Mock Test Paper - Series I: July, 2024

Date of Paper: 30 th July, 2024

Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP – I

PAPER – 2: CORPORATE AND OTHER LAWS
ANSWER TO PART – I CASE SCENARIO BASED MCQS
1. (c)
2. (b)
3. (b)
4. (b)
5. (d)
6. (d)
7. (a)
8. (a)
9. (c)
10. (b)
11. (b)
12. (b)
13. (b)
14. (d)
15. (c)
ANSWERS OF PART – II DESCRIPTIVE QUESTIONS
1. (a) According to section 2(68) of the Companies Act, 2013, "Private
company" means a company having prescribed minimum paid-up share
capital, and which by its articles, limits the number of its members to 200.
However, where two or more persons hold one or more shares in a
company jointly, they shall, for the purposes of this clause, be treated as
a single member.
It is further provided that following shall not be included in the number of
members -
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the
company, were members of the company while in that employment
and have continued to be members after the employment ceased.

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 Accordingly, total Number of members in ABC Limited are:
(i) Directors and their relatives 20
(ii) Joint shareholders (10x2) 10
(iii) Other Members 150
Total 180
(i) ABC Limited may be converted into a private company only if the
total members of the company are limited to 200. In the instant
case, since existing number of members are 180 which is within the
prescribed maximum limit of 200, so ABC Limited can be converted
into a private company.
(ii) There is no need for reduction in the number of members for the
proposed private company as existing number of members are 180
which does not exceed maximum limit of 200.
(b) Interim dividend: As per section 123(3) of the Companies Act, 2013,
the Board of Directors of a company may declare interim dividend during
any financial year or at any time during the period from closure of
financial year till holding of the annual general meeting out of the surplus
in the profit and loss account or out of profits of the financial year in
which such interim dividend is sought to be declared.
Provided that in case the company has incurred loss during the current
financial year up to the end of the quarter immediately preceding the
date of declaration of interim dividend, such interim dividend shall not be
declared at a rate higher than the average dividends declared by the
company during the immediately preceding three financial years.
Final dividend: The company in general meeting may declare
dividends, but no dividend shall exceed the amount recommended by
the Board. [Clause 80 of Table F in Schedule I]
According to the given facts, Sunday Ltd. incurred losses in current
financial year 2023-24. It is also provided that, in the immediately
preceding three financial years, the company declared dividend at the
rate of 15%, 20% and 25% respectively. Accordingly, the rate of
dividend declared shall not exceed 20%, the average of the rates
(15+20+25=60/3) at which dividend was declared by it during the
immediately preceding three financial years.
Board of Directors of Sunday Ltd. recommended a final dividend @15%
for financial year 2023-24 in the meeting held on 5 th August 2024. It was
approved in the general meeting. However, shareholders demanded that
since Interim dividend was at the rate of 10%, so final dividend should
not be less than 20%. The general meeting cannot declare the dividend
at a rate higher than the rate of dividend recommended by the Board.
Yes, the decision of Company Secretary that final dividend cannot be
increased beyond the rate of 15% as recommended in the Board
Meeting, is correct.

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 (c) According to section 5 of the Foreign Exchange Management Act, 1999,
any person may sell or draw foreign exchange to or from an authorized
person if such a sale or drawal is a current account transaction. Provided
that Central Government may, in public interest and in consultation with
the reserve bank, impose such reasonable restrictions for current
account transactions as may be prescribed.
As per the rules, drawal of foreign exchange for current account
transactions are categorized under three headings-
1. Transactions for which drawal of foreign exchange is prohibited,
2. Transactions which need prior approval of appropriate government
of India for drawal of foreign exchange, and
3. Transactions which require RBI's prior approval for drawl of foreign
exchange.
(i) Mr. Vinod wanted to remit US Dollar 20,000 out of his lottery
winnings to his son residing in Singapore. Such remittance is
prohibited and the same is included in the Foreign Exchange
Management (Current Account Transactions) Rules, 2000.
Hence Mr. Vinod cannot withdraw foreign exchange for this
purpose.
(ii) In the given situation, it is a current account transaction, where
Mr. Shyam is required to take approval of the Central Government
for drawal of foreign exchange for remittance of hire charges of
transponders.
2. (a) Crystallization of a Floating Charge
When the creditor enforces the security due to the breach of terms and
conditions of floating charge or the company goes into liquidation, the
floating charge will become a fixed charge on all the assets available on
that date. This is called crystallization of a floating charge.
A floating charge remains dormant until it becomes fixed or crystallizes.
On crystallization of charge, the security (i.e. raw material, stock-in-
trade, etc.) becomes fixed and is available for realization by the lender
so that borrowed money is repaid. Crystallization of floating charge may
occur when the terms and conditions of floating charge are violated or
the company ceases to continue its business or the company goes into
liquidation or the creditors enforce the security covered by the floating
charge.
(b) According to section 2(13) of the Companies Act, 2013, ‘Books of
account’ includes records maintained in respect of:
(i) all sums of money received and expended by a company and
matters in relation to which the receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the company;
(iii) the assets and liabilities of the company; and

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 (iv) the items of cost as may be prescribed under section 148 in the
case of a company which belongs to any class of companies
specified under that section.
(c) (i) Measurement of Distances
According to section 11 of the General Clauses Act, 1897, in the
measurement of any distance, for the purposes of any Central Act
or Regulation made after the commencement of this Act, that
distance shall, unless a different intention appears, be measured in
a straight line on a horizontal plane.
(ii) Duty to be taken pro rata in enactments
According to section 12 of the General Clauses Act, 1897, where,
by any enactment now in force or hereafter to be in force, any duty
of customs or excise or in the nature thereof, is leviable on any
given quantity, by weight, measure or value of any goods or
merchandise, then a like duty is leviable according to the same rate
on any greater or less quantity.
Pro rata is a Latin term used to describe a proportionate allocation.
3. (a) Exceptions to Doctrine of Indoor Management
Relief on the ground of ‘indoor management’ cannot be claimed by an
outsider dealing with the company in the following circumstances:
1. Knowledge of irregularity - In case this ‘outsider’ has actual
knowledge of irregularity within the company, the benefit under the
rule of indoor management would no longer be available. In fact,
he/she may well be considered part of the irregularity.
2. Negligence: If with a minimum of effort, the irregularities within a
company could be discovered, the benefit of the rule of indoor
management would not apply. The protection of the rule is also not
available where the circumstances surrounding the contract are so
suspicious as to invite inquiry, and the outsider dealing with the
company does not make proper inquiry.
3. Forgery: The rule does not apply where a person relies upon a
document that turns out to be forged since nothing can validate
forgery. A company can never be held bound for forgeries
committed by its officers.
4. Where the question is in regard to the very existence of an
agency.
5. Where a pre-condition is required to be fulfilled before company
itself can exercise a particular power. In other words, the act done
is not merely ultra vires the directors/officers but ultra vires the
company itself.
(b) Section 96(2) of the Companies Act, 2013, states that every Annual
General Meeting (AGM) shall be called during business hours, that is,
between 9 a.m. and 6 p.m. on any day that is not a National Holiday and
shall be held either at the registered office of the company or at some
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 other place within the city, town or village in which the registered office
of the company is situated.
However, AGM of an unlisted company may be held at any place in India
if consent is given in writing or by electronic mode by all the members in
advance.
Explanation—For the purposes of this sub-section, ‘National Holiday’
means and includes a day declared as National Holiday by the Central
Government.
In the instant case, Prateek Limited, an unlisted company, can hold its
AGM on 13th August 2024 which happens to be a holiday declared by
the Government of Arunachal Pradesh and so, this is not a national
holiday.
(c) Doctrine of Contemporanea Expositio
This doctrine is based on the concept that a statute or a document is to
be interpreted by referring to the exposition it has received from
contemporary authority. The maxim “Contemporanea Expositio est
optima et fortissinia in lege” means “contemporaneous exposition is the
best and strongest in the law.” This means a law should be understood
in the sense in which it was understood at the time when it was passed.
This maxim is to be applied for construing ancient statutes, but not to
Acts that are comparatively modern.
4. (a) (i) As per section 141(3)(d)(i) of the Companies Act, 2013, an auditor
is disqualified to be appointed as an auditor if he, or his relative or
partner holding any security of or interest in the company or its
subsidiary, or of its holding or associate company or a subsidiary
of such holding company. Further the proviso provides that, the
relative of the auditor may hold the securities or interest in the
company of face value not exceeding of ` 1,00,000.
In the present case, Chitralekha (spouse of Chintamani, the
auditor), is having securities of Nagmani Limited having face value
of ` 80,000, which is within the prescribed limits under the proviso
to section 141(3)(d)(i). Therefore, Chintamani will be eligible to be
appointed as an auditor of Nagmani Limited.
(ii) As per section 141(3)(f), an auditor is disqualified to be appointed
as an auditor if a person whose relative is a director or is in the
employment of the company as a director or a Key Managerial
Personnel. In the instant case, since Mani, real sister of Mr.
Priyanshu (Chartered Accountant) is the CFO (a KMP) of Parivar
Ltd., hence, Mr. Priyanshu will be disqualified to be appointed as
an auditor in the said company.
(b) Small limited liability partnership
According to section 2(1)(ta) of the Limited Liability Partnership Act,
2008, small limited liability partnership means a limited liability
partnership:
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 (i) the contribution of which, does not exceed twenty-five lakh rupees
or such higher amount, not exceeding five crore rupees, as may be
prescribed; and
(ii) the turnover of which, as per the Statement of Accounts and
Solvency for the immediately preceding financial year, does not
exceed forty lakh rupees or such higher amount, not exceeding fifty
crore rupees, as may be prescribed; or
(iii) which meets such other requirements as may be prescribed, and
fulfils such terms and conditions as may be prescribed.
(c) Preamble merely affords help in the matter of construction, if there is an
ambiguity in the law.
Courts refer to the preamble as an aid to construction in the following
situations:
Situation 1: Where there is any ambiguity in the words of an enactment
the assistance of the preamble may be taken to resolve the conflict.
Situation 2: Where the words of an enactment appear to be too general
in scope or application then courts may resort to the preamble to
determine the scope or limited application for which the words are
meant.
5. (a) According to section 24(3) of the Limited Liability Partnership Act, 2008,
where a person has ceased to be a partner of a LLP (hereinafter referred
to as ‘former partner’), the former partner is to be regarded (in relation
to any person dealing with the LLP) as still being a partner of the LLP
unless:
(a) the person has notice that the former partner has ceased to be a
partner of the LLP; or
(b) notice that the former partner has ceased to be a partner of the LLP
has been delivered to the Registrar.
Hence, by virtue of the above provisions, as no notice of resignation was
given to Registrar of Companies, Shilpa will still be liable for the loss of
firm of the transactions entered after 7 th May 2024.
(b) Periodical Financial Results [Section 129A of the Companies Act,
2013]
The Central Government may, require such class or classes of unlisted
companies, as may be prescribed,:
(a) to prepare the financial results of the company on periodical basis
and in prescribed form
(b) to obtain approval of the Board of Directors and complete audit or
limited review of such periodical financial results in the prescribed
manner; and
(c) file a copy with the Registrar within a period of thirty days of
completion of the relevant period with such fees as may be
prescribed.
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 Therefore, the objection of the Board of Directors on the ground that as
Vishal Ltd. is an unlisted company, periodical financial results need not
be prepared, is not correct. Section 129A clearly specifies that the
prescribed class(es) of unlisted companies has to prepare Periodical
Financial Results.
(c) Official Chiefs and subordinates
According to section 19 of the General Clauses Act, 1897, a law relative
to the chief or superior of an office shall apply to the deputies or
subordinates lawfully performing the duties of that office in the place of
their superior, to prescribe the duty of the superior.
In the instant case, Ms. Priya, the Deputy Director of Digital
Communications, was lawfully assigned to perform the duties of the
Director. Hence, the actions taken by Ms. Priya Sharma were valid.
6. (a) Persons entitled to receive the Notice of the General Meeting
According to section 101(3) of the Companies Act, 2013, the notice of
every meeting of the company shall be given to:
(1) every member of the company, legal representative of any
deceased member or the assignee of insolvent member;
(2) the auditor or auditors of the company;
(3) every director of the company.
OR
(a) Time limit for Filing of Annual Return
(i) A copy of annual return shall be filed with the Registrar of
Companies (RoC) within 60 days from the date on which the Annual
General Meeting (‘AGM’) is held.
(ii) Where no annual general meeting is held in any year, it shall be
filed with the Registrar of Companies (RoC) within 60 days from the
date on which the annual general meeting should have been held,
along with the reasons for not holding the AGM.
(b) Audit of accounts of foreign company
According to the Companies (Registration of Foreign Companies) Rules,
2014,
(i) Every foreign company shall get its accounts, pertaining to the
Indian business operations prepared in accordance with section
381(1) of the Companies Act, 2013 and Rules thereunder, shall be
audited by a practicing Chartered Accountant in India or a firm or
limited liability partnership of practicing chartered accountants.
(ii) The provisions of Chapter X i.e. Audit and Auditors and rules made
there under, as far as applicable, shall apply, mutatis mutandis, to
the foreign company.

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(c) Currency
According to section 2(h) of the Foreign Exchange Management Act,
1999, ‘Currency’ includes all currency notes, postal notes, postal orders,
money orders, cheques, drafts, travelers’ cheques, letters of credit, bills
of exchange and promissory notes, credit cards or such other similar
instruments, as may be notified by the Reserve Bank.
(d) Official Gazette
According to section 3(39) of the General Clauses Act, 1897, ‘Official
Gazette’ or ‘Gazette’ shall mean:
(i) The Gazette of India, or
(ii) The Official Gazette of a state.
The Gazette of India is a public journal and an authorised legal document
of the Government of India, published weekly by the Department of
Publication, Ministry of Housing and Urban Affairs. As a public journal,
the Gazette prints official notices from the government. It is authentic in
content, accurate and strictly in accordance with the Government
policies and decisions. The gazette is printed by the Government of India
Press.