Test Series: October, 2020 On the basis of above facts, answer the following MCQs [4 MCQs of 2 Marks each:

Marks each: Total 8 Marks]:

MOCK TEST PAPER (i) Regarding un-paid call money by Mr. Gyan, in light of dividend due to him from TCS, state which
of following statements hold truth?
INTERMEDIATE (NEW): GROUP – I
(a) Dividend can’t be adjusted against the unpaid call money
PAPER – 2: CORPORATE AND OTHER LAWS
(b) The dividend of INRs 48,000 can be adjusted against unpaid call money
Division A is compulsory
(c) The dividend of INRs 48,000 can be adjusted against unpaid call money, if consent is given
In Division B, Question No.1 is compulsory by Mr. Gyan
Attempt any Three questions out of the remaining Four questions (d) The dividend of INRs 64,000 can be adjusted against unpaid call money, if consent is given
by Mr. Gyan
Time Allowed – 3 Hours Maximum Marks – 100
(ii) Does DTL is required to appoint Internal Auditor under section 138 of Companies Act, 2013?
Division A (30 Marks)
(a) No, because DTL is unlisted company
1. Mr. Abhinav Gyan is a tech expert and one among the promoter of Doon Technology Limited (DTL). He
did his engineering from one of the prestigious IIT in CSE and then perused masters in management (b) No, because paid-up share capital is less than INRs 50 crores
from IIM. He started DTL fifteen years back. DTL is famous for advance technologies such as artificial (c) Yes, because turnover is more than INRs 200 crores
intelligence, block-chain solutions and many others. The company went public a decade ago but not (d) Yes, because outstanding loan is above INRs 100 crores
listed. Since DTL is expanding its operations in wake of opportunities arises out of industrial revolution,
hence willing to retain the profit for growth of the company, but shareholders are seeking dividend; (iii) With reference to the declaration of dividend by Gyan Foundation, state which of following
because for shareholders larger the bottom line means larger the dividend. The outbreak of COVID-19 statements hold truth?
is another reason which forced the directors to retain the earnings. After the closure of books of account (a) Gyan Foundation can declare dividend out of the capital as well.
for year 2019-20, directors proposed the dividend of 10% against the expectation of 20% by
shareholders. But considering the extended lock-down which causes a delay in delivering the projects (b) Gyan Foundation can declare dividend either out of current years or previous year s’ profit,
(results in deferment of revenue and additional cost), directors are of the opinion to revoke the dividend. but need to transfer a certain % to reserve.
Shareholders seeks appointment of internal auditor for audit on a concurrent basis, whereas (c) Gyan Foundation can’t declare the dividend because three years has not been elapsed since
management of DTL states it does not require to appoint an internal auditor under the law and it will its incorporation.
cause an unnecessary financial burden on the company. The excerpts from financial statements of the
(d) Gyan Foundation can’t declare the dividend in any case.
preceding financial year 2019-20 are as under:
(iv) What will be the amount of penalty which TCS needs to pay under section 127 of the Companies
Particulars Amount in Crores
Act, 2013?
Paid-up share capital 45
(a) Up-to INRs 1000 per day till the default continues
Turnover 495
(b) INRs 64,800
Outstanding loans or borrowings* 105
Outstanding deposits 22# (c) INRs 97,200
*Includes inter-corporate loan of INRs 25 crores (d) INRs 1,08,000
2. Mr. Mohit Aggarwal is the director of Superior Carbonates and Chemicals Limited (SCCL). SCCL was
# up-till 31st January, 2020 the outstanding deposit was INRs 30 crores
incorporated by Mr. S. K. Aggarwal (father of Mr. Mohit) on 05 th July 1995 as a public company. SCCL
Mr. Gyan, one of the shareholder of DTL, out of his savings bought 40,000 shares of another company accepts a loan from Mr. Mohit of INRs 1.5 crores for short term purpose and expected to repay after 24
Time Consultancy Services (TCS) of face value 10 each. On such shares, the final call of 2 is due but months. SCCL in its book of accounts, records such receipt as loan and borrowing under non-current
unpaid by Mr. Gyan. In the meantime, TCS declared the dividend at a rate of 15%. Out of total dividend liabilities. At the time of advancing loan, Mr. Mohit affirms in writing that such amount is not being given
of INRs 8.4 crores declared on 31 st August 2020, INRs 0.42 crores remain unpaid as on 30 th September out of funds acquired by him by borrowing or accepting loans or deposits from others and complete
2020 at the end of TCS. Out of such INRs 0.42 crores, INRs 12 lakhs are on account of the operation details of such loan transactions are furnished in the board report.
of law and INRs 3 lakhs on account of legal disputes of right. The unpaid dividend was finally paid on
SCCL has its registered office in Paonta-sahib (Himachal Pradesh) and corporate office is situated in
12th December, 2020 in full.
Dehradun (Uttarakhand) but around 15% of members whose name is entered in members’ register are
Mr. Gyan came from humble background, hence as part of ethical commitment to uplift the society by residents of Nainital (Uttarakhand). At Nainital, SCCL has Liaison Office. Management of the company
promoting education to children of the economically weak section, he decided to form a section 8 is willing to place, register of members at Nainital Liaison Office.
company around 2 years back with the support of fellow professional, who later become a member of
SCCL convene its 7 th AGM on 10 th September, 2020 at the registered office of the company. Notice for
such a company. Receipts are excess of expenditure hence it was decided that Gyan foundation will
same was served on 21 st August, 2020. More than 78% of members gave consent to convening AGM
declare some dividend to its members.

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at shorter notice due to ambiguity and possibility of another lockdown starting fr om 11th September 2020 4. Prithvi Cements Limited is desirous of issuing debentures carrying voting rights. Which of the following
on account of the second wave of COVID-19. options is best suited in such a situation:
On the basis of above facts, answer the following MCQs (3 MCQ of 2 Marks each: Total 6 Marks) (a) Prithvi Cements Limited can issue debentures carrying voting rights if an ordinary resolution is
passed permitting such issue.
(i) With reference to the loan advanced by Mr. Mohit to SCCL, apprise whether same is classified as
deposit or not? (b) Prithvi Cements Limited can issue debentures carrying voting rights if a special resolution is passed
(a) Deposit, because any sum advanced by the director whether loan or otherwise is always permitting such issue.
classified as a deposit (c) Prithvi Cements Limited can issue debentures carrying voting rights if it mortgages land and
(b) Deposit, because the length of the loan is for a period; more than six months. buildings worth two times the amount of such debentures.
(c) Not a deposit, because such amount is recorded as loan in books of account of SCCL (d) Prithvi Cements Limited cannot issue debentures carrying voting rights. (1 Mark)
(d) Not a deposit, because the written declaration is provided by Mr. Mohit that said sum of loan 5. Which of the non financial matter, Statutory auditor is required to report in his report:
is not being given out of funds acquired by him by borrowing or accepting loans or deposits
(a) Whether employees appointed during the period covered by audit meet the requisite
from others.
educational/professional qualification at the time of appointment.
(ii) Pick the right statement regarding SCCL’s willingness to keep and maintain the register of
members at the Nainital liaison office. (b) Whether every page of minute book of General meetings bears full signature of Chairman as per
provisions of Companies Act, 2013.
(a) Register of members shall be kept at either registered office or within the same city that too
after passing the resolution, hence SCCL can’t place it at Nainital liaison office (c) Whether the incorporation documents are managed properly.
(b) Register of members can’t be kept at any other place by SCCL, without pass ing an ordinary (d) Whether any director is disqualified from being appointed as a director under section 164(2).
resolution
(1 Mark)
(c) Register of members can be kept at Nainital liaison office, after passing a special resolution,
6. If a company changes its name; which of the following is most accurate:
because more than 1/10th of the total members entered in the register of members reside
there (a) It is not allowed to use old name in any way
(d) Register of members can’t be kept at Nainital liaison office, even after passing a special (b) New name should not be identical with old name
resolution, because less than 1/5th of the total members entered in the register of members
reside there (c) Old name should be painted/printed for next 1 year along with new name

(iii) Considering the provision dealt with length of Notice of AGM, pick the right option depicting the (d) Old name should be painted/printed for next 2 years along with new name (1 Mark)
validity of notice served by SCCL. 7. Where ‘A’ obtains housing loan from LIC Housing and if ‘B’ promises to pay LIC Housing in the event of
(a) Notice served by SCCL is not valid, because shorter length needs to be consented by all the ‘A’ failing to repay, it is a __________
members entitled to vote at AGM. (a) Contract of Indemnity
(b) Notice served by SCCL is not valid, because shorter length needs to be consented by at-least (b) Contract of Guarantee.
95% of members entitled to vote thereat.
(c) Quasi Contract
(c) Notice served by SCCL is valid because the shorter length is consented by 75% of members
entitled to vote thereat. (d) Contingent Contract (1 Mark)
(d) Notice served by SCCL is not valid, because shorter length need to be c onsented by at-least 8. A hires a carriage of B. The carriage is unsafe though B is not aware of it and A is injured
50% of the members entitled to vote at AGM that too in writing.
(a) B is responsible to A for the injury
3. When a copy of the contract for the payment of underwriting commission is required to be delivered to
the Registrar: (b) B is not responsible to A for the injury
(a) Three days before the delivery of the prospectus for registration (c) No one is responsible to each other
(b) At the time of delivery of the prospectus for registration (d) None of the above (1 Mark)
(c) Three days after the delivery of the prospectus for registration 9. ________________________ is the cardinal rule of construction that words, sentences and phrases of
a statute should be read in their ordinary, natural and grammatical meaning so that they may have effect
(d) Five days after the delivery of the prospectus for registration (1 Mark) in their widest amplitude
(a) Rule of Literal Construction

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 (b) Rule of Harmonious Construction (iv) Doors and Windows of the house
(c) Rule of Beneficial Construction (a) Only (i) and (iv)
(d) Rule of Exceptional Construction (1 Mark) (b) Only (i), (ii) and (iv)
10. Where an act or omission constitutes an offence under two or more enactments, then the offender shall (c) Only (i) and (ii)
be liable to be prosecuted and punished under
(d) Only (ii), (iii) and (iv) (2 Marks)
(a) Under either or any of those enactments
Division B (70 Marks)
(b) Twice for the same offence
1. (a) OEMR Limited, a subsidiary of PQR Limited, decides to give a loan of ` 4,00,000 to its Human
(c) Either a. or b. as per the discretion of the court Resource Manager Mr. Shyam Kumar, who does not fall in the category of Key Managerial
Personnel and draws a salary of ` 40,000 per month, to buy 500 partly paid-up equity shares of
(d) none of these (1 Mark)
` 1000 each in OEMR Limited. Examine the validity of company's decision under the provisions of
11. If X bails his ornaments to Y and specifically instructs Y to keep them in a bank, but Y keeps these the Companies Act, 2013. (6 Marks)
ornaments in his own locker at his house along with his own ornaments. After two days, all the ornaments
(b) (i) Dev Pharma Limited is a manufacturing company & has proposed a dividend @ 10% for the
are lost/stolen in a riot then who will be responsible for the loss?
year 2019-20 out of the profits of current year. The company has earned a profit of ` 910
(a) X would be responsible for his loss crores during 2019-20. The company does not intend to transfer any amount to the general
reserves out of the profits. Is Dev Pharma Limited allowed to do so? Comment.
(b) Y would be responsible for the loss to X
(ii) Alpha Herbals, a Section 8 company is planning to declare dividend in the Annual General
(c) Both X and Y will share the loss equally Meeting for the Financial Year ended 31-03-2020. Mr. Chopra is holding 800 equity shares
(d) Y will not be responsible for the loss to X (2 Marks) as on date. State whether the act of the company is according to the provisions of the
Companies Act, 2013. (6 Marks)
12. With regards to the contract of agency, which of the following statement is incorrect?
(c) Mr. Arora of Delhi engaged Mr. Saini as his agent to buy a house in West Extension area. Mr. Saini
(a) A person who is a major can appoint minor as an agent. bought a house for ` 50 lakhs in the name of a nominee and then purchased it himself for ` 54
(b) If an agent happens to be a person incapable of contracting, the principal cannot hold the agent lakhs. He then sold the same house to Mr. Arora for ` 56 lakhs. Mr. Arora later comes to know the
liable. mischief of Mr. Saini and tries to recover the excess amount paid to Mr. Saini. Is he entitled to
recover any amount from Mr. Saini? If so, how much? Explain with the help of provisions of the
(c) No consideration is necessary to create an agency.
Indian Contract Act, 1872. (4 Marks)
(d) The acceptance of the office by an agent is not a sufficient consideration for the appointment.
(d) P draws a bill on Q for ` 10,000. Q accepts the bill. On maturity, the bill was dishonored by non -
(2 Marks) payment. P files a suit against Q for payment of ` 10,000. Q proved that the bill was accepted for
13. Mr. Aylam issued a cheque amounting to INR 25,000 dated 2 nd
February 2020 to Mr. Gandhi which was value of ` 7,000 and as an accommodation to the plaintiff for the balance amount i.e . ` 3,000.
deposited by Mr. Gandhi on 16 th March 2020 in his bank account. The said cheque got dishonored on Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether P would
17th March 2020 by the bank citing insufficient funds in the account of Mr. Aylam. Then Mr. Gandhi succeed in recovering the whole amount of the bill? (3 Marks)
demanded the payment from Mr. Aylam by issuing the notice on 31 st March 2020 which was received by 2. (a) (i) One-fourth of the subscribed capital of AMC Limited was held by the Government of
Mr. Aylam on 2 nd April 2020. Assuming that Mr. Aylam failed to make the payment within stipulated time, Rajasthan. Mr. Vikas, a Chartered Accountant, was appointed as an auditor of the Company
what is the last date by which Mr. Gandhi should have made a complaint in the court? at the Annual General Meeting held on 30 th April, 2020 by an ordinary resolution. Mr. Mukesh,
(a) 17th May 2020 a shareholder of the Company, objects to the manner of appointment of Mr. Vikas on the
ground of violation of the Companies Act, 2013. Decide whether the objection of Mr. Mukesh
(b) 2nd May 2020 is tenable? Also examine the consequences of the above appointment under the said Act.
(c) 17th April 2020 (3 Marks)
(d) 30th April 2020 (2 Marks) (ii) Whether a Company can keep books of Accounts in electronic mode accessible only outside
India? (3 Marks)
14. What among the following could be considered in the term ‘Immovable Property’ as defined under
section 3(26) of the General Clauses Act, 1897? (b) Ranjit acquired a property from ABC Limited which was mortgaged to OK Bank. He settled the
(i) The soil for making bricks dues to Ok Bank in full and the same was registered with the sub-registrar who has noted that the
mortgage has been settled. But neither the company nor OK Bank has filed particulars of
(ii) Right to catch fish satisfaction of charge with the Registrar of Companies. Can Mr. Ranjit approach the Registrar and
(iii) Right to drain water

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seek any relief in this regard? Discuss this matter in the light of pro visions of the Companies Act, (c) As per the provisions of the Companies Act, 2013, a whole time Key Managerial Personnel (KMP)
2013. (4 Marks) shall not hold office in more than one company except its subsidiary company at the same time.
Referring to the Section 13 of the General Clauses Act, 1897, examine whether a whole time KMP
(c) Amar bailed 50 kg of high quality sugar to Srijith, who owned a kirana shop, promising to give
can be appointed in more than one subsidiary company? (4 Marks)
` 200 at the time of taking back the bailed goods. Srijith's employee, unaware of this, mixed the
50 kg of sugar belonging to Amar with the sugar in the shop and packaged it for sale when Srijith (d) Explain 'Mischieve Rule' for interpretation of statute. Also, give four matters it considers in
was away. This came to light only when Amar came asking for the sugar he had bailed with Srijith, construing an Act. (3 Marks)
as the price of the specific quality of sugar had trebled. What is the remedy available to Amar under 5. (a) XYZ a One-Person Company (OPC) was incorporated during the year 2017-18 with an authorized
the Indian Contract Act, 1872? (4 Marks) capital of ` 45.00 lakhs (4.5 lakh shares of ` 10 each), The capital was fully subscribed and paid
(d) On a Bill of Exchange for ` 1 lakh, X’s acceptance to the Bill is forged. ‘A’ takes the Bill from his up. Turnover of the company during 2017-18 and 2018-19 was ` 2.00 crores and ` 2.5 crores
customer for value and in good faith before the Bill becomes payable. State wit h reasons whether respectively. Promoter of the company seeks your advice in following circumstances, whether XYZ
‘A’ can be considered as a ‘Holder in due course’ and whether he (A) can receive the amount of (OPC) can convert into any other kind of company during 2019-20. Please, advise with reference
to relevant provisions of the Companies Act, 2013 in the below mentioned circumstances:
the Bill from ‘X’. (3 Marks)
(i) If promoter increases the paid up capital of the company by ` 10.00 lakhs during 2019-20.
3. (a) A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited liability
company to impart class room teaching and aircraft flight training to trainee pilots. It was decided (ii) If turnover of the company during 2019-20 was ` 3.00 crores. (5 Marks)
to form a limited liability company for charitable purpose under Section 8 of the Companies Act, (b) ABC Limited created a charge in favour of Z Bank. The charge was duly registered. Later, the Bank
2013 for a period of ten years and thereafter the club will be dissolved and the surplus of assets enhanced the facility by another ` 20 crores. Due to inadvertence, this modification in the original
over the liabilities, if any, will be distributed amongst the members as a usual procedure allowed
charge was not registered. Advise the company as to the course of action to be pursued in this
under the Companies Act, 2013.
regard. (5 Marks)
Examine the feasibility of the proposal and advise the promoters considering the prov isions of the
(c) Mr. D was in urgent need of money amounting to ` 5,00,000. He asked Mr. K for the money. Mr. K
Companies Act, 2013. (5 Marks)
lent the money on the sureties of A, B and N without any contract between them in case of default
(b) The Income Tax Authorities in the current financial year 2019-20 observed, during the assessment in repayment of money by D to K. D makes default in payment. B refused to contribute, examine
proceedings, a need to re-open the accounts of Chetan Ltd. for the financial year 2008-09 and, whether B can escape liability under the Indian Contract Act, 1872? (4 Marks)
therefore, filed an application before the National Company Law Tribunal (NCLT) to issue the order
(d) ‘Repeal’ of provision is different from ‘deletion’ of provision. Explain as per th e General Clauses
to Chetan Ltd. for re-opening of its accounts and recasting the financial statements for the financial
Act, 1897. (3 Marks)
year 2008-09. Examine the validity of the application filed by the Income Tax Authorities to NCLT.
(5 Marks)
(c) X draws a bill on Y but signs it in the fictitious name of Z. The bill is payable to the order of Z. The
bill is duly accepted by Y. M obtains the bill from X thus, becoming its holder in due course. Can Y
avoid payment of the bill? Decide in the light of the provisions of the Negotiable Instruments Act,
1881. (4 Marks)
(d) At the time of interpreting a statutes what will be the effect of 'Usage' or 'Practice'? (3 Marks)
4. (a) MNP Private Ltd. is a company registered under the Companies Act, 2013 with a, Paid up Share
Capital of ` 45 lakh and turnover of ` 3 crores. Explain the meaning of the "Small Company" and
examine the following in accordance with the provisions of the Companies Act, 2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ` 1.50 crore? (6 Marks)
(b) Bazaar Limited called its AGM in order to lay down the financial statements for Shareholders’
approval. Due to want of Quorum, the meeting was cancelled. The directors did not file the annual
returns 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? (4 Marks)

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 Test Series: October, 2020 to avail loan for purchasing 500 partly paid-up equity shares of ` 1000 each of OEMR Limited in
MOCK TEST PAPER which he is employed.

INTERMEDIATE (NEW): GROUP – I Keeping the above facts and legal provisions in view, the decision of OEMR Limited in grant ing a
loan of ` 4,00,000 for purchase of its partly paid-up shares to Human Resource Manager is invalid
PAPER – 2: CORPORATE AND OTHER LAWS
due to the following reasons:
ANSWERS
i. The amount of loan is more than 6 months’ salary of Mr. Shyam Kumar, the HR Manager. It
should have been restricted to ` 2,40,000 only.
Time Allowed – 3 Hours Maximum Marks – 100 ii. The loan to be given by OEMR Limited to its HR Manager Mr. Shyam Kumar is meant for
Division A purchase of partly paid shares.

1. (i) (b) (b) (i) According to section 123 of the Companies Act, 2013 a company may, before the declaration
of any dividend in any financial year, transfer such percentage of its profits for that financial
(ii) (c)
year as it may consider appropriate to the reserves of the company. Such transfer is not
(iii) (d) mandatory and the percentage to be transferred to reserves is at the discretion of the
(iv) (c) company.
2. (i) (d) As per the given facts, Dev Pharma Limited has earned a profit of ` 910 crores for the financial
(ii) (c) year 2019-20. It has proposed a dividend @ 10%. However, it does not intend to transfer any
amount to the reserves of the company out of the profits of current year.
(iii) (b)
3. (b) As per the provisions stated above, the amount to be transferred to reserves out of profits for
any financial year is at the discretion of the company acting through its Board of Directors.
4. (d) Therefore, at its discretion, if Dev Pharma Limited decides not to transfer any profit to reserves
5. (d) before the declaration of dividend at 10%, it is legally allowed to do so.
6. (d) (ii) According to Section 8(1) of the Companies Act, 2013, the companies licenced under Section
7. (b) 8 of the Act (Formation of companies with Charitable Objects, etc.) are prohibited from paying
8. (a) any dividend to their members. Their profits are intended to be applied only in promoting the
objects for which they are formed.
9. (a)
Hence, in the instant case, the proposed act of Alpha Herbals, a company licenced under
10. (a)
Section 8 of the Companies Act, 2013, which is planning to declare dividend, is not according
11. (b) to the provisions of the Companies Act, 2013.
12. (d) (c) The problem in this case, is based on the provisions of the Indian Contract Act, 1872 as contained
13. (a) in Section 215 read with Section 216. The two sections provide that where an agent without the
knowledge of the principal, deals in the business of agency on his own account, the principal may:
14. (b)
Division B (1) repudiate the transaction, if the case shows, either that the agent has dishonestly concealed
any material fact from him, or that the dealings of the agent have been disadvantageous to
1. (a) Restrictions on purchase by company or giving of loans by it for purchase of its share: As him.
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: (2) claim from the agent any benefit, which may have resulted to him from the transaction.
(a) The employee must not be a director or Key Managerial Personnel; Therefore, based on the above provisions, Mr. Arora is entitled to recover ` 6 lakhs from Mr. Saini
being the amount of profit earned by Mr. Saini out of the transaction.
(b) The amount of such loan shall not exceed an amount equal to six months’ salary of the
employee. (d) As per Section 44 of the Negotiable Instruments Act, 1881, when the consider ation for which a
person signed a promissory note, bill of exchange or cheque consisted of money, and was originally
(c) The loan must be extended for subscribing fully paid-up shares. absent in part or has subsequently failed in part, the sum which a holder standing in immediate
In the given instance, Human Resource Manager Mr. Shyam Kumar is not a Key Managerial relation with such signer is entitled to receive from him is proportionally reduced.
Personnel of the OEMR Limited. Further, he is drawing a salary of ` 40,000 per month and wants

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Explanation—The drawer of a bill of exchange stands in immediate relation with the acceptor. The Information to affected parties: The Registrar shall inform the affected parties within 30 days of
maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee, making the entry in the register of charges.
and the endorser with his endorsee. Other signers may by agreement stand in immediate relation Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of satisfaction
with a holder. of charge in full, he shall issue a certificate of registration of satisfaction of charge in Form No.
On the basis of above provision, P would succeed to recover ` 7,000 only from Q and not the CHG-5.
whole amount of the bill because it was accepted for value as to ` 7,000 only and an Therefore, Ranjit can approach the Registrar and show evidence to his satisfaction that the charge
accommodation to P for ` 3,000. has been duly settled and satisfied and request the Registrar to enter a memorandum of
2. (a) (i) As per the section 2(45) of the Companies Act, 2013, the holding of 25% shares of AMC Ltd. satisfaction noting the release of charge.
by the Government of Rajasthan does not make it a government company. Hence, it will be (c) According to Section 157 of the Indian Contract Act, 1872, if the bailee, without the consent of the
treated as a non-government company. bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to
Under section 139 of the Companies Act, 2013, the appointment of an auditor by a company separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be
compensated by the bailee for the loss of the goods.
vests generally with the members of the company except in the case of the first auditors and
in the filling up of the casual vacancy not caused by the resignation of the auditor, in which In the given question, Srijith’s employee mixed high quality sugar bailed by Amar and then
case, the power to appoint the auditor vests with the Board of Directors. The appointment by packaged it for sale. The sugar when mixed cannot be separated. As Srijith’s employee has mixed
the members is by way of an ordinary resolution only and no exceptions have been made in the two kinds of sugar, he (Srijith) must compensate Amar for the loss of his sugar.
the Act whereby a special resolution is required for the appointment of the auditors. (d) According to section 9 of the Negotiable Instruments Act, 1881 ‘holder in due course’ means any
person who for consideration becomes the possessor of a promissory note, bill of exchange or
Therefore, the contention of Mr. Mukesh is not tenable. The appointment is valid under the
cheque if payable to bearer or the payee or endorsee thereof, if payable to order, be fore the amount
Companies Act, 2013. in it became payable and without having sufficient cause to believe that any defect existed in the
(ii) A Company has the option of keeping its books of account or other relevant papers in title of the person from whom he derived his title.
electronic mode as per Rule 3 of the Companies (Accounts) Rules, 2014. According to such As ‘A’ in this case prima facie became a possessor of the bill for value and in good faith before the
Rule, bill became payable, he can be considered as a holder in due course.
(a) such books of accounts or other relevant books or papers maintained in electronic mode But where a signature on the negotiable instrument is forged, it becomes a nullity. The holder of a
shall remain accessible in India so as to be usable for subsequent reference. forged instrument cannot enforce payment thereon. In the event of the holder being able to obtain
(b) There shall be a proper system for storage, retrieval, display or printout of the electronic payment in spite of forgery, he cannot retain the money. The true owner may sue on tort the person
records as the Audit Committee, if any, or the Board may deem appropriate and such who had received. This principle is universal in character, by reason where of even a holder in due
records shall not be disposed of or rendered unusable, unless permitted by law. course is not exempt from it. A holder in due course is protected when there is defect in the title.
But he derives no title when there is entire absence of title as in the case of forgery. Hence ‘A’
(c) The back-up of the books of account and other books and papers of the company cannot receive the amount on the bill.
maintained in electronic mode, including at a place outside India, if any, shall be kept in
servers physically located in India on a periodic basis. 3. (a) According to section 8(1) of the Companies Act, 2013, where it is proved to the satisfaction of the
Central Government that a person or an association of persons proposed to be registered under
Hence, a company cannot keep books of Account in electronic mode accessible only outside this Act as a limited company—
India.
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social
(b) Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to
welfare, religion, charity, protection of environment or any such other object;
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 (b) intends to apply its profits, if any, or other income in promoting its objects; and
satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole or in
(c) intends to prohibit the payment of any dividend to its members;
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 the Central Government may, by issue of licence, allow that person or association of persons to
of charges a memorandum of satisfaction that: be registered as a limited liability company.
 the debt has been satisfied in whole or in part; or In the instant case, the decision of the group of individuals to form a limited liability company for
charitable purpose under section 8 for a period of ten years and thereafter to dissolve the club and
 the part of the property or undertaking has been released from the charge or has ceased to to distribute the surplus of assets over the liabilities, if any, amongst the members will not hold
form part of the company’s property or undertaking. good, since there is a restriction as pointed out in point (b) above regarding application of its profits
This power can be exercised by the Registrar despite the fact that no intimation has been receive d or other income only in promoting its objects. Further, there is restriction in the application of the
by him from the company. surplus assets of such a company in the event of winding up or dissolution of the company as
provided in sub-section (9) of Section 8 of the Companies Act, 2013. Therefore, the proposal is not
feasible.

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 (b) As per section 130 of the Companies Act, 2013, a company shall not re -open its books of account Nothing in this clause shall apply to—
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 (A) a holding company or a subsidiary company;
body or authority or any person concerned and an order is made by a court of competent jurisdiction (B) a company registered under section 8; or
or the Tribunal to the effect that—
(C) a company or body corporate governed by any special Act.
(i) the relevant earlier accounts were prepared in a fraudulent manner; or
(i) In the present case, MNP Private Ltd., a company registered under the Companies Act, 2013
(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on with a paid up share capital of ` 45 lakh and having turnover of ` 3 crore. Since only one
the reliability of financial statements. criteria of share capital of ` 50 Lakhs is met, but the second criteria of turnover of ` 2 crores
However, no order shall be made in respect of re-opening of books of account relating to a period is not met and the provisions require both the criteria to be met in order to avail the status of
earlier than eight financial years immediately preceding the current financial year. a small company, MNP Ltd. cannot avail the status of small company.
In the given instance, an application was filed for re-opening and re-casting of the financial (ii) If the turnover of the company is ` 1.50 crore, then both the criteria will be fulfilled and MNP
statements of Chetan Ltd. for the financial year 2008-2009. Ltd. can avail the status of small company.
Though application filed by the Income Tax Authorities to NCLT is valid, its recommendation for (b) According to section 92(4) of the Companies Act, 2013, every company shall file with the Registrar
reopening and recasting of financial statements for the period earlier than eight financial years a copy of the annual return, within sixty days from the date on which the annual general meeting
immediately preceding the current financial year i.e. 2019-2020, is invalid. is held or where no annual general meeting is held in any year within sixty days from the date on
(c) Bill drawn in fictitious name: The problem is based on the provision of Section 42 of the which the annual general meeting should have been held together with the statement specif ying
Negotiable Instruments Act, 1881. In case a bill of exchange is drawn payable to the drawer’s order the reasons for not holding the annual general meeting.
in a fictitious name and is endorsed by the same hand as the drawer’s signature, it is not Sub-section (5) of Section 92 also states that if any company fails to file its annual return under
permissible for the acceptor to allege as against the holder in due course that such name is sub-section (4), before the expiry of the period specified therein, such company and its every officer
fictitious. Accordingly, in the instant case, Y cannot avoid payment by raising the plea that the who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing
drawer (Z) is fictitious. The only condition is that the signature of Z as drawer and as endorser must failure, with further penalty of one hundred rupees for each day during which such failure continues,
be in the same handwriting. subject to a maximum of five lakh rupees.
(d) Effect of usage: Usage or practice developed under the statute is indicative of the meaning In the instant case, the annual general meeting of Bazaar Limited should have been held w ithin a
recognized to its words by contemporary opinion. A uniform notorious practice continued under an period of six months, from the date of closing of the financial year but it did not take place. The
old statute and inaction of the Legislature to amend the same are important factors to show that idea of the directors that since the AGM was cancelled, the provisions requiring the company to
the practice so followed was based on correct understanding of the law. When the usage or practice file annual returns within 60 days from the date of AGM would not apply, is incorrect. Thus, the
receives judicial or legislative approval it gains additional weight. company has contravened the provisions of section 92 of the Companies Act, 2013 for not filing
In this connection, we have to bear in mind two Latin maxims: the annual returns 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.
(i) 'Optima Legum interpres est consuetude' (the custom is the best interpreter of the law); and
(c) Section 203(3) of the Companies Act, 2013 provides that whole time key managerial personnel
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret a shall not hold office in more than one company except in its subsidiary company at the same time.
document is to read it as it would have been read when made). With respect to the issue that whether a whole time KMP of holding company be appointed in more
Therefore, the best interpretation/construction of a statute or any other document is that which has than one subsidiary companies or can be appointed in only one subsidiary company.
been made by the contemporary authority. Simply stated, old statutes and documents should be It can be noted that Section 13 of General Clauses Act, 1897 provides that the word ‘singular’ shall
interpreted as they would have been at the time when they were enacted/written. include the ‘plural’, unless there is anything repugnant to the subject or the context. Thus, a whole
Contemporary official statements throwing light on the construction of a statute and statutory time key managerial personnel may hold office in more than one subsidiary company as per the
instruments made under it have been used as contemporanea exposition to interpret not only present law.
ancient but even recent statutes in India. (d) Mischieve Rule: Where the language used in a statute is capable of more than one interpretation,
4. (a) Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means principle laid down in the Heydon’s case is followed. This is known as ‘purposive construction’ or
a company, other than a public company,— ‘mischieve rule’. The rule then directs that the courts must adopt that construction which ‘shall
suppress the mischief and advance the remedy’.
(1) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than ten crore rupees; and It has been emphasized by the Supreme Court that the rule in Heydon’s case is applicable only
when the words used are ambiguous and are reasonably capable of more than one meaning.
(2) turnover of which as per its last profit and loss account for the immediately preceding financial
It enables consideration of four matters in construing an Act:
year does not exceed two crore rupees or such higher amount as may be prescribed which
shall not be more than one hundred crore rupees. (1) what was the law before the making of the Act;
(2) what was the mischief or defect for which the law did not provide;
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(3) what is the remedy that the Act has provided; and themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid
by the principal debtor”.
(4) what is the reason for the remedy.
Accordingly, on the default of D in payment, B cannot escape from his liability. All the three sureties
5. (a) As per Rule 3 of the Companies (Incorporation) Rules, 2014, no One Person Company (OPC) can A, B and N are liable to pay equally, in absence of any contract between them.
convert voluntarily into any kind of company unless two years have e xpired from the date of its
incorporation, except where the paid up share capital is increased beyond fifty lakh rupees or its (d) In Navrangpura Gam Dharmada Milkat Trust Vs. Rmtuji Ramaji, AIR 1994 Guj 75 case, it was
average annual turnover during the relevant period exceeds two crore rupees. decided that ‘Repeal’ of provision is in distinction from ‘deletion’ of provision. ‘Repeal’ ordinarily
brings about complete obliteration (abolition) of the provision as if it never existed, thereby affecting
Besides, Section 18 of the Companies Act, 2013 provides that a company of any class registered all incoherent rights and all causes of action related to the ‘repealed’ provision while ‘deletion’
under this Act may convert itself as a company of other class under this Act by alteration of ordinarily takes effect from the date of legislature affecting the said deletion, never to effect total
memorandum and articles of the company in accordance with the provisions of Chapter II of the effecting or wiping out of the provision as if it never existed.
Act.
Based on the above provisions, our advice in the given circumstances will be as under:
(i) The promoter increases the paid up capital of the company by ` 10.00 lakh during 2019-2020,
i.e., to ` 55 lakhs (45+10= 55). In this situation, XYZ (OPC) can convert itself volun tarily into
any other kind of company by alteration of memorandum and articles of the company in
compliance with the Provisions of the Act.
(ii) Where the turnover of XYZ (OPC) during 2019-20 was ` 3.00 crore, there will be no change
in the answer. In this situation also, XYZ (OPC) can convert itself voluntarily into any other
kind of company by alteration of memorandum and articles of the company in compliance with
the Provisions of the Act.
(b) The company is advised to immediately file an application for rectification of the Register of
Charges in Form No CHG- 8 to the Central Government under Section 87 of the Companies Act,
2013
Section 87 of the Act of 2013 and Rule 12 empowers the Central Government to order rectification
of Register of Charges in the following cases of default:
(i) when there was omission in giving intimation to the Registrar with respect to payment or
satisfaction of charge within the specified time;
(ii) when there was omission or mis-statement of any particulars in any filing previously made to
the Registrar. Such filing may relate to any charge or any modification of charge or with
respect to any memorandum of satisfaction or other entry made under Section 82 ( Company
to report satisfaction of charge) or Section 83 (Power of Registrar to make entries of
satisfaction and release).
Before directing that the ‘time for giving the intimation of payment or satisfaction shall be extended’
or the ‘omission or mis-statement shall be rectified’, the Central Government needs to be satisfied
that such default was accidental or due to inadvertence or because of some other sufficient cause
or it did not prejudice the position of creditors or shareholders.
The application in Form CHG-8 shall be filed by the company or any interested person. Therefore
Z Bank can also proceed under Section 87 as aforesaid.
The order of rectification shall be made by the Central Government on such terms and conditions
as it deems just and expedient.
(c) Co-sureties liable to contribute equally (Section 146 of the Indian Contract Act, 1872): Equality
of burden is the basis of Co-suretyship. This is contained in section 146 which states that “when
two or more persons are co-sureties for the same debt, or duty, either jointly, or severally and
whether under the same or different contracts and whether with or without the knowledge of each
other, the co-sureties in the absence of any contract to the contrary, are liable, as between

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