TEST - 2

PAPER – 4
VSMART ACADEMY EXAMPREP
CORPORATE & ALLIED LAWS
SUGGESTED ANSWERS

Answer to Question no. 1

A) Provision of the Act:

As per section 230 (6) of the Companies Act, 2013 where majority of persons at a meeting
held representing 3/4th in value, voting in person or by proxy or by postal ballot, agree to
any compromise or arrangement and if such compromise or arrangement is sanctioned by
the Tribunal by an order. The majority of person representing 3/4th Value shall be counted
of the following:
✓ the creditors, or
✓ class of creditors or
✓ members or
✓ class of members, as the case may be, The majority is dual, in number and in value. A
simple majority of those voting is sufficient. Whereas the ‘three-fourths’ requirement relates
to value. The three-fourths value is to be computed with reference to paid-up capital held by
members present and voting at the meeting.
Facts of the case:
In this case, 300 members attended the meeting, but only 260 members voted at the
meeting. As 120 members voted in favor of the scheme the requirement relating to majority
in number (i.e. 131) is not satisfied. 260 members who participated in the meeting held
9,00,000 shares, three-fourth of which works out to 6,75,000 while 120 members who voted
for the scheme held 7,00,000 shares. The majority representing three-fourths in value is
satisfied.
Conclusion:
Thus, in the instant case, the scheme of compromise and arrangement of Evergreen Limited is
not approved as though the value of shares voting in favor is significantly more, the number
of members voting in favor do not exceed the number of members voting against.
B) (i) Provision of the Act: According to section 173 (3) of the Companies Act, 2013, a meeting
of the Board shall be called by giving not less than 7 days’ notice in writing to every
director at his address registered with the company and such notice shall be sent by hand
delivery or by post or by electronic means.
Facts of the case:
According to the question, two of the independent directors on the Board has objected on
the grounds that no proper agenda for the meeting was circulated. The Companies Act,
2013 does not specifically provide for sending agenda along with the notice of the meeting.
However, generally as a good secretarial practice, the notice is accompanied with the
agenda of the meeting.
Conclusion:
Thus, the contention of the independent directors objecting on the grounds that no
agenda for the meeting was circulated, does not hold good. Further, the Chairman of
Greenhouse Limited has convened the Board meeting by serving a two weeks’ notice (i.e.
more than 7 days). Hence, the meeting shall be valid.
 (ii) Provision of the Act: According to section 173 of the Companies Act, 2013,
(a) The directors can participate in a meeting of the Board may be either in person or through
video conferencing or other audio visual means, as may be prescribed, which are capable of
recording and recognising the participation of the directors and of recording and storing the
proceedings of such meetings along with date and time. Further, Central Government may
provide for matters which cannot be dealt in a meeting through video conferencing or other
audio visual means.
(b) A meeting of the Board shall be called by giving not less than 7 days’ notice in writing to
every director at his address registered with the company. Provided that a meeting of the
Board may be called at shorter notice to transact urgent business subject to the condition
that at least one independent director, if any, shall be present at the meeting. Further, in
case the independent directors are not present at such a meeting of the Board, decisions
taken at such a meeting shall be circulated to all the directors and shall be final only on
ratification thereof by at least one independent director, if any.
Conclusion:
Hence, Purple Florence Limited can hold a board meeting at a shorter notice through video
conferencing, for transacting urgent business subject to the condition that at least one
independent director, if any, shall be present at the meeting. Further, if the independent
directors are absent from the meeting of the Board, decision taken at such a meeting shall
be circulated to all the directors and shall be final only on ratification thereof by at least one
independent director, if any

C) Provision of the Act:

As per section 233 of the Companies Act, 2013, a scheme of merger or amalgamation may
be entered into between two or more small companies or between a holding company and
its wholly-owned subsidiary company or such other class or classes of companies as given in
Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016,
subject to the following, namely:—
(i) a notice of the proposed scheme inviting objections or suggestions, if any, from the
Registrar and Official Liquidators where registered office of the respective companies are
situated or persons affected by the scheme within thirty days is issued by the transferor
company or companies and the transferee company;
(ii) the objections and suggestions received are considered by the companies in their respective
general meetings and the scheme is approved by the respective members or class of
members at a general meeting holding at least ninety per cent. of the total number of
shares;
(iii) each of the companies involved in the merger files a declaration of solvency, in the
prescribed form, with the Registrar of the place where the registered office of the company
is situated; and
(iv) the scheme is approved by majority representing nine-tenths in value of the creditors or
class of creditors of respective companies indicated in a meeting convened by the company
by giving a notice of twenty-one days along with the scheme to its creditors for the purpose
or otherwise approved in writing.
Conclusion:

Thus, Pious Ltd. being a wholly owned subsidiary of Heart Ltd. can get merged with Heart
Ltd. by satisfying the above basic conditions.
 D) Provision of the Act:
In accordance with provisions of the FEMA, 1999 as contained in section 7 it imposes on an
exporter to make appropriate declaration of the value of the goods being exported and he
is also required to repatriate the foreign exchange due to India in respect of such exports to
India in the manner within the time as may be prescribed. There are certain categories of
export for which declaration need not be made. These are given under the Regulation 4 of
the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015.
Explanation:
According to the regulation, export of goods by way of gift shall be accompanied by a
declaration by the exporter that they are not more than five lakh rupees in value.
Conclusion:
Taking into consideration the value of gift of jewellery to be exported, if it is less than the
stated amount, Radha, an exporter has to support with a declaration to the specified
authority

Answer to Question no. 2:

A) (i) There exists a principal-agent relationship between the members of the recognised
stock exchange and the investors, since the members normally carry out the
transactions on the behalf of the investors. A member can enter into transaction as
principal with another member of the Exchange only.
• If he desires to enter into contract as principal with a non-member, then he has to
get the written consent from such person to act as a principal.
• As per section 15 of the Securities Contract (Regulation) Act, 1956, the members
use Contract Notes as a written document as an evidence that the said investor has
appointed the member to transact on their behalf and that the member shall be
acting as a principal.
• Where the member has secured the consent of such person otherwise than in
writing, he shall secure written confirmation by such person or such consent within
3 days from the date of the contract.
• However, it is important to note here that as per section 18 of the Act, spot delivery
contracts are outside the purview of section 15. Thus, Cliche Clicks LLP should note
the above provisions of section 15 & 18 of the Act and then proceed accordingly
while dealing with investors in the securities market.
(ii) Securities and Exchange Board of India (SEBI) was established for regulating the
various aspects of stock market. One of its functions is to register and regulate the stock
brokers. In the light of this, Mr. Raman is advised that the complaint against the erring
stock broker may be submitted to SEBI. The grounds on which or the defaults for which
complaints may be made to SEBI are as follows:
• Any failure on the part of the stock broker to issue contract notes in the form and
manner specified by the stock exchange of which the stock broker is a member.
• Any failure to deliver any security or any failure to make payment of the amount
due to the investor in the manner within the period specified in the regulations.
• Any collection of charges by way of brokerage which is in excess of the brokerage
specified in the regulations.
 B) Provision:
Section 1 of the Insolvency and Bankruptcy Code, 2016 specifies of the extent,
commencement and applicability of the Code. According to this, it extends to the whole
of India and shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy
of any company incorporated under the Companies Act, 2013 or under any previous
law. In view of this, the IBC Code, 2016 applies to the corporate debtor incorporated
under the Companies Act, 2013 or under any previous laws. As per the definition of the
Creditor given in section 3(10) of the Insolvency and Bankruptcy Code, 2016, it means
any person to whom a debt is owed and includes a financial creditor, an operational
creditor, a secured creditor, an unsecured creditor, and a decree holder. So, Standard
International Ltd. is a creditor under the purview of the Code.
Facts of the case:
As per the facts given in question, Standard International Ltd., is a foreign trade
creditor. He wanted to file a petition under the under Section 9 of the Insolvency and
Bankruptcy Code, 2016 for commencement of Insolvency process against the defaulter
in India. Standard International Ltd. was not having any office or bank account in India.
As per the requirement of section 9 of the Code, along with application certain
documents were needed to be furnished by the creditor to the Adjudicating authority.
Being a foreign trade creditor, Standard International Ltd was also required to provide a
copy of certificate from the financial institutions maintaining accounts of the creditor
confirming that there is no payment of an unpaid operational debt by the corporate
debtor.
Conclusion:
Since, Standard International Ltd. was not having any office or bank account in India, it
cannot furnish certificate from financial institution as defined under the section 3(14) of
the code. So, Petition under section 9 of the Code is not permissible.

Answer to Question No. 3:

A) Provision of the Act:
According section 416, the President, the Chairperson or any Member may, by notice in
writing under his hand addressed to the Central Government, resign from his office.
Provided that the President, the Chairperson, or the Member shall continue to hold office
until the expiry of 3 months from the date of receipt of such notice by the Central
Government or until a person duly appointed as his successor enters upon his office or
until the expiry of his term of office, whichever is earliest.
Explanation & Conclusion:
Thus, Mr. Ram shall continue to hold office until the expiry of 3 months from the date of
receipt of such notice by the Central Government or until a person duly appointed as his
successor enters upon his office, whichever is earliest. Hence, the contention of Central
Government is correct.

B) Explanation:
In this case, Mr. Vivaan may opt for ‘Option’ derivative contract, which is an agreement to
buy or sell a set of assets at a specified time in the future for a specified amount. However, it
is not obligatory for him to hold the terms of the agreement, since he has an ‘option’ to
exercise the contract. For example, if the current market price of the share is ` 100 and he
 buy an option to sell the shares to Mr. X at ` 200 after three-month, so Vivaan bought a put
option. Now, if after three months, the current price of the shares is ` 210, Mr. Vivaan may
opt not to sell the shares to Mr. X and instead sell them in the market, thus making a profit
of ` 110. Had the market price of the shares after three months would have been ` 90, Mr.
Vivaan would have obliged the option contract and sold those shares to Mr. X, thus making a
profit, even though the current market price was below the contracted price.
Conclusion:
Thus, here, the shares of Travel Everywhere Limited is an underlying asset and the option
contract is a form of derivative
C) (a) Provision: Notification G.S.R.466(E) dated 5th June 2015 in section 174(1) of the
Companies Act, 2013, the companies covered under section 8 of the Companies Act, 2013
shall constitute quorum for the Board meeting, which is either eight members or 25% of its
total strength whichever is less. Provided that quorum shall not be less than two members.
Explanation & Conclusion:
The total strength in this case, is derived after deducting the number of directors whose
offices are vacant. Therefore, total number of directors is 10 and 2 offices of the directors
have fallen vacant, we find: 25% of (10 -2) = 25% of 8 = 2 directors. Being 2 directors would
constitute the quorum for the Board meetings of the Company formed under section 8.
(b) Provision: Under section 174(3) of the Companies Act, 2013 if at any time the number of
the interested directors exceeds or is equal to two thirds of the total strength of the
Board of Directors, the number of the directors who are non-interested but present at
the meeting, not being less than two shall constitute the quorum.
Facts of the case:
Accordingly in the given problem, there are in all 15 directors and the Board meeting
commences with all the 15 directors. During the meeting, an item comes up for
discussion in respect of which 13 happen to be “interested” directors.
Conclusion:
In this case, in spite of the excess of the interested directors being more than two-thirds,
the prescribed minimum number of non-interested directors constituting the quorum,
namely, 2 are present at the meeting and can transact the particular item of business.
D) Provision of the Act:
Establishment of special court: As per section 435 of the Companies Act, 2013, the Central
Government may, for the purpose of providing speedy trial of offences punishable under
this Act with imprisonment of two years or more, by notification, establish or designate as
many Special Courts as may be necessary. Provided that all other offences shall be tried, as
the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the First Class
having jurisdiction to try any offence under this Act or under any previous company law.
Appointment of judge: A Special Court shall consist of a single judge who shall be appointed
by the Central Government with the concurrence of the Chief Justice of the High Court
within whose jurisdiction the judge to be appointed is working. A person shall not be
qualified for appointment as a judge of a Special Court unless he is, immediately before such
appointment, holding office of a Sessions Judge or an Additional Sessions Judge.

Explanation:
Since in the given case, Mr. A who is a judicial magistrate in a lower court, was appointed to
hold the office of the special court for the speedy disposal of the pending cases under the
 Act. As per the above provision, person shall be qualified for appointment as a judge of a
Special Court if he, immediately before such appointment, holding office of a Sessions Judge
or an Additional Sessions Judge.
Conclusion:
Here Mr A. was not complying with the eligibility criteria, so his appointment as a judge of
special court is not tenable.

Answer to Question no. 4

A) As per Section 8 of the Foreign Exchange Management Act, 1999 where any amount of
foreign exchange is due or has accrued to any person resident in India, such person shall
take all reasonable steps to realize and repatriate to India such foreign exchange within such
period and in such manner as may be specified by Reserve Bank of India.
But as per section 9(e) of the said Act, this provision shall not apply to foreign exchange
acquired from employment, business trade, vocation, service honorarium, gifts, inheritance
or any other legitimate means up to such limit as the Reserve Bank of India may specify.
Explanation:
The Reserve Bank of India has specified the following persons with the limits for possession
and retention of foreign currency by a person resident in India:
• Any person may possess foreign coins without any restriction to the amount. Any person
resident in India is permitted to retain in aggregate foreign currency not exceeding USD
2,000 or its equivalent in the form of currency notes/bank notes or travelers cheques
acquired by him;
• Any person resident in India but not permanently resident therein is permitted to hold the
foreign currency without limit, if the foreign currency was acquired when he was resident
outside India and was brought into India and declared to the custom authorities.
Conclusion:
In the given case as Mr. Rajat earned a sum of USD 3000 as a honorarium when he was in
employment in China. But in view of the restrictions under FEMA and the aforesaid
regulation he can retain foreign exchange up to USD 2000 only and not more than that.
B) Section 12 provides for the obligation of Banking Companies, Financial Institutions and
Intermediaries or a person carrying on a designated business or profession. According to
sub-section (1), every banking company, financial institution and intermediary or a person
carrying on a designated business or profession shall –
(a) maintain a record of all transactions, including information relating to transactions covered
under clause
(b) in such manner as to enable it to reconstruct individual transactions; (b) furnish to the Director
within such time as may be prescribed, information relating to such transactions, whether
attempted or executed, the nature and value of which may be prescribed;
(c) verify the identity of its clients in such manner and subject to such conditions, as may
be prescribed;
(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) maintain record of documents evidencing identity of its clients and beneficial owners as well as
account files and business correspondence relating to its clients.
Every information maintained, furnished or verified, save as otherwise provided under any law for
the time being in force shall be kept confidential. The records referred to in clause (a) of sub-section
(I) shall be maintained for a period of five years from the date of transaction between a client and
the reporting entity. The records referred to in clause (e) of sub-section (I) shall be maintained for a
period of five years after the business relationship between a client and the reporting entity has
ended or the account has been closed, whichever is later. The Central Government may, by
notification, exempt any reporting entity or class of reporting entities from any obligation under this
chapter.

Answer to Question no. 5:

A) Accoring to the schedule III of the FEMA, 1999 following shall be the limit for the remittance
of Foreign Exchange in the given situations:
(i) Remittance of Foreign Exchange for Studies Abroad: Foreign Exchange may be
released for studies abroad upto a limit of US $ 2,50,000 without any permission
from the RBI. Above this limit, RBI’s approval is required.
(ii) Remittance for medical treatment: Remittance of Foreign Exchange for medical
treatment abroad requires prior permission or approval of RBI where the individual
requires withdrawal of foreign exchange exceeding US $ 2,50,000. The schedu;e also
prescribes that for the purpose of expenses in connection with medical treatment,
the individual may avail of exchange facility for an amount in excess of the limit
prescribed under the liberalized Remittance Scheme, if so required by a medical
institute offering treatment. Such amount shall be reduced from USD 2,50,000 by
the amount so remitted.
Therefore, Mr.T. Raghava can draw foreign exchange exceeding USD 2,50,000 by
taking prior permission/ approval of RBI.
B) As per section 411 of the Companies Act, 2013, the qualification of chairperson of NCLAT
shall be a person who is or has been a judge of the Supreme Court or the Chief Justice of a
High Court. In the given case, chairperson is a judge and not a chief justice of a High Court,
so his appointment is invalid. However, Section 431 of the Companies Act, 2013 provides of
the provisions that no act or proceeding of the Tribunal or the Appellate Tribunal shall be
questioned or shall be invalid merely on the ground of the existence of any vacancy or
defect in the constitution of the Tribunal or the Appellate Tribunal, as the case may be.
Accordingly, the act or proceeding of the Appellate Tribunal (NCLAT) shall not be invalid on
the basis of defect in the constitution of the Appellate Tribunal.
C) Section 25 of the Prevention of Money Laundering Act, 2002 empowers the Central
Government to establish an Appellate Tribunal to hear appeal against order of the
Adjudicating Authority and other authorities under the Act. Section 26 deals with the right
and time frame to make an appeal to the Appellate Tribunal. Any person aggrieved by an
order made by the Adjudicating Authority may prefer an appeal to the Appellate Tribunal
within a period of 45 days from the date on which a copy of the order is received by him.
The appeal shall be in such form and be accompanied by such fee as may be prescribed. The
Appellate Tribunal may extend the period if it is satisfied that there was sufficient cause for
not filing it within the period of 45 days. The Appellate Tribunal may after giving the parties
to the appeal an opportunity of being heard, pass such order as it thinks fit, confirming,
modifying or setting aside the order appealed against. The Act also provides further appeal.
According to Section 42 any person aggrieved by any decision or order of the Appellate
Tribunal may file an appeal to the High Court within 60 days from the date of
communication of the order of the Appellate Tribunal. In the light of the provisions of the
Act explained above the company is advised to prefer an appeal to Appellate Tribunal in the
first instance.