following purposes:
a) Payment of US $ 10,000 as commission on exports under Rupee State Credit Route.
b) US $ 30,000 for a business trip to U.K.
c) Remittance of US $ 2,00,000 for payment as prize money to the winning team in a Hockey Tournament
to be held in Australia.
Advise him, if he can get the Foreign Exchange and under what conditions.
[CA Final May 2005]
Answer:
If a sale or drawal satisfies the conditions of a current account transaction, then any person may sell or
draw foreign exchange to or from an authorized person.
However, the Central Government may, in public interest and in consultation with the RBI, impose such
reasonable restrictions for current account transactions as may be prescribed (Section 5). The Central
Government has framed Foreign Exchange Management (Current Account Transactions) Rules, 2000. The
rules stipulate some restrictions on drawal of foreign exchange for certain purposes.
In the light of the above, answer to the given problem is as under:
i. As per Rule 3 read with Schedule I of Foreign Exchange Management (Current Account Transactions)
Rules, 2000, payment of commission on exports under Rupees State Credit Route (except commission
up to 10% of invoice value of exports of tea and tobacco) is prohibited.

Therefore, payment of US $ 10,000 as commission on exports under Rupee State Credit Route is
prohibited unless such commission is paid for export of tea and tobacco, and the commission does not
exceed 10% of invoice value of exports.

ii. As per Rule 5 read with Schedule III of Foreign Exchange Management (Current Account Transactions)
Rules, 2000, individuals can draw foreign exchange up to $ 2,50,000 for travel for business under the
Liberalized Remittance Scheme. Drawal of foreign exchange in excess of US Dollar 2,50,000 shall
require prior approval of the Reserve Bank of India.

Therefore, Mr. F can obtain US Dollar 30,000 for business tour to U.K. without any approval of the
Reserve Bank of India.

iii. As per Rule 4 read with Schedule II of Foreign Exchange Management (CAT) Rules, 2000, drawal of
foreign exchange exceeding US$ 1,00,000 for the purpose of remittance of prize money/sponsorship
of sports activity abroad by a person other than International/National/State level sports bodies
requires the prior approval of the Central Govt.

The Foreign Exchange Management Act 14.1

Corporate Laws & Other Laws

The Limited Liability

15
Partnership Act, 2008

Question 10
A dispute among the partners of Limited Liability Partnership (the LLP) jeopardized the stability of the
business. Out of two partners, one due to quarrel, left the LLP. The other partner alone continued the
business of the LLP. You are being expert in law is requested to explain the provisions governing the LLP
being operated by a single partner and its winding up by the Tribunal as per the provisions of the Limited
Liability Partnership Act,2008.
[May 24 – 5 marks]
Answer
According to section 6 of the Limited Liability Partnership Act, 2008,
(i) Every LLP shall have at least two partners.
(ii) If at any time the number of partners of a LLP is reduced below two and the LLP carries on business
for more than six months while the number is so reduced, the person, who is the only partner of the
LLP during the time that it so carries on business after those six months and has the knowledge of
the fact that it is carrying on business with him alone, shall be liable personally for the obligations of
the LLP incurred during that period.

In the given situation, the alone partner should consider the above provisions of the Limited Liability
Partnership Act, 2008, governing the LLP being operated by a single partner.

As per section 64 of the Limited Liability Partnership Act, 2008, the circumstances in which LLP may be
wound up by Tribunal are:
(a) if the LLP decides that LLP be wound up by the Tribunal;
(b) if, for a period of more than 6 months, the number of partners of the LLP is reduced below two;
(c) if the LLP has acted against the interests of the sovereignty and integrity of India, the security of
the state or public order;
(d) if the LLP has made a default in filling with the Registrar the Statement of Account and Solvency or
annual return for any 5 consecutive financial years; or
(e) if the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.

The Limited Liability Partnership Act, 2008 15.1