Addendum Sheet - CA Final May'23

Let’s Learn The Ranker’s Way
Applicable for Nov‘22 and May’23 attempt!
The Ultimate Solution! – Question Bank!
Additional Questions!
Hey Guys,
Providing you approx 70 additional questions to help you with your preparation even better. Happy Learning.
Best Wishes,
Shubham
Frequently asked questions:
1. What are these additional questions?
Basically – These are mainly questions of May 22 Suggested , Nov’22 RTP and MTP.
2. Is it mandatory to refer these questions or is it optional?
It’s mandatory. These questions are equally important as those in the main booklet
3. Are there any other questions that you need to refer beyond this?
May’23 attempt students – You just need to refer Nov’22 Suggested Answers, and RTP+MTP of May 23
as and when they are released.
For any queries, concern or feedbacks – Drop an email at [email protected]
Index and Number of Questions
SN Name of Chapters Additional Questions

1 Appointment and Qualifications of Directors 8
2 Meetings of Board and its Powers 6
3 Appointment and Remuneration of Managerial Personnel 3
4 Inspection, Inquiry, and Investigation
5 Compromises, Arrangements and Amalgamations 2
6 Prevention of Oppression and Mismanagement 2
7 Winding Up 6
9 Companies incorporated outside India 3
Registered Valuers, Removal of Name of Companies from ROC, Govt
10 7
Cos, NCLT/ NCLAT, Miscellaneous Provisions
Sec Law The SEBI Act and LODR 6
1 The Foreign Exchange Management Act, 1999 7
2 The Prevention of Money Laundering Act, 2002 5
3 Foreign Contribution Regulation Act, 2010 3
4 The Arbitration and Conciliation Act, 1996 4
5 The Insolvency Bankruptcy Code, 2016 7
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The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

1
Chapter 1 – Appointment and Qualification of Directors
Question 1:
Pharma Limited is a company listed with Bombay Stock Exchange. The company is having 500 small shareholders.
50 shareholders have proposed to appoint Amar as a Director as their representative on the Board of Directors
of the company. Amar is holding 1000 equity shares of ‘10 each in the said company. State, in the light of the
provisions of the Companies Act, 2013, whether the proposal to appoint Amar as a Small Shareholders' Director
can be adopted by the company. Also, state, can the company appoint Small Shareholders' Director, if there is no
such proposal moved by the small shareholders.
[CA Final- May 22]
Answer:
Appointment of Small Shareholders’ Director:
According to Section 151 of the Companies Act, 2013 read with Rule 7 of the Companies (Appointment and
Qualification of Directors) Rules, 2014,
A listed company may, upon notice of not less than:

(a) one thousand small shareholders; or
(b) 1/10th of the total number of such shareholders,
whichever is lower, have a small shareholders' director elected by the small shareholders.
However, a listed Company may opt to have a director on suo moto representing small shareholders.
The term "small shareholders" means a shareholder holding shares of nominal value of not more than ` 20,000 or
such other sum as may be prescribed.
(i) Proposal to appoint Mr. Amar as a Small Shareholders' Director:

In the instant case, since 50 small shareholders' have proposed to appoint Amar as their representative, the
said proposal is valid and can be adopted as 1/10th of 500 small shareholders' comes to 50. Also, the nominal
value of shares held by Amar is Rs. 10,000 (i.e., 1000 equity shares of Rs. 10/- each) which is below the
maximum limit of Rs. 20,000.
(ii) If there is no such proposal moved by the small shareholders:

For the second part of the question, yes, the Company can suo moto appoint small Shareholders' director,
even if there is no such proposal moved by the small shareholders.
Question 2:
Green Developers Limited proposes to acquire a land owned by its Director, Mr. Manoj at a fair market value of
Rs. 10.00 Crores to execute a project of developing a commercial and residential complex on that land. In
consideration, the company will allot certain flats of equivalent value to Mr. Manoj on completion of the project.
Referring to the provisions of the Companies Act, 2013, advise the Board of Directors of the company whether
Green Developers Limited can enter into the proposed arrangement and what will happen, if compliance
requirement is contravened?
[CA Final- May 22]

2
Answer:
Restriction on acquiring assets for consideration other than cash:
According to Section 192 (1) of the Companies Act, 2013, no company shall enter into an arrangement by which-
a) a director of the Company or its holding, subsidiary or associate company or a person connected with him
acquires or is to acquire assets for consideration other than cash, from the Company; or
b) the Company acquires or is to acquire assets for consideration other than cash, from such director or person
so connected.
Relaxation of Restriction:
The above restriction shall be relaxed i.e., the company may enter into an arrangement involving non• cash
transactions as stated above, if prior approval for such arrangement is accorded by a resolution of the Company
in general meeting.
Advise to the Board:

Hence, in view of the above provisions of law, the Board of Directors of Green Developers Limited shall be advised
that the proposed arrangement cannot be entered into by the Company. However, the proposed arrangement may
be executed, if prior approval of the Company by way of an ordinary resolution is accorded thereto failing which
the contract shall be voidable at the option of the Company.
Further, where the director or the connected person is a director of its holding company, approval shall also be
required to be obtained by passing a resolution in general meeting of the holding company.
What happens if Section 192 is contravened?

Any arrangement entered into by a Company or its holding company in contravention of the provisions of Section
192 shall be voidable at the instance of the Company.
The arrangement shall not be voidable;

a) if the restitution of any money or other consideration which is the subject-matter of the arrangement is no
longer possible and the Company has been indemnified by any other person for any loss or damage caused to
it; or
b) if any rights are acquired bona fide for value and without notice of the contravention of the provisions of
this section (i.e., Section 192) by any other person.
Hence, the Board of Directors of Green Developers Limited can enter into the proposed arrangement by taking
into account the above provisions.
Question 3:
Anoor Sheep Private Limited, a small company, donated, One Lakh to a Political Party in the month of May 2021.
The Company has been in existence for less than three financial years and it has, thus, contravened the provisions
of Section 182 of the Companies Act 2013. Eventually, a fine of Rs. 5 Lakh, ignoring the legal status of the
company, was imposed by the Adjudicating Officer (Registrar of Companies) on the Company. Anoor Sheep Private
Limited approached the Registrar of Companies with a request to levy lesser penalties. Referring to the provisions
of the Companies Act, 2013, answer the following:
(i) Is it possible to levy lesser penalty?
(ii) If so, compute the quantum of the penalty that will be payable by the Company.
[CA Final-May 22]

3
Answer:
According to Section 446B of the Companies Act, 2013, if penalty is payable for non- compliance of any of the
provisions of this Act by a One Person Company, Small Company, Start• up Company or Producer Company, or by
any of its officer in default, or any other person in respect of such company, then such Company, its officer in
default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one- half
of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one
lakh rupees in case of an officer who is in default or any other person, as the case may be.
Section 182 of the Companies Act, 2013, provides:
i. a company which has been in existence for less than three financial years is not allowed to contribute to any
political party
ii. if a company makes any contribution in contravention of the provisions of Section 182, he company shall be
punishable with fine up to five times the amount of contribution so made.
In the light of the above provisions and facts of the question, the following are the answers
(i) Is it possible to levy Lesser Penalty?
Yes, it is possible to levy lesser penalty as Anoor Sheep Private Limited is a small company and section 446B
provides for lesser penalty for small companies.
(ii) Computation of the Quantum of Penalty
Anoor Sheep Private Limited has contravened the provisions of section 182 and is liable to penalty (maximum
5 times of Rs. 1,00,000), however, it being a small company cannot be penalised for an amount exceeding Rs.
2,00,000 [(1/2 of Rs. 5,00,000) subject to a maximum of two lakh rupees].
Question 4:
A, B and C are independent directors of X Limited. A was appointed independent director for a period of 3 years,
B was appointed for a period of 5 years and C was appointed for a second term of 5 years.
The period /term of all the independent directors will be over on 30th September, 2022. X Limited is planning to
consider reappointment of the a`e independent directors. You are requested to advice whether A, B and C can be
reappointed as independent directors as per the provisions of the Companies Act, 2013?
[CA Final- May 22]
Answer:
According to Section 149(10) & (11) of the Companies Act, 2013:
 Term: an independent director shall hold office for a term up to 5 consecutive years on the Board of a company.
 Eligibility for Re-appointment: He shall be eligible for re-appointment on passing of a special resolution by
the company and disclosure of such appointment in the Board's report.
 Limit on holding of office: An independent director shall not hold office for more than 2 consecutive terms.
 Cooling period for appointment: However, he shall be eligible for appointment after the expiration of 3 years
of ceasing to be an independent director.
Appointment of A
In the instant case, A was appointed Independent Director for a period of 3 years, therefore he can be re-
appointed after complying the above provisions.
Appointment of B and C
B was appointed for a period of 5 years, therefore he can also be re-appointed after complying the above
provisions.
C was appointed for a second term of 5 years, he cannot be reappointed as Independent Director for consecutive
third term. However, he shall be eligible for appointment after the expiration of 3 years of ceasing to be an
independent director.

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Question 5:
Mr. Jack, a young and energetic 24 years old American Citizen came to India in the month of January, 2021 for
taking up employment. He has been hunting for the job and stayed in India. M/s NS Software Solutions Limited
is a listed company engaged in developing customized software package for automobile manufacture. This company
appointed Mr. Jack as its Managing Director at the Annual General Meeting held on 11th November, 2021, upon
certain terms & conditions. Based on the above information, you are requested to validate the following referring
to the provisions of the Companies Act, 2013 read with Schedule V of the Act:
i. Eligibility of Mr. Jack for being appointed as a managing director.
ii. Will your answer differ in case the company is located in Special Economic Zone. (SEZ)?
[CA Final, May 22]
Answer:
Additional eligibility conditions for appointment as per Schedule V:
Part I of Schedule V to the Companies Act, 2013, has prescribed additional eligibility conditions for appointment
as Managing Director or whole-time director or a manager without seeking approval from the Central Government.
According to condition (4), the person to be appointed shall be resident of India.
Explanation I clarifies that resident in India includes a person who has been staying in India for a continuous
period of not less than twelve months immediately preceding the date of his appointment as a managerial person
and who has come to stay in India, -
(a) for taking up employment in India; or
(b) for carrying on a business or vocation in India.
Explanation II clarifies that the condition above shall not apply to the companies in Special Economic Zones (SEZ).
(i) Eligibility of Mr. Jack for being appointed as the MD
In the instant case, Mr. Jack, an American Citizen came to India in the month of January, 2021 for taking up
employment. He has been appointed as Managing Director in NS Software Solutions Limited on 11th November,
2021.
Since, Mr. Jack has not stayed in India for a continuous period of twelve months immediately preceding 11th
November, 2021, he is not eligible for being appointed as the Managing Director.
(ii) If the Company is located in SEZ
In case the Company is located in Special Economic Zone (SEZ), the above condition shall not apply and Mr.
Jack is eligible for being appointed as a Managing Director.
Question 6:
ABC Limited (wholly owned government company), failed to file its financial statements for the financial years
2018-2019, 2019-2020 and 2020-2021 with the ROC. However, the annual returns for the financial years 2018-
2019 and 2019-2020 have been filed by the company. The company appointed Mr. Pratham as its non-executive
director with effect from 1st May 2021. In the meantime, Mr. Pratham received an offer of directorship from
AK Ltd. in the month of September, 2021 which he is willing to accept. Referring to the provisions of the
Companies Act, 2013, examine whether Mr. Pratham is qualified to be appointed as director in AK Ltd.
[RTP- Nov 22]
Answer:
Section 164(2) of the Companies Act, 2013, prescribes dis-qualifications which get attached to a person, if he is
or has been a director of a Company which has committed default, as under.
(i) his Company has not filed financial statements or annual returns for any continuous period of 3 financial years;
or
(ii) his Company has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay

5
or redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for 1 year or more.
In both the cases of default, the director concerned shall not be eligible to be re -appointed as a director of
such defaulting Company or appointed in some other Company for a period of 5 years from the date on which the
said Company has committed default.
However, in case a person is appointed as a director of a Company which has committed default as per clause (i)
or (ii) above, he shall not incur the dis-qualification for a period of six months.
Further in the light of the Notification No. GSR 582 (E), dated 13th June, 2017, Section 164(2) of the Act is not
applicable to a Government Company provided it has not committed a default in filing its Financial Statements
under Section 137 or Annual Return under Section 92 of the Act with the Registrar.
Conclusion: In the given problem, ABC Limited, a wholly owned Government Company, has not filed its financial
statements for a continuous period of three financial years and hence, it is not entitled for an exemption under
Section 164 (2) of the Act. Mr. Pratham, who is appointed as a Non-Executive Director in the defaulting Company
shall not incur dis-qualification for a period of six months from the date of his appointment. The six-month period
will expire on 31.10.2021.
Hence, he is qualified to be appointed as a Director of AK Limited in the month of September, 2021.
Question 7:
Examine the following situations in the light of the relevant provision of the Companies Act, 2013:
(1) The Board of Director of ABC Ltd. declared interim dividend for the current financial year 2020-2021. The
proposal of dividend declaration was accepted at the meeting and dividend was declared. However, due to some
reasons, the company failed to pay the dividend to the shareholders within prescribed period. Mr. futuristic,
a director on the board of this company, had offer of appointment in other company PQR Ltd. He wishes to
take up the post in the appointed company. Discuss on the appointment of Mr. Futuristic in PQR Ltd.
(2) Mr. Talented was a director in a holding company and also in its subsidiary company. He was drawing his
managerial remuneration from both the companies in his capacity as a director. It was brought to the attention
of the company that he cannot draw remuneration from both the companies because of virtue of relationship
as a holding and subsidiary company. Discuss on the legality of drawing managerial remuneration by Mr.
Talented from both the companies.
[MTP 1- Nov 22]
Answer:
(1) Section 164 talks about the disqualifications of directors under the Companies Act, 2013. In specific,
sub-section (2)(b) of the said section, no person who is or has been a director of a company which has failed to
pay any dividend declared and such failure continues for one year or more, shall not be eligible to be re-appointed
as a director of that company or appointed in other company for a period of 5 years from the date on which the
defaulted company fails to do so.
Mr. futuristic, a director on the board of ABC Ltd., had offer of appointment in other company PQR Ltd. He
wishes to take up the post in the other company. In view of above stated provision, since Mr. futuristic was a
director in a company which failed to pay dividend even after 1 year of declaration and so was a defaulted company.
Therefore, he cannot be appointed in PQR Ltd.
(2) Any director who is in receipt of any commission from the company and who is managing or Whole time director
of the company shall not be disqualified from receiving any remuneration of commission from any holding or
subsidiary company of such company subject to its disclosure by the company in the Board’s report as per section
197(14) of the Companies Act. However subject to the provisions of sections I to IV of schedule V of the

6
Companies Act, 2013, a managerial person shall draw remuneration from one/both companies, provided that the
total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one
of the companies of which he is managerial person. Accordingly, Mr. Talented is advised to check that it does not
exceed the higher maximum limit admissible in any of the companies i.e. either holding or subsidiary.
Question 8:
Atlanto Tyres Ltd (ATL) is engaged in the business of manufacturing of tyres of all types of vehicles. The company
have 6 directors. Recently the company has acquired a foreign company in UK which was engaged in manufacturing
of tyres. The company thought that the merger will be beneficial for it. In order to take care of the operations
and networking of the merged foreign entity, the directors of ATL travelled to UK on and often. Due to frequent
travelling to UK, it was observed that all the directors in the FY 2020-21 could not stayed in India for a minimum
period as prescribed in the Act. Examine the given situation in the light of the related law as in case if the same
is not in compliance.
[MTP2- Nov 22]
Answer:
In terms of Section 149(3) of the Companies Act, 2013, every company shall have at least one director
who has stayed in India for a total period of not less than 182 during the financial year.
In the given case, out of 6 directors, none of the directors could have stayed in India for a minimum period of
182 days in the FY 2020-21.
Therefore, the requirement of said section 149(3), is not met with. Therefore, ATL is liable under section 172
of the Companies Act, 2013.
In case of contravention: Further Section 172 of the Act, provides that if a company is in default in complying
with any of the provisions of Chapter XI ( i.e. with respect to the appointment and qualifications of directors)
and for which no specific penalty or punishment is provided therein, in that case following is the penalties levied
on:
(i) the company, and
(ii) every officer of the company who is in default- shall be liable to a penalty of 50,000 rupees.
In case of continuing failure, with a further penalty of 500 rupees for each day during which such failure
continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an
officer who is in default.

7
Chapter 2 – Meetings of Board and its powers
Question 1:
ABC Limited put forth the following matters for your examination. The meeting of the Board of Directors of the
company was convened on 15th July, 2021. While one Director attended the Board Meeting physically all other
five Directors of the Company attended the meeting through Video conferencing /other Audio-visual means and
approved the Annual Financial Statements ending 31st March, 2021. Referring to the provisions of the Companies
Act, 2013 you are requested to validate the followings:
i. Compliance requirement of quorum for the said meeting.
ii. Approval of the Financial Statements for the year ending 31st March, 2021.
[CA Final- May 22]
Answer:
According to Section 174(1) of the Companies Act, 2013, the quorum for a Board Meeting shall be one-third of
its total strength or two directors, whichever is higher.
Also, Section 173(2) of the Act allows the directors of a Company to attend Board meetings in the following
manner:
• in person
• through video conferencing
• other Companies audio-visual (Meetings means of as prescribed Board and under its Rule 3 Powers) of the
Rules, 2014
(i) Quorum Compliance
In the instant case, since there are total 6 directors in ABC Limited, the quorum shall be 2 (1/3rd of 6 or 2,
whichever is higher). Since, one director attended the meeting physically and all other five directors attended
through Video conferencing/ Audio visual means, it implies that all the directors attended the meeting and
quorum compliance is there.
(ii) Approval of Financial Statements:
Since the quorum of the Board meeting is complied with the presence of all the six directors, therefore,
approval of Financial Statement in the Board Meeting held on 15th July, 2021 is valid.
Further, according to Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, certain matters
including the approval of Annual Financial Statements cannot be dealt with in a meeting through Video
Conferencing/Other Audio-visual means. However, vide Notification GSR Powers) Rules, 2014, through
enforcement of the Companies (Meeting of Board and its Powers) Rules, 2014, Rule 4 dealing with matters to be
dealt with in a meeting through video conferencing or other audio-visual means was omitted. Therefore, the
Company has compiled with the provisions of the Companies Act, 2013 approving the Annual Financial Statements
at the Board Meeting held on 15th July, 2021.
Question 2:
Decide in the light of the Companies Act, 2013, on the following proposals of loans for consideration before the
Truth Ltd.
(i) Loan to its director, Mr. A for construction of residential house as a personal loan.
(ii) Loan to Mr. B, its whole time Director.
Loan to X Ltd. in the ordinary course of business and the rate prescribed is not less than bank rate prescribed
by the reserve bank.
[MTP 1- Nov 22]

8
Answer:
Section 185 of the Companies Act, 2013 contains provisions which impose restrictions on the loans, etc. being
given to directors, etc. According to the provision:
As per sub-section (1), a company is not permitted to advance any loan, or to give any guarantee or provide any
security in connection with any loan taken by,—
(i) any director of company, or of a company which is its holding company or any partner or relative
of any such director; or
(ii) any firm in which any such director or relative is a partner.
Further sub-section (3) states that above provision shall not apply:
(a) where any loan is given to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any such scheme which is approved by the members by a special resolution.
(b) where a company in the ordinary course of its business:
 provides loans or gives guarantees or securities for the due repayment of any loan; and
 in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one
year, three years, five years or ten years Government security closest to the tenor of the loan.
Accordingly, following are the answers to the stated problems:
(i) In the first case it would violate the section 185(1) of the Companies Act, 2013. Truth Ltd. is not permitted,
to advance any loan, or to give any guarantee or provide any security in connection with any loan taken by
Mr. A (director) of the company.
(ii) In the second case, as per section 185(3), restrictions imposed in section185(1), will not apply to giving of
loan to Mr. B, the whole-time director if its given as a part of the conditions of service extended by the
company to all its employees.
(iii) In third case, if it is loan given to a company in the ordinary Course of business for due repayment of any
loan and lending rate is not less than the bank rate prescribed by the Reserve bank, the restriction imposed
under section 185(1) will not apply to such transactions.
Question 3:
Draft a Board resolution for approval of investment in equity shares by Speed Cycles Limited in Brakes and Gears
Limited.
[MTP1- Nov 22]
Answer:
Specimen Board Resolution: Investment in Equity Shares
Resolution passed at the meeting of the Board of Directors of Speed Cycles Limited held at its registered
office situated at ________ on ______ (day) at A.M.
“Resolved unanimously that pursuant to provisions of Section 186(2) of the Companies Act, 2013,the
company be and is hereby authorized to invest in _____ equity shares of` each of Brakes and Gears
Limited, the investment in addition to other investments made to date in the aggregate being within the
limits prescribed under the said section.”
“Resolved further that Mr. ________, the Managing Director of the Company be and is hereby authorised
on behalf of the Board to sign /execute the necessary documents in this connection.”
Sd/-
Board of Directors Speed Cycles Limited
Question 4:
The following balances are extracted from the audited financial statement of B Private Limited for the financial

9
year ending the 31st March, 2021:
Rs. in crore
Paid-up share capital 20
Balance in Profit and Loss Account 6
Borrowing from banks and financial institutions 49
Current Liabilities and Provisions 8
No other body corporate has invested any money in the share capital of B Private Limited. The Company has no
default in repayment of the above borrowings subsisting at the proposed time of making the above transaction.
The Company has also not committed a default in filing its financial statements or Annual Return with the
Registrar.
The Company proposes to provide a loan of Rs. 50 lakh to its director Mr. B, who is in dire need of funds for
financing his daughter’s education. Another Director Mr. L contended that the loan should not be provided by
the Company to Mr. B due to the restrictions imposed by the provisions of the Companies Act, 2013. Mr. B, on
the other hand, is of the opinion that the Company being a Private Company, the restrictions are not applicable
to the Company. Analyzing and referring to the relevant provisions of the Companies Act, 2013 and the relevant
notifications issued by the MCA, examine the validity of the proposal of B Private Limited to provide the loan
to its Director, Mr. B.
[MTP 1- Nov 22]
Answer:
Section 185 of the Companies Act, 2013 contains provisions which impose restrictions on the loans, etc. being
given to directors, etc.
Accordingly, a company is not permitted directly or indirectly to advance any loan to
(a) any director of the company or of a company which is its holding company or any partner or relative of any
director or
(b) any firm in which director or relative is a partner.
As per the Notification No. G.S.R 464(E), dated 5th June 2015 as amended by Notification No.
G.S.R 583(E), dated 13th June 2017, Section 185 shall not apply to a private company which means that loan to
directors may be provided subject to following conditions:
(a) In whose share capital no other body corporate has invested any money;
(b) If the borrowings of such a company from banks or financial institutions or anybody- corporate is less
than twice of its paid-up share capital or fifty crore rupees, whichever is lower, and
(c) Such company has no default in repayment of such borrowings subsisting at the time of making
transactions under this section.
The above exemption is applicable to a private company if it has not committed a default in filing its financial
statements under Section 137 or Annual Return under Section 92 with the Registrar.
Here in the given case, requirement given in clause(a), and no commission of default in filing its financial
statements under Section 137 or Annual Return under Section 92 with the Registrar, are met with, However, as
per clause (b), borrowings of B Private Limited from banks or financial institutions is Rs. 49 crore which is more
than twice of its paid-up share capital (i.e. Rs. 20 core X 2 =
Rs. 40 crore).
Hence, the contention of Mr. L that loan shall not be provided to Mr. B is correct. Accordingly, as the exemption
is not applicable to B Private Limited, the proposal of providing a loan of Rs. 50 Lakh to its director Mr. B, by B
Private Limited is invalid.

10
Question 5:
Examine with reference to the provisions of the Companies Act, 2013 whether notice of a Board Meeting is
required to be sent to the following persons:
(i) Mr. X, an interested Director of the company.
(ii) Mr. Y, a Director who has expressed his inability to attend a particular Board Meeting;
[MTP2- Nov22]
Answer:
Notice of Board meeting
(i) Interested director: Section 173(3) of the Companies Act, 2013 makes it mandatory that every director
needs to be given proper notice of every board meeting. It is immaterial whether a director is interested
or not. In case of an interested director, notice must be given to him even though in terms of Section 184
(2) he is precluded from participation i.e. engaging himself in discussion or voting at the meeting on the
business in which he is interested.
(ii) A Director who has expressed his inability to attend a particular Board Meeting: In terms of section
173(3) even if a director states that he will not be able to attend the next Board meeting, notice must be
given to that director also.
Therefore, notice will be served on Mr. X and Mr. Y, in compliance with section 173(3) of the Companies Act,
2013.
Question 6:
Maharaja Limited proposed to appoint Mr. Mantri as its Managing Director for a period of 5 years with
effect from 1st May, 2022. Mr. Mantri fulfils all the conditions as specified under Schedule V to the
Companies Act, 2013.
The terms of appointment are as under:
(i) Salary. 1 lakh per month;
(ii) Commission, as may be decided by the Board of Directors of the company;
(iii) Perquisites; Free Housing,
Medical reimbursement upto 10,000 per month, Leave Travel concession for the family, Club membership
fee, Personal Accident Insurance 10 lakh, Gratuity, and Provident Fund as per Company’s policy.
You being the Secretary of the said Company are required to draft a resolution to give effect to the above,
assuming that Mr. Mantri is already the Managing Director in a Limited company.
[RTP- Nov 22]
Answer:
Resolution passed at the meeting of board of directors of Maharaja Limited held at its registered office
situated at …………........…on …………..(day), the _________________________ (date)
at ....................... A.M.
“Resolved that consent of all the directors present at the meeting be and is hereby accorded to the
appointment of Mr. Mantri, who is already the Managing Director of another limited company, and fulfils
the conditions as specified in Schedule V of the Companies Act, 2013, as the Managing Director of the
company for a period of 5 years effective from 1st May, 2022 subject to approval by a resolution of
shareholders in a general meeting and that Mr. Mantri may be paid remuneration as follows:
(i) Salary of Rs. 1 Lakh per month
(ii) Commission
(iii) Perquisites: Free Housing, Medical reimbursement up to Rs. 10,000 per month, Leave Travel
Concession for the family, Club membership fee, Personal Accident Insurance of `10 Lakhs, Gratuity,
Provident Fund etc.

11
Resolved further that in the event of loss or inadequacy of profits, the salary payable to him shall be
subject to the limits specified in Schedule V.
Resolved further that the Secretary of the company be and is hereby authorize to prepare and file with
the Registrar of Companies necessary forms and returns in respect of the above appointment.”
Sd/
Board of Directors Maharaja Limited

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Chapter 3 – Appointment and Remuneration of Managerial

Personnel
Question 1:
PCR Limited has appointed Mr. Vivek, a person resident in India, as a Managing Director who has taken a charge
of the post on 1st June, 2021. The remuneration package sanctioned to him is as below:
Sr No Particulars Amount
1 Salary 60,00,000
2 Rent Free Accommodation 6,00,000
3 Children Education Allowance 3,00,000
4 Leave Travel Concession Package 3,00,000
5 Premium in respect of Insurance Taken for Indemnification 5,00,000
It has, further, been informed that-

a) Mr. Vivek has availed the Leave Travel Concession Package which will not be pro- rated for 2021-22.
b) Mr. Vivek is not proved guilty during the financial year 2021-22 with respect to the above insurance policy.
c) The company has not passed a special resolution for payment of remuneration in excess of the limit
prescribed by schedule V to the Companies Act, 2013.
d) The company has incurred losses during the financial year 2020-21 and 2021-22.
e) The effective capital of the company as at 31st March, 2021 is in negative.
Based on the above details and referring to the provisions of the Companies Act, 2013, you are requested to
analysis and answer the following:
(iii) Compute the amount that would constitute the yearly remuneration for Mr. Vivek.
(iv) Compute the excess remuneration paid to Mr. Vivek, if any, and discuss the prospects of recovery
thereof.
[CA Final May 22]
Answer:
(i) Computation of the amount that would constitute the yearly remuneration for Mr. Vivek
As per Section 2(78) of the Companies Act, 2013, (the Act) the term "Remuneration "means any money or its
equivalent given or passed to any person for services rendered by him and includes perquisites as
defined under the Income Tax Act, 1961.
Further, as per Section 197(13) of the Act, where any indemnification insurance is taken by a Company on
behalf of Managing Director or other managerial personnel, the premium therefor paid by the Company shall
not form part of the remuneration payable to any such personnel, if that person is proved not to be guilty
during the year of insurance coverage.
In the light of the provided information in the problem and as per Section 197 read with Schedule V to the
Companies Act, 2013, the computation of the amount that would constitute the yearly remuneration of Mr.
Vivek in PCR Limited for the FY 2021-2022 will be as under:
Proportionate to 10 months as the MD has

Sr No. Particulars
taken charge of the post w.e.f. 01.06.2021
1 Salary 50,00,000
2 Rent Free Accommodation 5,00,000
3 Children Education Allowance 2,50,000

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4 Leave Travel Concession Package (not

3,00,000
prorated for 2020-21 as per the question)
Total Yearly Remuneration of Mr. Vivek 60,50,000
NOTE: Premium in respect of insurance taken for indemnification is not considered, as Mr. Vivek is not proved
guilty during FY 2021-2022.
(ii) Computation of excess Remuneration paid to Mr. Vivek

It is provided that the Company has suffered losses during the FY 2020-2021 and 2021-2022 and the
effective capital of the Company as at 31st March, 2021 is in negative. So, as per the Act read with Schedule
V, the maximum yearly managerial remuneration payable to Mr. Vivek shall be Rs. 60 Lakhs including
perquisites.
From the above table of computation, the total yearly remuneration of Mr. Vivek is arrived Rs. 60,50,000
(pro-rated) and whereas, for the year 2021-2022, Mr. Vivek will be entitled for maximum remuneration
payable not exceeding Rs. 50 lakhs per annum (pro-rated for 10 months).
Thus, the excess remuneration paid to Mr. Vivek is Rs. 10,50,000/- [i.e Rs. 60,50,000 (-) Rs. 50,00,000].
Prospects of Recovery thereof:
As per Sections 197(9) and 197(10) of the Companies Act, 2013, where the remuneration received by any
director is in excess of the limit it shall be refunded to the Company by such director and till that time, he
holds it in trust for the Company.
The Company shall not waive the recovery of any sum which is refundable to it unless the waiver is approved
by a Special Resolution passed by the Company within two years from the date the sum becomes refundable.
In the given case, as the remuneration package sanctioned to him of Rs. 10,50,000/- is in excess of the
prescribed limit and as provided in the question, that no special resolution is passed for payment of
remuneration in excess of the limit prescribed by Schedule V to the Act.
Therefore, the Company can recover the excess amount.
Question 2:
In Crystal Limited, the following directors are getting sitting fees.
Director’s Name Sitting fees (INR)

Mr. X (Non-Executive Independent Director) INR 70,000
Mrs. Y (Non-Executive Woman Director) INR 80,000
Mr. Z (Non-Executive Director) INR 60,000
Mr. L (Non-Executive Director) INR 50,000
The Boards of Directors of Crystal Limited increased the sitting fees of Mr. Z and Mr. L to one lakh rupees each
and continued the sitting fees of Mr. X and Mrs. Y at the old fees stated above. Referring to the provisions of
the Companies Act, 2013, examine whether the decision of the Board of Directors to increase the sitting fees of
few directors and maintaining the same sitting fees for remaining directors shall be deemed to be valid.
[MTP 1- Nov22]

14
Answer:
Sitting Fees to Directors [Section 197(5) of the Companies Act, 2013]
A director may receive remuneration by way of fee for attending meetings of the Board or Committee thereof
or for any other purpose whatsoever as may be decided by the Board subject to the conditions imposed by Rule
4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as under:
- The sitting fees shall not exceed one lakh rupees per meeting of the Board or committee thereof. (As per
Rule 4)
- The sitting fee payable to the Independent Directors and Women Directors shall not be less than that
payable to other directors. (As per Proviso to Rule 4)
Accordingly, increasing the sitting fees of Mr. Z and Mr. L is within the limit prescribed under the said Rule 4.
However, maintaining the same sitting fees for the Mr. X and Mrs. Y is not valid in line with the requirement to
the stated provision i.e., it shall not be less than that payable to Mr. Z and Mr. L.
Therefore, the decision of the Board of Directors to increase the sitting fees of few directors and maintaining
the same sitting fees for remaining directors shall be deemed to be invalid.
Question 3:
The following particulars are extracted from the statement of profit and loss of Sunlight Limited for the year
ended 31st March 2022:
Sr.No Particulars Amount
1 Gross Profit 60,00,000
2 Profit on sale of building (Cost Rs. 10,00,000 and written down 5,00,000
value Rs. 6,00,000)
3 Salaries & wages 2,50,000
4 Sundry Repairs to Fixed Assets 1,00,000
5 Subsidy from the government 3,00,000
6 Compensation for breach of contract 1,00,000
7 Depreciation 1,40,000
8 Loss on sale of investments 2,00,000
9 Interest on unsecured loans 50,000
10 Interest on debentures issued by the company 1,00,000
11 Repair Expenses to fixed assets (Capital in nature) 2,00,000
12 Net Profit 13,00,000
You are required to calculate the overall managerial remuneration payable under section 197 of the Companies
Act, 2013 subject to the provisions under Schedule V.
[MTP2- Nov 22]
Answer:
The managerial remuneration shall be computed in accordance with the provisions laid down in section 198 of the
Companies Act 2013.
Particulars Amount
Net profit 13,00,000
Less: Capital profits on sale of building (Note 1) 1,00,000
Salaries & Wages (Note 2) -

15
Sundry repairs to fixed Assets (Note 2) -

Subsidy from the government (Note 3) -
Compensation from breach of contract (Note 2) -
Depreciation (Note 2) -
Loss on Sale of Investments (Note 4) -
Interest on unsecured loans (Note 2) -
Interest on debentures (Note 2) -
Add: Repair expenses to fixed assets (Capital in Nature) (Note 5) 2,00,000
Net profits as per section 198 14,00,000
Therefore, the overall maximum managerial remuneration shall be 11% of the Net profits computed in accordance
with section 198 i.e. 11% x 14,00,000 = Rs.1,54,000. It is assumed that the net profit given in the question is
arrived after giving effect to all the line items given therein.
Notes:
1) As per section 198(3), credit shall not be given for profits from the sale of any immovable property or fixed
assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless
the business of the company consists, whether wholly or partly, of buying and selling any such property or
assets; provided that where the amount for which any fixed asset is sold exceeds the written-down value
thereof, credit shall be given for so much of the excess as is not higher than the difference between the
original cost of that fixed asset and its written- down value.
Accordingly, the calculation of capital profit is computed as under:
Profit = Selling Price – Written down value
5,00,000 = Selling Price – 6,00,000.
Therefore, Selling Price = 11,00,000. Capital profit = 11,00,000 – 10,00,000 (original cost) = 1,00,000
2) According to section 198 (4), the following sums shall be deducted:
a) All the usual working charges – salaries and wages are considered as usual working charges
b) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a
capital nature
c) any compensation or damages to be paid in virtue of any legal liability including a liability arising from a
breach of contract
d) interest on debentures issued by the company
e) interest on unsecured loans and advances
f) depreciation to the extent specified in section 123
Since all of the above charges are already deducted while arriving at net profit, no effect will be given.
3) According to section 198 (1), credit shall be given for bounties and subsidies received from any government,
or any public authority constituted or authorised in this behalf, by any government, unless and except in so
far as the Central Government otherwise directs.
4) According to section 198(5), Loss of a capital nature including loss on sale of the undertaking or any of the
undertakings of the company or any part thereof shall not be deducted. In the given question, in the
absence of the specific information about the nature of investments, the said investments are considered
as current investments and revenue in nature and accordingly no effect is given as it is already deducted
while arriving at net profit.
5) According to section 198(4), expenses on repairs, whether to immovable or to movable property is deducted
only for repairs which are not capital in nature. Accordingly, we have added back to the net profit.

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Chapter 4 – Inspection, Inquiry and Investigation

Question 1:

17
Chapter 5 – Compromise, Arrangements & Amalgamations

Question 1:
STC Limited is a wholly owned subsidiary of HTC Limited. The 100% equity shares, fully paid-up, of STC Limited is
held by HTC Limited including the shares held by 6 nominees of HTC Limited. In order to effectively utilize the
resources, a proposal is under discussion in the board meeting of HTC Limited for merger of both the companies.
The majority of the directors of HTC Limited opined in the board meeting that the merger has to be done through
fast track mode as per the provisions of Section 233 of the Companies Act, 2013. However, the Company Secretary
was of the view that the merger of both the companies cannot be done through fast track mode as they are public
companies. Referring to the provisions of the Companies Act, 2013-
i. Analyze the validity of merger of HTC Limited and STC Limited through fast track mode.
ii. Examine, whether STC Limited can be merged with HTC Limited, if HTC Limited is a foreign company.
[CA Final –May 22]
Answer:
i. Companies who may enter into scheme of Merger or Amalgamation [Section 233 (1)]:
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 class or classes of companies as may be prescribed
(i.e. between two or more start-up companies or one or more start• up company with one or more small company)
if 100% of its share capital is held by the holding company, except the shares held by the nominee or nominees
to ensure that the number of members of subsidiary company is not reduced below the statutory limit as provided
in section 187 of the Companies Act, 2013.
Validity of Merger of HTC Limited and STC Limited through Fast Track Mode.
In the instant case, the 100% equity shares of STC Limited is held by HTC Limited including the shares held by
6 nominees of HTC Limited.
Yes, proposal for the merger of HTC Limited and STC Limited opined by the Board of Directors through fast
track mode will be valid subject to the following:
a) 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
b) The objections and suggestions received are to be 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;
c) 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
d) 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.
Contention of Company Secretary that the merger of both the companies cannot be done through fast track
mode as they are public companies, is incorrect.
ii. Merger of STC Limited with HTC Limited, a Foreign Company:

Section 234 of the Companies Act, 2013 makes provisions in respect of cross border mergers and amalgamations
i.e., between Indian Company and a foreign body corporate. Procedure has been prescribed in Rule 25A of the
Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. According to this Section, STC Ltd.
can be merged with HTC Ltd. (if it's a foreign company) with RBI approval and after complying with provisions
of Sections 230 to 232 of the Act and relevant Rules.

18
Question 2:
A Ltd. (transferee) decides to acquire B Ltd. (transferor) by acquiring its shares via a process of takeover u/s 235
of the Companies Act, 2013. A Ltd. prepared a scheme by which an offer was made to the shareholders of B Ltd.
The offer was made on 1st August, 2019. The offer remained open for 4 months. Such offer was approved by
shareholders having 92% value of the shares. Subsequently A Ltd. gave a notice to the remaining shareholders that
it desires to acquire their shares. Such notice was given on 5th January, 2019. Certain dissenting shareholders
made an application to the tribunal that acquisition of their shares should not be permitted. Such application was
dismissed by the tribunal. Hence A Ltd. acquired shares of 5% of the dissenting shareholders (out of balance 8%).
The shareholding of balance 3% shareholders continued to remain with them. Comment on the validity of such a
takeover by A Ltd.
[MTP2- Nov22]
Answer:
The basic requirements as to acquisition of shares mentioned in Section 235 of the Companies Act, 2013 are
as follows:-
1. The scheme or contract involving the transfer of shares in a company (transferor company) to another company
(transferee company) has been approved by the holders of not less than 9/10th(90%) in value of the shares
whose transfer is involved.
2. The approval of 9/10th shareholders in value shall be received within 4 months after making of an offer in that
behalf by the transferee company.
3. The transferee company shall express his desire to acquire the remaining shares of dissenting shareholder in 2
months after the expiry of the said 4 months and shall give notice in the prescribed manner to any dissenting
shareholder that it desires to acquire his shares.
The transferee company shall be entitled as well as bound to acquire the shares of the dissenting shareholders
where no application is made by any dissenting shareholders to the tribunal in 1 month of receipt of notice of
acquisition of shares or where an application is made by any dissenting shareholder but such application is
dismissed by the tribunal.
In the given case since application made by the dissenting shareholders has been dismissed by the tribunal hence
A Ltd is entitled and bound to acquire all the shares of the dissenting shareholders i.e. entire 8% shareholding.
Since A Ltd only acquired 5% shareholding of the dissenting shareholders hence this is in contravention of Sec
235 of the Companies Act, 2013. Hence the takeover is invalid.

19
Chapter 6 – Prevention of Oppression and Mismanagement

Question 1:
SOPS Limited is in the field of manufacturing of toys. The company has Authorised Share Capital of Rs. 50 Lakhs
consisting of 40,000 equity shares of Rs. 100 each and 10,000 preference shares of Rs. 100 each. The company has
issued 32,000 equity shares and 8,000 preference shares of which 24,000 equity shares and 6,000 preference
shares are subscribed and fully paid-up. The company has 650 members holding equity shares and 200 members
holding preference shares. A petition was submitted before the Tribunal signed by 90 members holding 3,100 equity
shares of the company alleging various acts of oppression and mismanagement on the part of the company. During
pendency of the petition, 10 petitioner-members holding 1,000 equity shares disassociated from the petition.
Referring to the provisions of the Companies Act, 2013, answer the following:
i. Whether the petition will be admitted?
ii. Whether the petition will be maintainable after disassociation of the stated members?
[CA Final May 22]
Answer:
Right to apply for Oppression and Mis-management:
As per the provisions of Section 244 of the Companies Act, 2013, in the case of a company having share capital,
members eligible to apply for oppression and mismanagement shall be lowest of the following:
 100 members; or
 1/10th of the total number of members; or
 Members holding not less than 1/10th of the issued share capital of the company.
Provided that the applicant or applicants has or have paid all calls and other sums due on his or their shares.
The share holding pattern of SOPS Limited is given as follows:

Rs. 40,00,000 issued share capital (equity and preference) held by 850 members
The petition alleging oppression and mismanagement has been made by some members as follows:
a. No. of members making the petition - 90 members holding 3100 equity shares of Rs. 100/- each.
b. Amount of share capital held by members making the petition - Rs. 3,10,000 The petition shall be valid if it has
been made by the lowest of the following:
• 100 members; or
• 85 members (being 1/10th of 850); or
• Members holding Rs. 4,00,000 share capital (being 1/10th of Rs. 40,00,000)
i. Whether the Petition is maintainable?

As it is evident, the petition made by 90 members meets the eligibility criteria specified under Section 244 of
the Companies Act, 2013 as it exceeds the minimum requirement of 85 members in this case. Therefore, the
petition is maintainable.
ii. Whether the petition is maintainable even after disassociation of the stated members?
The consent to be given by a shareholder is reckoned at the beginning of the proceedings. The withdrawal of
consent by any shareholder during the course of proceedings shall not affect the maintainability of the petition
[Rajamundhry Electric Corporation Vs. V. Nageswar Rao A.I.R.].
Hence, the petition will be maintainable even after disassociation of the stated members i.e. by 10 petitioner
members holding 1,000 equity shares.
Question 2:
Anurag is the Managing Director of ABC Ltd. His term was expired in the month of September 2022 inspite of
this, he is continuing to hold the office of MD. No meeting of the Board was held for his re-appointment. Being
a shareholder of the company, can you take any action and how it will be taken?
[MTP2- Nov 22]

20
Answer:
Where the term of the Managing Director has expired and he continues in office without a meeting of the
board being held for re-appointment, is considered as mis-management of the affairs of the company.
In such a situation an application to the NCLT for relief in case of Oppression and mis-management can be filed
under section 241 read with section 244.
Section 241(1)(a) provides that any member of a company who complains that the affairs of the company
have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or
oppressive to him or any other member or members or in a manner prejudicial to the interests of the company,
may apply to the Tribunal.
Section 244(1)(a) provides that in the case of a company having a share capital, not less than 100 members of
the company or not less than one-tenth of the total number of its members, whichever is less, or any member
or members holding not less than one tenth of the issued share capital of the company, subject to the condition
that the applicant or applicants has or have paid all calls and other sums due on his or their shares, shall have
the right to apply under section 241.
A shareholder of the company, in compliance with above procedure, can file an application for relief on
mismanagement before the NCLT.
Chapter 7 – Winding Up
Question 1:
The Tribunal has made an order for winding-up of LTR Private Limited Consequently, considering the report
of the Liquidator stating that Mr. Tejas has committed the fraud in formation of the company, the Tribunal
directed him to present himself for examination. However, Mr. Tejas defended the order on the ground that
he was never a promoter, director, officer or employee of the Company, Examine the tenability of the stand
taken by Mr. Tejas to defend the order of the Tribunal and enlighten him of the rights available to the person
to be examined in light of the provisions of the Companies Act, 2013.
[RTP- Nov 22]
Answer:
Power of the Tribunal to order the person to attend and be examined before the Tribunal:
As per Section 300 of the Companies Act, 2013 (the Act) where an order has been made for the winding up
of a Company by the Tribunal, and the Company Liquidator has made a report to the Tribunal under this Act,
stating that, in his opinion, a fraud has been committed by any person in the promotion, formation, business
or conduct of affairs of the Company since its formation, the Tribunal may, after considering the report,
direct that-
(i) such person or officer shall attend before the Tribunal on a day appointed by it for that purpose, and
(ii) be examined as to promotion or formation or the conduct of the business of the Company or as to his
conduct, and
(iii) dealings as an officer thereof.
Hence, Mr. Tejas is bound to appear before the Tribunal for examination even if he was not a promoter,
director, officer or employee of the Company as the Tribunal has powers to direct any person to appear for
examination. Hence, his stand is not tenable.
Rights available to the person to be examined:

A person ordered to be examined under this Section:
(i) shall, before his examination, be furnished at his own cost with a copy of the report of the Company
Liquidator; and

21
may at his own cost employ Chartered Accountants or Company Secretaries or Cost Accountants or legal
practitioners entitled to appear before the Tribunal under Section 432 of the Act, who shall be at liberty to
put to him such questions as the Tribunal may consider just for the purpose of enabling him to explain or
qualify any answers given by him. He may exercise the rights conferred on him as above.
Question 2:
Simar Limited was in the process of liquidation. It had some correspondence with its auditor, which was in the
company's letter head. The auditor observed that the letter head was not in compliance with Section 344, as it
did not mention the fact that the company was being wound up. He immediately called up one of the directors
and advised him about the provisions of Section 344 and the consequences of non-compliance. State, the
provisions and consequences regarding which the auditor would have advised.
[MTP1- Nov22]
Answer:
Statement that Company is in Liquidation [Section 344 of the Companies Act, 2013]
1) Statement of winding up: Where a Company is being wound up, whether by
 the Tribunal or
 voluntarily,
every invoice, order for goods or business letter issued-
 by or on behalf of the Company or
 by a Company Liquidator of the Company, or
 by a receiver or
 by the manager of the property of the Company,
being a document on or in which the name of the Company appears, shall contain a statement that the
Company is being wound up.
2) If a company contravenes the above provisions, the company and every officer of the Company, the
Company Liquidator and any receiver or manager, who willfully authorises or permits the non-compliance,
shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend
to three lakh rupees.
In the instant case, the Auditor would have advised accordingly.
Question 3:
Covid 19 pandemic has badly affected the business of travel ticket booking agent company. Restrictions &
frequent lockdowns led to the permanent closure of the company’s operations. The secured creditors of the
company of value Rs. 50 Lakhs filed a winding up petition with the High court & subsequently the HC passes a
winding up order. The workers of the company were not favouring this and hence filed an appeal against the
winding up order. The workmen’s dues were Rs. 30 Lakhs. The secured creditors were against this defending
that their dues were more than the workmen’s & hence not valid. Is the creditor’s statement correct? Enumerate
in the light of the Companies Act, 2013?
[MTP1- Nov22]
Answer:
According to section 279 of the Companies Act, 2013, when a winding up order has been passed or a provisional
liquidator has been appointed, no suit or other legal proceeding shall be commenced, or if pending at the date
of the winding up order, shall be proceeded with, by or against the company, except with the leave of the
Tribunal and subject to such terms as the Tribunal may impose:
Provided that any application to the Tribunal seeking leave under this section shall be disposed off by the
Tribunal within sixty days.
Nothing as stated above, shall apply to any proceeding pending in appeal before the Supreme Court or a High
Court.

22
According to Section 325,326,327 of the Companies Act, 2013, in case of winding up of a company, the
workmen’s dues shall be paid in priority to all other debts ranking Pari passu with the secured creditors.
As per the facts of the case, the High court has already passed a winding up order of the company. Hence, the
workmen can appeal against the winding up order but only with the leave of Tribunal and subject to the terms
imposed by the Tribunal. Further, the dues / interests of the workmen shall be protected in priority as
workmen’s dues shall be paid in priority to all debts ranking Pari passu with secured creditors.
Hence, even though the dues of secured creditors are more than workmen’s dues, priority is given to workmen’s
dues as per provisions of the Act.
Question 4:
The shareholders and creditors of Fume Limited, in a meeting convened for approval of a scheme of
reconstruction of the company, passed the necessary resolutions. The Tribunal makes an order sanctioning a
scheme of reconstruction of the company. After a few days, the Tribunal decided to modify the scheme of
reconstruction of the company. After modifications of the scheme based on the order of the Tribunal, the
company could not implement the scheme satisfactorily and the Tribunal decided to go for winding-up of the
company. The directors of the company objected to the above acts of the Tribunal. Comment with reference to
the provisions of the Companies Act, 2013, whether the objection raised by the directors is right on the decision
of the Tribunal modifying the scheme and winding-up of the company.
[MTP1- Nov22]
Answer:
According to Section 231 of the Companies Act, 2013,
1. Power of tribunal to enforce the order: Where the Tribunal makes an order under Section 230 sanctioning
a compromise or an arrangement in respect of a company, it—
(a) shall have power to supervise the implementation of the compromise or arrangement; and
(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any
matter or make such modifications in the compromise or arrangement as it may consider necessary for
the proper implementation of the compromise or arrangement.
2. Winding up order by tribunal: If the Tribunal is satisfied that the compromise or arrangement sanctioned
under section 230 cannot be implemented satisfactorily with or without modifications, and the company is
unable to pay its debts as per the scheme, it may make an order for winding up the company and such an
order shall be deemed to be an order made under Section 273.
As per the facts of the question and provisions of law, the Tribunal has the right to modify, monitor the
implementation and order for winding- up of company in case the scheme is not implemented satisfactorily.
Thus, the objection raised by the directors on the decision of the Tribunal modifying the scheme and winding-
up of the company, is not correct.
Question 5:
The Registrar of Company (RoC), Mumbai has observed that Ronak Enterprises Ltd. have not filed its financial
statements and annual returns for the last immediately preceding 5 consecutive years. What course of action is
available before the RoC in the given case in line with the requisite compliance on the presentation of petition?
[MTP2- Nov22]
Answer:
Section 272(1)(d) of the Companies Act, 2013, states that a petition to the Tribunal for the winding up of a
company can be presented by the Registrar. Sub-section (3) provides that the Registrar shall obtain the

23
previous sanction of the Central Government to the presentation of a petition. The Central Government shall
not accord its sanction unless the company has been given a reasonable opportunity of making representations.
Section 271 (d) provides that a company may, on a petition under section 272, be wound up by the Tribunal,
if the company has made a default in filing with the Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years.
A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied
by a statement of affairs in such form and in such manner as may be prescribed.
A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall,
without prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such
petition.
Question 6:
Green Rose Limited is regularly filing its annual financial statements with the Registrar of Companies (RoC). The
Company is suffering losses continuously for the past 5 years. The annual financial statements disclosed that the
liabilities are ten times of its assets as per the latest audited financial statements. Based on the financial position
revealed by the financial statements filed with his office, the RoC came to the conclusion that the Company should
be wound up in the public interest being unable to pay its debts. The RoC filed a petition before the Tribunal
[NCLT] under Section 272 of the Companies Act, 2013 for winding up of the Company without obtaining previous
approval therefor. Referring to the provisions of the Companies Act, 2013.
(i) Enumerate the circumstances in which a company may be wound up by the Tribunal.
(ii) Examine the validity of the petition filed by the RoC.
[CA Final – May 22]
Answer:
(i) Circumstances in which company may be wound up by Tribunal:
According to Section 271 of the Companies Act, 2013, a company may be wound up by the Tribunal in the
following circumstances, where-
a. the company has, by special resolution, resolved that the company be wound up by the Tribunal;
b. the company has acted against the interests of the sovereignty and integrity of India, the security of the
State, friendly relations with foreign States, public order, decency or morality;
c. on an application made by the Registrar or any other person authorised by the Central Government. The
Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner/
formed for fraudulent and unlawful purpose / the persons concerned in the formation or management of its
affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper
that the company be wound up;
d. the company has made a default in filing with the Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years; or
e. the Tribunal is of the opinion that it is just and equitable that the company should be wound up.
(ii) Validity of the petition filed by the RoC

According to Section 272 of the Companies Act, 2013, the Registrar of Company is entitled to present a
petition for winding up under section 271 except on the grounds specified in clause (a) of that Section.
Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation
of a petition. The Central Government shall not accord its sanction unless the company has been given a
reasonable opportunity of making representations.
Here in the given instance, RoC filed a petition before the Tribunal for winding up without obtaining previous
approval of the Central Government.
Therefore, the petition filed by the RoC is invalid.

24
Chapter 9 - Companies Incorporated Outside India

Question 1:
RFC Limited has been incorporated in Singapore and has a business place in Mumbai. The company has issued
5,00,000 shares of USD 100 each, consisting of 4,00,000 equity shares and 1,00,000 preference shares. The issued
share capital is fully paid up except 5,000 preference shares where USD 50 per share is unpaid.
RJW, an Indian citizen is holding 26,000 preference shares which include 1100 partly paid- up shares and Ronte
Limited incorporated in New-Delhi (India) is holding 2,23,500 equity shares in RFC Limited.
The Registrar of Companies issued notice under Section 379 of the Companies Act, 2013 addressed to the person
whose name and address has been delivered to the Registrar by RFC Limited for compliance under the Companies
Act, 2013 for foreign companies.
The above notice was Delivered at the address which was given by RFC Limited to the Registrar of Companies.
Answer the following, referring to the provisions of the Companies Act, 2013:
a. Whether RFC Limited is a foreign company?
b. Whether service of notice by the Registrar of companies is valid?
[CA Final May 22]
Answer:
(i) Whether RFC Limited is a Foreign Company?
As per Section 2(42) of the Companies Act, 2013, "Foreign Company" means any company or body corporate
incorporated outside India which has a place of business in India whether by itself or through an agent, physically
or through electronic mode; and conducts any business activity in India.
Provision of Section 379(2): Requirement of holding of paidup share capital of Foreign Company:
Further, in the light of the inputs given in the problem, where not less than 50% of the paid-up share capital,
whether equity or preference or partly equity and partly preference, of a foreign company incorporated outside
India is held by one or more citizens of India and one or more companies or bodies corporate incorporated in
India, whether singly or in the aggregate, such foreign company shall also comply with the provisions of Chapter
XXII and such other provisions of this Act as may be prescribed with regard to the business carried on by it in
India as if it were a company incorporated in India. [Section 379(2)]
In the given case, RFC Limited, incorporated in Singapore has a business place in Mumbai. The Company has issued
5,00,000 shares of USD 100 each i.e. of USD 5,00,00,000 comprising of USD 4,00,00,000 equity share capital
(i.e. 4 lac* USD 100) and USD 1,00,00,000 preference share capital ( i.e,1 lac * USD 100).
As the issued capital was fully paid up except 5,000 preferences shares (i..e, 5000* 50= USD 2,50,000), so,
total paid up share capital of the RFC limited is:
Equity Share Capital USD 4,00,00,000

Preference Share Capital (Full Paid) USD 95,00,000
Preference Share Capital (Partly Paid) USD 2,50,000
Total Paid up Share Capital USD 4,97,50,000
As per facts, shareholding by RJW, an Indian citizen is USD 25,45,000 preference share capitaI (i.e. 26,000
shares *USD 100- 1100 shares * USD 50) and Ronte Limited incorporated in New-Delhi (India) is holding USD
2,23,50,000 equity share capital (i.e., 2,23,500 *USD 100) in RFC Limited. Aggregate shareholding is USD
2,48,95,000.
As per requirement of Section 379(2), RJW, an Indian citizen and Ronte Limited incorporated (an Indian
Company) were holding more than 50% of the shareholding (i.e. 50%* USD 4,97,50,000 = 2,48,75,000) in RFC
Limited.

25
Therefore, RFC Ltd. is not only a foreign company as per Section 2(42) but shall also be complying with the
provisions of Chapter XXII and other provisions of this Act with regard to the business carried on by it in India,
as if it were a company incorporated in India as per Section 397(2).
(ii) Whether service of notice by the RoC is valid?

Yes, the service of notice by the Registrar of Companies is valid in the light of Section 383 of the Companies
Act, 2013. According to the provision any process, notice, or other document required to be served on a foreign
company, shall be deemed to be sufficiently served, if addressed to any person whose name and address have
been delivered to the Registrar and left at, or sent by post to, the address which has been so delivered to the
Registrar or by electronic mode.
Question 2:
A company incorporated in France, with limited liability, established an office in Baroda, and started conducting
business activity from its place of business. In compliance of Section 382 of the Companies Act, 2013, it
conspicuously exhibited a name board outside its office, with the name of the company in English in big block
letters.
In three days, the company received a notice from the Registrar stating that it had not properly complied with the
requirements of Section 382 of the Companies Act, 2013. Mention the areas of lapses of the foreign company,
which would be mentioned in the notice.
[MTP 1- Nov 22]
Answer:
According to Section 382 of the Companies Act, 2013,
 every foreign company shall conspicuously exhibit on the outside of every office or place where it carries on
business in India, the name of the company and the country in which it is incorporated, in letters easily legible in
English characters, and also in the characters of the language or one of the languages in general use in the locality
in which the office or place is situate;
 if the liability of the members of the company is limited, cause notice of that fact—
(I) to be stated in every such prospectus issued and in all business letters, bill -heads, letter paper, notices,
advertisements and other official publications of the company, in legible English characters; and
(II) to be conspicuously exhibited on the outside of every office or place where it carries on business in India, in
legible English characters and also in legible characters of the language or one of the languages in general use
in the locality in which the office or place is situated.
After taking into account the provisions of Section 382 of the Companies Act, 2013, the following are the lapses
by the company:
(i) The company has exhibited the name of the company in English but it has not displayed the name of the Country
where it was incorporated, name of the country. Further, it has not displayed both the facts in the local language
or one of the languages in general use in the locality in which the office or place is situated. i.e. Baroda.
(ii) Further the company is one where the liability of members is limited. The fact that the members liability is
limited has not been conspicuously exhibited on the outside of every office or place i.e. in Baroda, in legible
English characters and also in legible characters of the language or one of the languages in general use in the
locality i.e. Baroda
The above lapses would have given rise to the notice from the Registrar.
Question 3:
(I) Elegant Educations Ltd. is a UK based company, engaged in the business of providing online education. It
has introduced some certificate courses having duration of 4 to 6 months and any person can enrol in the

26
courses. The education is provided through on-line classes, webinars and study materials are supplied
through e-mails to the registered candidates. The company is not having any place of business in India. It
is mentioned that all the candidates who have enrolled in the course are the Indian Citizens residing in
India. Based on the above facts of procuring 100% business from India, whether the company will be
treated as foreign company or an Indian company.
(II) What will be your answer if in the above question, more that 55% of that foreign company’s paid-up share
capital is held by Indian Companies or Indian Citizens.
[MTP2- Nov22]
Answer:
(I) In terms of Section 2(42) “Foreign Company” means any company or body corporate incorporated outside
India which—
a. has a place of business in India whether by itself or through an agent, physically or through electronic mode;
and
b. conducts any business activity in India in any other manner.
Further Rule 2(1)(c)(iv) of the Companies (Registration of Foreign Companies) Rules, 2014 provides that for the
purposes of clause (42) of section 2 of the Act, “electronic mode” means carrying out electronically based,
whether main server is installed in India or not, including, but not limited to online services such as
telemarketing, telecommuting, telemedicine, education and information research.
Thus, from the above provisions the company is treated as foreign company irrespective of the fact that its
100% business comes from India.
(II) Section 379(2) provides that where not less than 50% of the paid-up share capital, whether equity
or preference or partly equity and partly preference, of a foreign company is held by-
 one or more citizens of India; or
 one or more companies; or
 bodies corporate incorporated in India;
 one or more citizens of India and one or more companies or bodies corporate incorporated in India,
whether singly or in the aggregate, such company shall comply with the provisions of Chapter XXII and such
other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it
were a company incorporated in India.
Thus, in the given case, if more that 50% of the paid-up share capital is held by Indian Companies / Citizen it shall
be treated as a company incorporate in India and such company shall abide by the provisions of Section 380 to
386 (both inclusive) and Section 392 and 393 shall be applicable.

27
Chapter 10 - Miscellaneous Chapters

Registered Valuer
Question 1:
Sukesh after passing of the CA examination, applied for the membership and Certificate of Practice from ICAI.
Sukesh married to Manyata, who has done Graduation in Civil Engineering. Manyata had worked for 6 years in
Town Planning Dept in Brihanmumbai Municipal Corporation, Mumbai.
After one year of his practice Sukesh appeared in valuation examination ( Securities or Financial Assets).
Sukesh also advised Manyata to appear in valuation exam (Land and Building). Both, Sukesh and Manyata passed
the respective examination of valuation and applied for membership of IBBI.
Based on the above facts answer the following sub-questions:
(i) Whether Sukesh is eligible to be Registered Valuer?
(ii) Whether Manyata is eligible to be Registered Valuer?
(iii) Whether Manyata is eligible to accept valuation of Securities or Financial Assets?
[MTP2- Nov22]
Answer:
In terms of the Companies (Registered Valuers and Valuation) Rules, 2017,
(i) Sukesh is not eligible to be the Registered Valuer of Securities or Financial Assets, since he is not having
the minimum experience of 3 years.
(ii) In terms of the Companies (Registered Valuers and Valuation) Rules, 2017, Manyata is eligible to be the
Registered Valuer of Land & Building, since she is having the minimum experience of 5 years after her
graduation in Civil Engineering.
(iii) Manyata can do the valuation of Land and Building only and not of the Securities or Financial Assets since
she is not the Registered Valuer for SFA.
She can do the valuation of SFA only, if she is possesses the requisite qualifications and experience, passes the
valuation examination of SFA and get herself registered with IBBI as Register Valuer of SFA.

28
Miscellaneous Provisions of the Companies Act, 2013

Question 1:
The following balances are extracted from the last audited financial statement of Blow (Nidhi) Limited.
Particulars Amount in `
Paid up Equity Share capital 15,00 000
Paid up Preference Share Capital 5,00,000
Free Reserves 1,00,000
Tangible Assets 10,00,000
Intangible Assets 2,00,000
Referring to the Nidhi Rules, 2014, as amended from time to time, formulated under the Companies Act, 2013
answer the following:
(i) Compute the Net Owned Funds of Blow (Nidhi) Limited.
(ii) Compute the Maximum Amount of deposits that Blow (Nidhi) Limited can accept.
[CA Final May 22]

Answer:
(i) Computation of Net Owned Funds of Blow (Nidhi) Limited Provision
According to Rule 3 of the Nidhi Rules, 2014, "Net Owned Funds" means the aggregate of paid up equity share
capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited
balance sheet.
Provided that the amount representing the proceeds of issue of preference shares shall not be included for
calculating Net Owned Funds.
Calculation
Particulars Amount in Rs.
Paid up Equity Share Capital 15,00,000
Free Reserves 1,00,000
Less: Intangible Assets (2,00,000)
Net Owned Funds 14,00,000
(ii) Computation of maximum amount of deposits that Blow (Nidhi) Limited can accept According to Rule 11 of the
Nidhi Rules, 2014, a Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as
per its last audited financial statements.
Hence, Blow (Nidhl) Limited can accept maximum Rs. 2,80,00,000 (20 times of Rs. 14,00,000) as deposits.]
Question 2:
B. Pharma Ltd. is a company registered in India for last 5 years. Since last 2 financial years, it has not been
carrying on any business or operations and has not filed financial statements and annual returns saying that it
has not made any significant accounting transaction during the last two financial years.
Considering the current situation, Directors of the Company is contemplating to apply to Registrar of
Companies to obtain status of dormant or inactive company. Advise them on:
(i) Whether B. Pharma Ltd. is eligible to apply to Registrar of Companies to obtain dormant status for the
company?
(ii) What will be your answer, if B. Pharma Ltd is continuing payment of fees to Registrar of Companies and
payment of rentals for its office and accounting records for last two financials years?
[RTP- Nov 22]

29
Answer:
(i) According to section 455 of the Companies Act, 2013, an inactive company may make an application to the
Registrar in such manner as may be prescribed for obtaining the status of a dormant company. Here,
“inactive company” means a company which has not been carrying on any business or operation, or has not
made any significant accounting transaction during the last two financial years, or has not filed financial
statements and annual returns during the last two financial years.
B. Pharma Ltd., since from last two years is not carrying on business or operations and has not filed financial
statements and annual returns saying it has not made any significant accounting transaction during the last
two financial years. Thus, it falls within the definition of inactive company as stated above and hence is
eligible to apply to Registrar of Companies to obtain the status of Dormant Company.
(ii) According to Explanation to section 455, “significant accounting transaction” means any transaction other
than—
 payment of fees by a company to the Registrar;
 payments made by it to fulfill the requirements of this Act or any other law;
 allotment of shares to fulfill the requirements of this Act; and
 payments for maintenance of its office and records.
Thus, B. Pharma Ltd. is still eligible to apply to the Registrar of Companies to obtain the status of Dormant
company even if it has continued ‘payment of fees to Registrar of Companies and payment of rentals for its
office and accounting records’ for last two years, as these transactions have been kept outside the purview
of significant accounting transactions.
Question 3:
Jackpot Limited, a public company, with 7 Directors in the Board, had not filed annual returns and financial
statements for 2 consecutive financial years. The Register after required formalities, entered the name of the
company in the register maintained for dormant companies.
One of the directors suggested that since, the company was now registered as a dormant company, the company
need not have 7 directors and having one or maximum two directors would suffice. Following his advice, 5
directors resigned, and the company was left with only 2 directors. The existing two directors did not file any
statement with the Registrar, regarding change of directors.
Advise stating the provisions of Section 455, of the Companies Act, 2013, whether the reduction in the number
of directors and not filing a statement with Registrar regarding change of Directors, is appropriate.
[MTP 1-Nov 22]
Answer:
A dormant Company shall have such minimum number of directors, file such documents and pay such annual fee
as may be prescribed to the Registrar to retain its dormant status in the Register and may become an active
company on an application made in this behalf accompanied by such documents and fee as may be prescribed.
According to Rule 6 of the Companies (Miscellaneous) Rules, 2014, a dormant company shall have a minimum
number of 3 directors in case of a public company, 2 directors in case of a private company and 1 director in
case of a One Person Company.
According to the Rule 7 of the Companies (Miscellaneous) Rules, 2014, a dormant company shall also continue to
file the return / returns and change in directors in the manner and within the time specified in the Act, or
whenever the company allots any security to any person or whenever there is any change in the directors of the
company.
Under the provisions, a dormant public company should have minimum 3 directors. The reduction of number of
directors to 2 is not appropriate.
Hence, by taking into account the above provisions, reduction in the number of directors to 2 and not filing a

30
statement with Registrar regarding change of Directors by Jackpot Limited is not appropriate.
Question 4:
Vikas Nidhi Ltd was incorporated as a Nidhi Company in the year 2018. It has 500 members with a Net Owned
Funds (NOF) of 10 crore rupees and deposits of 190 crores as of 31.03.2022.
For the FY 2022-23 the company targets-
(i) To raise deposits by 20%.
(ii) To invite the public to deposit with the company.
(iii) To issue lockers to the depositors.
(iv) To grant loan against Gold Jewellery to any person.
Examine each of the above points, whether the Nidhi company is permitted to do so?
[MTP2- Nov22]
Answer:
(i) To raise deposits by 20%: As per Rule 5(1)(d) the ratio of NOF to deposits should not be more than
1:20. As on 31.03.2022 the NOF was 10 crore rupees and deposits was 190 crores. If target of deposit is
achieved then the deposit will be 228 crore rupees, which exceed the ratio of 1:20. Thus, either the NOF
shall be increased or deposits be restricted up to 200 crores.
(ii) To invite the public to deposit with the company: In terms of Rule 6(f), no Nidhi company can accept
deposits from or lend to any person, other that its members.
(iii) To issue lockers to the depositors: In terms of proviso attached to Rule 6(e), the Nidhi Companies which
adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to
the rental income from such facilities not exceeding 20% of the gross income of the Nidhi at any point of
time during a financial year.
(iv) To grant loan against Gold Jewellery to any person: In terms of Rule 6(f), no Nidhi company can accept
deposits from or lend to any person, other that its members. Hence the gold loan to any person, other than
the members is prohibited.
Question 5:
Draft a resolution for authorising to make application for compounding of offence under Section 8 of the
[MTP- Nov 22]
Answer:
Draft Resolution for Authorising to make application for Compounding of an Offence under Section 8 of the
RESOLVED THAT an application be made to the Registrar of Companies pursuant to clause (a) of sub-
section (3) of Section 441 of the Companies Act, 2013 for compounding the offence for which prosecution
has been filed with the request to forward the same to the Tribunal for necessary action.
RESOLVED FURHTER THAT Mr. Joseph, the Managing Director of the Company, be and is hereby
authorised to file/ move/ present/ before the Registrar of Companies, Mumbai, Tribunal, Mumbai, Central
Government and / or such other judicial /quasi-judicial and / or administrative authority(es), as may be
deemed appropriate and advised to by the legal counsels, such petitions/ application including any application
for compounding on behalf of the Company, in connection with the show cause notice issued by the Registrar
of Companies, Mumbai for violation of provision of Section 8 of the Companies Act, 2013 and any penal
proceedings/ complaint initiated or may be initiated against the Company and / or directors / officials of
the Company, and further verify, sign, affirm, submit the said petitions / applications including and other
statements forming part of such petitions / applications.

31
National Company Law Tribunal and Appellate Tribunal

Question 1:
Progress Ltd. was incorporated with charitable object under Section 8 of the Companies Act, 2013. However,
the company made default in complying with the requirements relating to the formation of companies with
charitable object.
Whether this offence is a compoundable offence? State the relevant provisions of the Companies Act, 2013.
[MTP2- Nov 22]
Answer:
Section 8(11) of the Companies Act, 2013 provides that if a company makes any default in complying with any of
the requirements laid down in Section 8, the company shall, without prejudice to any other action under the
provisions of this section, be punishable with fine which shall not be less than 10 lakh rupees but which may
extend to one crore rupees and the Directors and every officer of the company who is in default shall be
punishable with fine which shall not be less than 25,000 rupees but which may extend to 25 lakh rupees.
Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer
in default shall be liable for action under section 447.
Any offence punishable under this Act (whether committed by a company or any officer thereof) not being an
offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, either
before or after the institution of any prosecution, be compounded by -
Offence compoundable by the NCLT: Default by the company in complying with the requirements relating to
formation of companies with charitable objects etc.
Offence compoundable by the Regional Director: Default by the officers in complying with the requirements
relating to formation of companies with charitable objects etc. where the maximum amount of fine which may be
imposed for such offence does not exceed twenty-five lakh rupees.
Any officer authorised by the Central Government.

32
Chapter 1 – Securities and Exchange Board of India,

1992 and SEBI LODR, 2015
Question 1:
ABC Limited mobilized the funds from the public towards development of plots under "Cash-down Payment
Scheme". The said scheme, inter alia, stipulates the following terms & conditions.
(i) The plot will be allotted to the customer after completion of 9 months from the date of agreement.
(ii) No specific plot is mentioned at the time of entering into the agreement.
(iii) The company has authority for developing and maintaining the plots.
(iv) The amount mobilized under the scheme will be utilized for the purpose of the scheme.
(v) The customers do not have day-to-day control over the development of plots.
Other information:
(i) The scheme is registered with the Securities and Exchange Board of India [SEBI]
(ii) The Company had raised Rs. 100 Crores under the Scheme.
Referring to and analysing the provisions of the Securities and Exchange Board of India Act, 1992, decide:
(i) Whether the "Cash-down Payment Scheme" operated by ABC Limited is a Collective Investment Scheme.
(ii) What will be your answer in case the scheme is not registered with SEBI?
Answer:
“Collective Investment Scheme” means any scheme or arrangement which satisfies the conditions specified in
Section 11AA of the Securities and Exchange Board of India, Act, 1992 [Section 2(1)(ba)]
Collective investment Scheme [Section 11AA]: Any scheme or arrangement which satisfies following conditions,
shall be a collective investment scheme as specified in sub-section (2) or sub• section (2A).
Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board,
involving a corpus amount of one hundred crore rupees or more, shall be deemed to be a collective investment
scheme.
Requisite conditions [Section 11AA(2)]:
Any scheme or arrangement made or offered by any person under which -
(i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for
the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive
profits, income, produce or property, from such scheme or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not,
is managed on behalf of the investors;
(iv) the investors do not have day-to-day control over the management and operation of the scheme or
arrangement. [Sub-section 2]
Section 11AA(2A)· Any scheme or arrangement made or offered by any person satisfying the conditions as may
be specified in accordance with the regulations made under this Act.
Accordingly, following shall be the answers:
(i) Yes, "Cash -down Payment Scheme" operated by ABC Limited is a Collective Investment Scheme in compliance
with the requisite conditions and is registered with the SEBI.
(ii) In the given case, if the Scheme is not registered with SEBI, then any pooling of funds under any scheme,
involving a corpus amount of one hundred crore rupees or more, shall be deemed to be a Collective Investment
Scheme.
Therefore, the answer will remain the same.

33
Question 2:
'SEBI has powers to pass cease and desist order'. Examine the statement with reference to the provisions of the
Securities and Exchange Board of India Act, 1992.
Answer:
According to Section 11D of the SEBI Act, 1992, if the Board finds, after causing an inquiry to be made, that any
person-
i. has violated, or
ii. is likely to violate,
any provisions of this Act, or any rules or regulations made thereunder.
It may pass an order requiring such person to cease and desist from committing or causing such violation.
Provided that the Board shall not pass such order in respect of any listed public company or a public company
(other than the intermediaries specified under section 12) which intends to get its securities listed on any
recognized stock exchange unless the Board has reasonable grounds to believe that such Company has indulged in
insider trading or market manipulation.
In view of the above, the statement that SEBI has powers to pass cease and desist order, is correct subject to
the conditions provided in Section 11(D) of the SEBI Act. 1992.
Question 3:
Charming Limited, a Listed Company, has constituted Nomination and Remuneration Committee (NRC) which
was consisting of 5 members. The Chairman of the Committee is an independent director and 3 other
independent director are the members. Besides, the Chairman of the company, who is a whole-time director,
has also been adopted as a member of the committee. Based on the given information and referring to the
provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, examine the
following:
(i) Compliance requirement of the composition of NRC.
(ii) Quorum for the meeting of NRC.
[RTP- Nov22]
Answer:
As per Regulation 19 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the
Board of Directors shall constitute the Nomination and Remuneration Committee (NRC) as follows:
(i) Compliance requirement of the composition of NRC
a. The Committee shall comprise of at least 3 directors
b. All directors of the Committee shall be Non-Executive Directors; and
c. At least 2/3rd of the directors shall be independent directors.
The Chairperson of the listed entity, whether executive or non-executive, may be appointed as a member
of the NRC and shall not chair such Committee. The NRC of Charming Limited meets all these
requirements and hence the composition requirement of the NRC is in compliance with Regulation 19 of
SEBI (LODR) Regulations, 2015.
(ii) Quorum for the meeting of NRC
The quorum for a meeting of NRC shall be either two members or one third of the members of the
Committee, whichever is greater, including at least one independent director in attendance.
Question 4:
You are the compliance officer appointed by the Board of Directors of PR Limited, a listed company. Advice,
referring to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 about the reporting
timelines requirements with Stock Exchanges:
(i) Change in the Capital structure of the listed company exceeding 2% of the total paid-up share capital

34
(ii) Proposal for buyback of securities

(iii) Change in contents of the listed company website
(iv) Record Date or date of closure of transfer book.
[MTP 1- Nov22]
Answer:
(i) According to Regulation 31(1) of the SEBI (Listing Obligations and Disclosure Requirements), a listed
entity (here, PR Limited) shall submit a statement showing holding of securities and shareholding pattern
separately for each class of securities, within 10 days of any capital restructuring of the listed entity
resulting in a change exceeding 2% per cent of the total paid- up share capital.
(ii) The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors
at least 2 working days in advance, excluding the date of the intimation and date of the meeting where
the proposal of buyback of securities is to be considered.
(iii) As per Regulation 46(3), the listed entity shall update any change in the content of its website within 2
working days from the date of such change in content.
(iv) Record Date or Date of Closure of Transfer Books [Regulation 42(2)]: The listed entity shall give notice
in advance of at least 7 working days (excluding the date of intimation and the record date) to stock
exchange(s) of record date (i.e. before record date) specifying the purpose of the record date.
Question 5:
The Securities and Exchange Board of India (SEBI), at present, is having a Chairman, 2 members from the Union
Ministry, 1 member from the Reserve Bank of India and 5 other members (nominated by the Government of
India). Out of the 5 other members, 4 members are whole-time members. Mr. A is one of those 4 whole-time
members, who is also a director of PQR Limited. A matter relating to PQR Limited came up for consideration in
a meeting of the Board (SEBI), in which Mr. A had some indirect pecuniary interest. Mr. A declared the fact of
interest at the meeting of the SEBI, but took part in the deliberation and decision of the Board in respect to
the matter. Out of the total 9 members (including the chairman), who were all present in the meeting, 5 members
including the chairman and Mr. A (both are in strong support of the proposal), voted in favour of the matter and
the remaining 4 members voted against the matter. Referring to the provisions of the Securities and Exchange
Board of India Act, 1992, advise, how the matter will be decided. Will your answer differ in case Mr. A was only
a part-time member and not a whole-time member of the SEBI?
[MTP- Nov22]
Answer:
According to Section 7(3) of the Securities and Exchange Board of India Act, 1992, all questions which come
up before any meeting of the Board shall be decided by majority vote of the members present and the Chairman
or the presiding member will have a second or casting vote, in the event of equality of votes.
Section 7A, provides that any member-
 who is a director of a company, and
 who as such director has any indirect pecuniary interest in any matter coming up for consideration at a
meeting of the Board,
shall, disclose (as soon as possible after relevant circumstances have come to his knowledge) the nature of his
interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the member
shall not take any part in any deliberation or decision of the Board with respect to that matter.
As per facts of the question and provision of law, the matter ought to be decided excluding Mr. A (considering
Section 7A).
Thus, the matter should have been decided by the remaining 8 members. Further the chairman has a second or
casting vote which he can exercise in case of equality of votes. Hence in the given case if there is equality of
votes the Chairman will cast his second vote and the matter will be decided accordingly.
In terms of section 7A, any member who falls within the purview of this section, cannot take part in any

35
deliberation or decision of the Board with respect to that matter. Hence, Mr. A shall not take part in the
proceedings related to PQR Limited, whether he is a part time member or whole time member.
Question 6:
Ramesh has been appointed as member of the SEBI by the Central Government. Ramesh also holds directorship
in 6 other listed entities. The meetings of the SEBI Board are being conducted on and often as per the
requirement and all the members attend the meetings and members are expected to discuss over the agenda
and vote. However, on certain occasions Ramesh attended the meetings but did not discuss and voted on some
of the agenda items due to conflict of interest.
In light of this, explain the provisions of SEBI Act, 1992 in which a member is not supposed to discuss and vote
on the agenda in the Board meeting?
[MTP2- Nov 22]
Answer:
In terms of Section 7A of the SEBI Act, 1992 any member-
i. Who is a director of a company; and
ii. Who as such director has any indirect pecuniary interest in any matter coming up for consideration at a
meeting of the Board,
shall, disclose (As soon as possible after relevant circumstances have come to his knowledge) the nature of his
interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the member
shall not take any part in any deliberation or decision of the Board with respect to that matter.

36
The Foreign Exchange Management Act, 1999

Additional questions of FEMA:
Question 1:
Mr. MGJ, a person resident outside India, is contemplating to invest his foreign currency funds through equity
contribution in an Indian company engaged in a huge township development project consisting commercial and
residential complex in Bangalore (India). Examine, referring to the provisions of the Foreign Exchange Management
Act, 1999, the feasibility of his proposal of investing funds in the said company.
Answer:
As per the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, a person
resident outside India is prohibited from making investments in India in any form, in any Company, or partnership
firm or proprietary concern or any entity whether incorporated or not which is engaged or proposes to engage in
real estate business, or construction of farm houses.
Here the term "real estate business" shall not include development of townships, construction of
residential/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and
regulated under the SEBI (REITs) Regulations 2014.
Conclusion: Accordingly, the proposal of investing funds in an Indian Company by Mr. MGJ, is feasible as the
investment is for development of township as per the above stated laws.
Question 2:
XYZ Private Limited is a Start-up company recognized by the Central Government. The company is intending to raise
External Commercial Borrowing under automatic route of USD 3 million for 3 years in the form of partially
convertible preference shares for working capital from one of the shareholders.
You are requested to advice the company on the Maturity, Forms and Amount of External Commercial Borrowing
permitted as per the provisions of the Foreign Exchange Management Act, 1999
Answer:
XYZ Limited, based on the guidelines contained in the Master Direction No 5/2018-19 issued by the Reserve
Bank of India, is advised as under:
ECB facility for Start-ups: AD Category-I Banks are permitted to allow Start-ups to raise ECB under the automatic
route as per the following framework:
 Eligibility: An entity recognized as a Start-up by the Central Government as on date of raising ECB. Maturity:
Minimum average maturity period will be 3 years.
 Forms: The borrowing can be in form of loans or non-convertible, optionally convertible or part I convertible
preference shares.
 Amount of ECB: The borrowing per Start-up will be limited to USD 3 million or equivalent per financial year
either in INR or any convertible foreign currency or a combination of both.

Question 3:
EDC Computer Hardware Limited received an advance payment for export of high-tech hardware to a business
concern in Abu Dhabi (UAE) by entering into an export agreement to supply the hardware within 14 months from
the date of receipt of advance payment. Examine under the provisions of the Foreign Exchange Management Act,
1999 and decide:
1. Whether it is permissible to receive advance payment in the above scenario?
2. If so, what are the conditions to be complied with in the relation to the advance payment against export in
the above scenario?
[RTP- Nov 22]

37
Answer:
Advance payment against exports under Regulation 15 of the FEM (Export of Goods & Services) Regulation 2015.
1. Where an exporter receives advance payment (with or without interest), from a buyer/ third party named
in the export declaration made by the exporter, outside India, the exporter shall be under an obligation to
ensure that-
(a) the shipment of goods is made within one year from the date of receipt of advance payment;
(b) the rate of interest, if any, payable on the advance payment does not exceed the rate of interest London
Inter-Bank Offered Rate (LIBOR)+ 100 basis points, and
(c) the documents covering the shipment are routed through the authorised dealer through whom the advance
payment is received;
Provided that in the event of the exporter's inability to make the shipment, partly or fully, within one year
from the date of receipt of advance payment, no remittance towards refund of unutilized portion of advance
payment or towards payment of interest, shall be made after the expiry of the period of one year, without
the prior approval of the Reserve Bank.
2. Exemption: An exporter may receive advance payment where the export agreement itself duly provides for
shipment of goods extending beyond the period of one year from the date of receipt of advance payment.
In view of the above provisions EDC Computer Hardware Limited can receive the advance payment for
export of high-tech hardware to business concern in Abu Dhabi, complying the above conditions.
Question 4:
Ms. Milap had resided in India for 182 days in the financial year 2019-20. She went to UK on 1st April, 2020
and returned to India on 1st July, 2021 on an employment contract in India for a year. She completed her
contract and immediately left India. Under Section 2(v) of FEMA 1999, determine the residential status of
Milap for the financial years:
(i) 2020-21
(ii) 2021-22
[MTP1- Nov 22]
Answer:
As per Section 2(v) of the Foreign Exchange Management Act, 1999, “Person Resident in India” means:
a person residing in India for more than 182 days during the course of the preceding financial year but does
not include—
1) a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an
uncertain period;
2) a person who has come to or stays in India, in either case, otherwise than:
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an
uncertain period;
In line with the above definition, Residential status of Milap for the financial years will be as follows :
(i) For FY 2020-2021: As in the preceding year 2019-2020, Milap resided for 182 days which is not in
compliance with the requirement of number of days of her stay (for more than 182 days). Here, residential
status of Milap is a Person resident outside India.
(ii) For FY 2021-2022: In the preceding year 2020-2021, Milap has not resided in India as she went to UK on
1st April 2020 and returned on 1st July 2021. In this case also, the residential status of Milap is a person

38
resident outside India.
Question 5:
Hill Limited, a Public Limited company in India, obtained an External Commercial Borrowing (‘ECB’) of USD 50,000
dated 30th June 2020, from a foreign lender. On 2nd July 2021, based on mutual consent of the parties, ECB is
fully converted into equity. The shares were issued to foreign lender at the par value and not at fair value. You
are required to provide the correct legal position regarding the valuation of shares and state the reporting
requirements by Hill Limited at the time of conversion of ECB into equity in the light of the provisions of the
Foreign Exchange Management Act, 1999 and the Rules made thereunder.
[MTP1- Nov 22]
Answer:
Legal position regarding valuation of shares
For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the
parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB
lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference
to the date of conversion only.
In view of the above, Hill Limited cannot convert ECB into shares at par value. It has to issue shares to the
borrower at fair value at the conversion date (i.e. based on applicable pricing guidelines prevailing on the date
of conversion).
Reporting requirements
Conversion of ECB, including those which are matured but unpaid, into equity is permitted subject to the
following conditions:
In case of full conversion of ECB into equity, the reporting to the Reserve Bank will be of the entire portion,
reported in Form FC-GPR. While reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB
fully converted to equity”. Subsequent filing of Form ECB 2 Return is not required.
Question 6:
Surbhi deals in exporting of handicrafts items to abroad. On 1st January, 2022 Surbhi exported handicrafts
items to UK. However, the payment of the same has not been realised even aft er passing of more than 9 months.
Explain the relevant provisions under the FEMA relating to –
(i) the realisation period of exported goods.
(ii) the delay in receipt of payment.
[MTP2- Nov22]
Answer:
(i) Period within which export value of goods/software/ services to be realised
Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 deals
with the matter relating to the period within which export value of good to be realised.
Regulation 9(1) provides that-
The amount representing the full export value of goods / software/ services exported shall be realised and
repatriated to India within nine months or within such period as may be specified by the Reserve Bank, in
consultation with the Government, from time to time, from the date of export, provided that-
(a) where the goods are exported to a warehouse established outside India with the permission of the Reserve
Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer
as soon as it is realised and in any case within fifteen months or within such period as may be specified by
the Reserve Bank, in consultation with the Government, from time to time, from the date of shipment of
goods;

39
(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the
authorised dealer may, for a sufficient and reasonable cause shown, extend the said period.
(ii) Delay in Receipt of Payment Regulation 14 provides that -

Where in relation to goods or software export of which is required to be declared on the specified form and
export of services, in respect of which no declaration forms has been made applicable, the specified period has
expired and the payment therefor has not been made as aforesaid, the Reserve Bank may give to any person who
has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such
directions as appear to it to be expedient, for the purpose of securing-
(a) the payment therefor if the goods or software has been sold and
(b) the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof into
India as the circumstances permit, within such period as the Reserve Bank may specify in this behalf;
Provided that omission of the Reserve Bank to give directions shall not have the effect of absolving the person
committing the contravention from the consequences thereof.
Question 7:
Ruchika got an employment opportunity in a UK based IT company. She moved to UK and remained there for 10
years. During her tenure she purchased a small flat in UK for the residential purpose.
After returning to India, she joined another IT company and let out her flat situated in UK. The rental income
of UK flat was deposited by her in the bank account of UK. A good amount was accumulated in her UK’ bank
account, so she planned to purchase a second flat in the UK.
Based on the above facts, answer the following questions:

(i) Whether Ruchika can purchase the first flat in UK and continue to retain even after returning to India?
(ii) Whether Ruchika can purchase second flat in UK after returning to India?
[MTP2- Nov22]
Answer:
(i) Purchase of First Flat in UK
Section 6(4) of the FEMA, 1999 provides that a person resident in India may hold, own, transfer or invest in
foreign currency, foreign security or any immovable property situated outside India if such currency, security
or property was acquired, held or owned by such person when he was resident outside India or inherited from
a person who was resident outside India.
Ruchika purchased the first flat when she residing in UK and was resident outside India. After returning to
India and after becoming the resident in India, she can continue to hold such flat.
(ii) Purchase of Second Flat

After returning to India and becoming the resident in India, Ruchika cannot buy another property in UK as
mentioned in Section 6(4) of the FEMA.

40
The Prevention of Money Laundering Act, 2002

Additional Question of PMLA:
Question 1:
LMR Limited, a banking company has a "Record Preservation Policy" which inter alia states to maintain the
documents evidencing identity of its clients and beneficial owners for a period of 5 years after the account
has been closed. Evaluate, whether the "Record Preservation Policy" of the Company has fulfilled its obligation
under the provisions of the Prevention of Money Laundering Act, 2002?
[CA Final May 22]
Answer:
Section 12 of the Prevention of Money Laundering Act, 2002 provides for the obligation of Banking Companies,
Financial Institutions and Intermediaries i.e. the reporting entity to maintain records of all transactions.
According to sub-section (1)(e), every reporting entity shall maintain record of documents evidencing identity
of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
Maintenance of Records: The records referred to in clause (e) of sub-section (1) of documents evidencing
identity of its clients and beneficial owners as well as account files and business correspondence relating to
its clients 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.
As per Section 5(5) of the Prevention of Money Laundering Act, 2002, the Director or any other officer who
provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such
attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.
The records shall contain information about nature of transaction, amount of transaction, currency, date of
transaction and parties to transaction as per the respective Rules of the Prevention of Money• laundering
(Maintenance of Records) Rules, 2005.
Conclusion
In view of the above, LMR Limited has not fulfilled its obligation to maintain the above stated documents for
a period of 5 years after the business relationship between a client and the Company has ended or the account
has been closed, whichever is later. The Preservation Policy of the Company does not provide such conditions
stated above.
Question 2:
TZ is a promoter director of Ind Exports Limited engaged in the export of software products to various
countries in the world. ZZ, a customer in U.S. to whom the company exported certain products, failed to pay
the amount due for these exports. Later, the company settled the amount for 50% with ZZ and the amount
was transferred through hawala to India. The money so received was partly used by the company to part
finance its office building in Mumbai and the balance of the money to part finance the residential flat in Delhi
purchased by TC, a son of TZ. During the search in the premises of hawala businessman, some documentary
evidences were captured by the search officer and based on which, the Adjudicating Authority appointed
under the Prevention of Money Laundering Act, 2002 issued an order attaching the office of Ind Exports
Limited and the flat of TC alleged to be involved in scheduled offence of money laundering.
Based on the above scenario, answer the following as per the provisions of the Prevention of Money Laundering
Act, 2002 (the Act):
(i) What is the scheduled offence?
(ii) Where an order for confiscation has been made, all the rights and title in such property shall vest in
President of India. Examine the statement.
(iii) Advise Ind Export Limited about the remedy available under the Act.
[CA Final May 22]

41
Answer:
(i) Scheduled Offence
The term "Scheduled Offence" has been defined in clause (y) of sub-section (1) of Section 2 of the
Prevention of Money Laundering Act, 2002. It means -
a) the offences specified under Part A of the Schedule; or
b) the offences specified under Part B of the Schedule if the total value involved in such offences is one
crore rupees or more; or
c) The offences specified under Part C of the Schedule.
(ii) Whether all the rights and title in property vest in President of India
According to Section 9 of the Prevention of Money Laundering Act, 2002, where an order of confiscation
has been passed in respect of any property of a person, all the rights and title in such property shall vest
absolutely in the Central Government free from all encumbrances. Therefore, the statement that right
and title in property shall vest in President of India on the passing of an order of confiscation, is incorrect.
(iii) Remedies Available

According to Section 5 of the Prevention of Money Laundering Act, 2002, Ind Exports Limited shall have
right to enjoy or use its Office. The flat purchased by TC, son of TZ can enjoy the rights during the period
of provisional attachment being an interested person here.
Also, under Section 26 and 42 of the Act, Ind Exports Limited, if being aggrieved by an order made by
the Adjudicating Authority on the attachment order, may prefer an appeal to the Appellate Tribunal. The
appeal shall be filed within 45 days from the date on which a copy of the order made by the Adjudicating
Authority is received and appeal further in the High Court against any decision or order of the Appellate
Tribunal.
Question 3:
Mr. Manoj managed to transfer the proceeds of crime to his son, abroad (a contracting state). His son then
converted the proceeds into immovable properties in his name. if that property would have been situated in
India. It would have been liable for confiscation. Will Mr. Manoj succeed in escaping the investigation
proceedings and the property situated abroad not being subjected to confiscation? Explain, referring to the
provisions of the Prevention of Money Laundering Act, 2002.
[RTP- Nov 22]
Answer:
According to Section 57 of the Prevention of Money Laundering Act, 2002, (the Act) a Special Court, if
satisfied, may issue a letter of request to a Court or an Authority in the Contracting State abroad competent
to deal with such request to examine facts and circumstances of the case, take such steps as the Special Court
may specify in such letter of request, and forward all the evidence so taken or collected to the Special Court
issuing such letter of request.
According to Section 60 of the Act where a Special Court has made an order of confiscation relating to a
property found to be involved in money laundering under sub-section (5) of Section 8, and such property is
suspected to be in a contracting State, the Special Court, on an application by the Director or the
Administrator appointed under sub-section (1) of Section 10, as the case may be, may issue a letter of request
to a Court or an Authority in the Contracting State for execution of such order.
Mr. Manoj has transferred the proceed of crime into the Contracting State, a Special Court by order
confiscate the property situated abroad and take steps to enforce his order by following the due procedure
as explained above. Thus, Mr. Manoj will not succeed in escaping the process of investigation and property

42
being confiscated.
Question 4:
The Adjudicating Authority appointed under the Prevention of Money Laundering Act, 2002 issued an order
attaching certain properties of XYZ Limited alleged to be involved in money laundering for a specified period.
The company aggrieved by the order of the Adjudicating Authority seeks your advice about the remedy that
is available under the Act. Advise explaining the relevant provisions of the Prevention of Money Laundering
Act, 2002
[MTP 1- Nov22]
Answer:
Establishment of Appellate Tribunal
According to section 25 of the Prevention of Money Laundering Act, 2002, the Appellate Tribunal constituted
under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of
Property) Act, 1976 shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating
Authority and the other authorities under this Act.
Appeals to Appellate Tribunal
Section 26 deals with the right and time frame to make an appeal to the Appellate Tribunal. The Director or
any person aggrieved by an order made by the Adjudicating Authority under this Act may prefer an appeal
to the Appellate Tribunal.
The appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the
Adjudicating Authority is received and it shall be in such form and be accompanied by prescribed fees. 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.
Appeals to High Court
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.
Question 5:
Ravi is a Mining Engineer and employed in Mines and Geology Dept of Government of Rajasthan. He earned a
good amount of money through bribe to the tune of 50 lakhs just in a year. He purchased a flat of Rs 60 lakh
and to show the funding, availed housing loan of Rs 50 lakh from a bank and rest Rs 10 lakh as margin money
by availing gold loan (in the name of his wife) from another bank by pledging the gold jewellery of his wife.
The repayment period of housing loan was for 20 years and gold loan was for 2 years. He however, liquidated
the gold loan in just 3 months. The housing loan was also paid within a year.
Ravi continued to take bribe and one day he was caught red handed by a team of Anti-Corruption Bureau
(ACB). His house was inspected and bank accounts were also seized. The ACB team observed that in just 3
years of his service, the assets (including the flat and gold jewellery) were not in proportion of his salary.
The ACB reported the matter to the Enforcement Directorate (ED) which treated the house property as the

43
proceeds of crime and accordingly attached the house property.

Ravi pleaded that house property was purchased through bank finance and cannot be treated as proceeds of
crime.
Based on the above facts, whether the house property shall be treated as ‘Proceeds of Crime’.
[MTP2- Nov 22]
Answer:
What is Proceeds of Crime
In terms of Section 2(1)(u) of the Prevention of Money Laundering Act, “proceeds of crime” means any
property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating
to a scheduled offence or the value of any such property or where such property is taken or held outside
the country, then the property equivalent in value held within the country or abroad.
Explanation. —For the removal of doubts, it is hereby clarified that "proceeds of crime" include property
not only derived or obtained from the scheduled offence but also any property which may directly or
indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.
Ravi purchased the flat by availing bank finance and its repayments was to be made in 20 years. The said
housing loan was liquidated by Ravi within a year, this was paid not from the salary income but was paid
from the money received from the bribe. As per the definition given above, the bribe amount was
indirectly paid in acquiring / paying the loan amount, hence the flat shall be termed as proceeds of crime
and hence he is liable to be prosecuted under PMLA, 2002 with in the preview of scheduled offence.

44
Foreign Contributions (Regulations) Act, 2010

Question 1:
Upalayam Old Student Association was formed with the object of providing Coaching & Hostel facilities to the
students studying in the government school. Mr. Murugan, an Indian Origin, acquired American citizenship and
settled in USA. However, he is an overseas citizen of India cardholders. Mr. Murugan donated Rs. 10 Lakh to
the said Association from his personal savings through the normal banking channel. Referring to the provisions
of the Foreign Contribution (Regulation) Act, 2010, answer the following:
(i) Whether the donation made by Mr. Murugan is a foreign contribution?
(ii) What will be your answer in case Mr. Murugan still holds Indian Citizenship?
[CA Final May 22]
Answer:
Foreign Contribution:
Foreign Contribution is defined under Section 2(1)(h) of the Foreign Contribution (Regulation) Act, 2010 (FCRA,
2010), to mean the donation, delivery or transfer made by any foreign source. Section 2(1)(j) only speaks about
citizen of a foreign country while inclusively defining foreign source. A donation, delivery or transfer of any
article, currency or foreign security by any person who has received it from any foreign source, either directly
or through one or more persons is a foreign contribution.
(i) Whether the donation made by Mr. Murugan is a Foreign Source?

Yes. Donation from Mr. Murugan, a Person of Indian origin who has acquired American citizenship and also
is an Overseas Citizen of India cardholder, will be treated as foreign contribution.
(ii) In case if Mr. Murugan still holds Indian Citizenship:
Contributions made by a citizen of India living in another country i.e. 'Non-resident Indians' from his
personal savings through normal banking channels is not to be treated as foreign contribution. In case if
Mr. Murugan holds Indian citizenship, he is not a foreigner and therefore, donation given by Mr. Murugan,
will not be treated as foreign contribution.
Question 2:
Health Care Foundation has submitted an application of the Central Government for granting prior permission
for receipt of foreign contribution. The value of such foreign contribution, on the date of final disposal of the
application, is Rs. 3.00 crores. Referring to the provisions and relevant rules of the Foreign Contribution
(Regulations) Act, 2010 advise on the following:
(i) Can permission for receiving the foreign contribution of Rs. 3.00 crores in instalments be granted by the
Central Government?
(ii) Compliance requirement for obtaining the next instalment, if answer of (i) is affirmative.
[RTP- Nov 22]
Answer:
(i) Permission from the Central Government
As per Rule 9A of the Foreign Contribution (Regulation) Rules, 2011, if the value of foreign contribution
on the date of final disposal of an application for obtaining prior permission is over rupees one crore, the
Central Government may permit receipt of foreign contribution in such instalments, as it may deem fit.
Hence, the Central Government may grant permission to Health Care Foundation for receiving foreign
contribution of Rs. 3.00 crores in instalments, as it may deem fit.
(ii) Compliance requirement for obtaining the next instalment:

It is further provided in Rule 9A that the second and subsequent instalment shall be released after
submission of proof of utilization of seventy-five per cent of the foreign contribution received in the
previous instalment and after field inquiry of the utilization of foreign contribution. Health Care

45
Foundation may get next instalment, if this requirement is fulfilled.
Question 3:
Advise on the following legal positions as per the FCRA, 2010.
(1) Whether donation given by Non-Resident Indians (NRIs) is treated as ‘foreign contribution’?
(2) Whether foreign remittances received from a relative are to be treated as foreign contribution as per
FCRA, 2010?
[MTP 1- Nov 22]
Answer:
(1) Contributions made by a citizen of India living in another country (i.e., Non-Resident Indian), from his
personal savings, through the normal banking channels, is not treated as foreign contribution. However,
while accepting any donations from such NRI, it is advisable to obtain his passport details to ascertain that
he/she is an Indian passport holder.
(2) The position in this regard as given in Section 4(e) of FCRA, 2010 and Rule 6 of FCRR, 2011 are as under:
Subject to the provisions of section 10 of the FCRA, 2010, nothing contained in section 3 of the Act shall
apply to the acceptance, by any person specified in that section, of any foreign contribution where such
contribution is accepted by him from his relative. However, in terms of Rule 6 of FCRR, 2011, any person
receiving foreign contribution in excess of one lakh rupees or equivalent thereto in a financial year from
any of his relatives shall inform the Central Government in Form FC-1 within thirty days from the date of
receipt of such contribution.

46
The Arbitration and Conciliation Act, 1996

Question 1:
On 1st day of April, 2020, Alm Food Processors Limited, a company engaged in food processor manufacturing
unit, entered into a joint venture agreement with Ron and Col Limited, the largest manufacturer of Food
processors. Both the companies are registered under the Companies Act, 2013. The joint venture agreement
does not contain the term for referring the dispute relating to the quality of the goods supplied to the
arbitration. In light of the Arbitration and Conciliation Act, 1996, examine, what will happen, if the parties later
on agreed to refer the dispute to the arbitration concerning quality of goods supplied in 2021?
Answer:
In the given question, the Joint Venture Agreement (JVA) between Alm Food Processors Limited and Ron and
Col Limited, does not contain the term for referring the dispute relating to the quality of the goods supplied to
the arbitration. To resolve this dispute, the parties later entered into an agreement to refer the dispute to the
arbitration concerning quality of goods supplied in 2021. As per the Arbitration and Conciliation Act, 1996, the
purpose of an arbitration agreement is to submit disputes to arbitration on the basis of whether existing or
future disputes would be submitted to arbitration. Where an agreement is entered into after the disputes have
arisen, then, it would be called as a “submission agreement".
Conclusion: Thus, a submission agreement may be entered by the parties that shall be submitted arbitration,
whereby they agree to abide by the decision of the arbitrator.
Question 2:
Answer the following in the light of the Arbitration and Conciliation Act, 1996 :
(i) How important are the ideas of independence and impartiality in arbitration in the below given context?
(a) Is the arbitrator required to disclose anything to the parties?
(b) Is membership of the same sports club as one of the parties problematic?
(ii) Can an arbitrator resign on their own account? Do they have to give reasons for their resignation? Could
an award be challenged on the ground that the arbitrator had resigned without giving any proper
justifications?
[RTP- Nov 22]
Answer:
(i)
(a) The arbitrator is under a duty of disclose any relations with parties or their lawyers that might give
rise to justifiable doubts as to their independence and impartiality.
(b) Such an association is too remote to count as a relation that might lead to doubts of bias.
(ii) An arbitrator can resign when they want, without giving reasons for their resignation. This action does
not affect the validity either of the arbitration proceedings or the arbitral award.
Question 3:
P-1 entered into a contract with P-2 wherein P-2 will supply the building materials of Cement and Iron to P-
1. In a contract note entered into between them, there was a clause to refer the matter to the arbitration,
in case of dispute arises in future, relating to the quality, quantity, price and place of supply of materials.
Both also executed an arbitration agreement and got it registered with the registering authority. The
agreement copy was made in duplicate and each one of them was having the two original copies, duly signed.
During the course of business dealings, the disputes aroused between P-1 and P-2 for over pricing of invoices
raised by P-2, whereas the same quality of material was available in the market at 10% lower prices.
P-1 referred the matter to a court and the summons were issued to P-2. P-2 informed to the court that there

47
was an arbitration agreement between the P-1 and P-2 that in case of dispute, the matter will be decided by
the arbitration.
Examine the following situations in the light of the Arbitration and Conciliation Act, 1996:
(i) P-1 referred the matter to the court, where as P-2 informed to the Court that there is an agreement to
refer the matter to the arbitration, in case of dispute. What view the judicial authority will take in the
matter?
(ii) In the arbitration agreement there was no mention of the number of arbitrators. Whether the parties to
the disputes can now determine the number of arbitrators?
[MTP1- Nov22]
Answer:
(i) Section 8(1) of the Arbitration and Conciliation Act, 1996 provides that a judicial authority, before which
an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the
arbitration agreement or any person claiming through or under him, so applies. Once the parties have
agreed to arbitrate their matter, neither of the parties can unilaterally proceed to court to litigate that
matter. Any party attempting to do that would be referred to arbitration, if the other party so requests.
Therefore, the Court may ask to parties to submit the original copy of the arbitration agreement and
after satisfying that arbitration agreement exist, it may refer the parties to the arbitration.
(ii) Section 10(1) of the Arbitration and Conciliation Act, 1996 provides that the parties are free to determine
the number of arbitrators, provided that such number shall not be an even number.
Yes, they can decide to determine the number of arbitrators provided that such number shall not be an
even number.
Question 4:
ABC Ltd. and XYZ Ltd. entered in to a Joint Venture (JV) to construct a town consisting of 500 flats nearby
Pune, which will be sold to the retail home buyers. They prepared a JV Agreement in which an arbitration
clause entered. This clause specifies that in case of any dispute, the matter shall be referred to the
arbitration. After some time, a dispute was aroused between the companies. ABC Ltd. contended that there
was no separate agreement in writing between the companies to refer the matter to the arbitration and it
was just a clause in the JV Agreement, hence the matter should be referred to the Court of law instead of
arbitration.
Based on the above facts define the meaning of the arbitration agreement and whether the insertion of
arbitration clause in the JV agreement is sufficient or it should be a separate agreement for arbitration?
[MTP2- Nov22]
Answer:
Section 7 of the Arbitration and Conciliation Act, 1996 provides that -
(1) “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication including communication
through electronic means which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged

48
by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration
agreement if the contract is in writing and the reference is such as to make that arbitration clause part
of the contract.
Thus, as per Section 7(2) of the Act, an arbitration agreement may be in the form of an arbitration clause in
a contract. Since the JV Agreement contains a clause to refer the matter to the arbitration, in case of dispute,
is sufficient the arbitration agreement was arrived at between the companies.

49
Insolvency and Bankruptcy Code, 2016

Question 1:
Argunt Infrastructure Project Private Limited [Corporate Debtor] is classified as a Small Enterprise under Sub-
section (1) of Section 7 of the Micro, Small and Medium Enterprises Development (27 of 2006) Act, 2006. It
owes Rs. 60 Lakh to its creditors. In view of Covid- 19 Pandemic situation, the Corporate Debtor was not in a
position to recover money from Sundry Debtors as per the payment schedule and it commits default in settling
dues to the Sundry Creditors. The Corporate Debtor decided to go for Pre-packed Insolvency Resolution Process
[PPIRP] under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and accordingly took the
following steps to initiate PPIRP.
1) The Financial Creditors of the Corporate Debtor, not being its related parties, representing 66% in value of
the financial debt due to them proposed Mr. Pure, the Insolvency Professional, to be appointed as Resolution
Professional to conduct PPIRP.
2) The Majority of the Board of Directors of the Corporate Debtor have made a declaration that the PPIRP is
not being initiated to defraud any person and nothing more is contained in the declaration.
3) The Members of the Corporate Debtor passed an Ordinary Resolution approving the filing of an application
for initiating PPIRP.
There were no further approvals obtained from the Financial Creditors / Board of Directors on any matters.
Referring to the provisions of the Insolvency and Bankruptcy Code 2016, advise on the following matters for
filing of an application before NCLT to initiate PPIRP.
i) Whether the act of Financial Creditors proposing the name of the Mr. Pure as Resolution Professional is valid?
ii) Whether the declaration made by the Board is in accordance with the Provisions of the IBC?
iii) Whether the resolution passed by the members of the company is in line with the requirements of the IBC?
iv)Are there any requirements to get the approval of the Financial Creditors/ Board of Directors on any other
matters? If so, state the relevant provisions of the IBC.
Answer:
Pre-Packaged Insolvency Resolution Process (PPIRP) [Sections 54A - 54P of the Insolvency and Bankruptcy
Code, 2016].
Corporate Debtors eligible for Pre-Packaged Insolvency Resolution Process
In terms of Section 54A(1) of the IBC,2016 an application for initiating PPIRP may be made in respect of a
corporate debtor classified as a micro, small or medium enterprise under Section 7(1) of the Micro, Small and
Medium Enterprises Development Act, 2006.
i) Whether the Act of the Financial Creditors proposing the name of Mr. Pure as Resolution Professional
is valid?
In terms of Section 54A(2) of the IBC, 2016 an application for initiating PPIRP may be made in respect of a
corporate debtor who commits default referred to in Section 4 subject to a condition specified in Section
54A2(e) whereby, the financial creditors of the corporate debtor not being its related parties, representing
such number and such manner as may be specified, have proposed the name of the insolvency professional to
be appointed as resolution professional for conducting the PPIRP of the corporate debtor and the financial
creditors of the corporate debtor not being its related parties representing not less than 66% in value of
the financial debt due to such creditors have approved in such form as may be specified.
Therefore, in view of the above, the act of Financial Creditors proposing the name of Mr. Pure as Resolution
Professional, is valid.
ii) Whether the declarations made by the Board is in accordance with the provisions of IBC, 2016?
In terms of Section 54A(2)(f) of the IBC, 2016, the majority of the director or partners of the corporate
debtor, as the case may be, have made a declaration, in such form as may be specified stating that:
a) That the corporate debtor shall file an application for initiating PPIRP within a definite time period
of 90 days,

50
b) That the PPIRP is not being initiated to defraud any person.

c) The name of the insolvency professional proposed and approved to be appointed as resolution
professional under clause (e).
In view of the above, the only declaration by the majority of Board of Directors of the Corporate Debtor
that the PPIRP is not being initiated to defraud any person, is not sufficient. The declaration shall also contain
the matters contained in Clause 2(f)(i) and (iii) above.
iii) Whether the resolution passed by members is in line with the requirements of IBC, 2016?
No. The Act requires that the members of the corporate debtor to pass a special resolution, or at least
three-fourth of the total number of partners, as the case may be, of the corporate debtor have passed a
resolution approving the filing of an application for initiating pre-packaged insolvency resolution process.
iv) Requirements to get the approval of Financial Creditors / Board of Directors

Yes. The corporate debtor shall obtain an approval from its financial creditors, representing at least sixty-
six per cent. in value of the financial debt due to such creditors, for the filing of an application for initiating
pre-packaged insolvency resolution process.
By majority of the directors of the corporate debtor, a declaration is required on stating that the corporate
debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite
time period not exceeding ninety days; and the name of the insolvency professional proposed and approved
to be appointed as resolution professional.
Question 2:
Ram, the financial creditor, was an investor and a debenture holder of 'Optionally Convertible Debenture Bond
(OCDB)' payable on maturity with redemption premium, issued by Asset Limited (Corporate Debtor). The zero
interest OCDB bonds amounted to Rs. 3 Crore was matured in 2016. The Corporate Debtor failed to discharge
this liability in due date. Ram filed an application to initiate the Corporate Insolvency Resolution Process (CIRP)
before the NCLT. Advise, in the light of the given facts, the following situations referring to the provisions of
the Insolvency and Bankruptcy Code, 2016:
i) Whether Ram is eligible for filing an application for initiation of CIRP?
ii) Whether the redemption of debenture bonds, payable on the maturity date, amounts to debt?
Answer:
Optionally Convertible Debenture Bonds (OCDB) are debt securities which allow an issuer to raise capital and in
return the issuer pays interest to the investor till the maturity.
i) Whether Ram is eligible to file an application for initiation of CIRP?
In the given case, Ram, was a debenture holder of OCDB payable on maturity issued by Asset Limited
(Corporate Debtor), which it failed to discharge on due date.
According to Section 21(6A), where a financial debt is in the form of securities or deposits and the terms of
the financial debt provide for appointment of a trustee or agent to act as authorised representative for all
the financial creditors, such trustee or agent shall act on behalf of such financial creditors;
According to the proviso to Section 7 of the Code, an application for initiating corporate insolvency resolution
process against the corporate debtor shall be filed jointly by required number of such creditors in the same
class as specified, through such authorised representative i.e. trustee or agent.
Accordingly, Mr. Ram is entitled for filing an application for initiation of CIRP.
ii) Whether the redemption of debenture bonds, payable on the maturity date amounts to debt?
Yes, Redemption of debenture bonds, payable on maturity amounts to debt. Debt under the Code means a
liability or obligation in respect of a claim which is due from any person and includes a financial debt and
operational debt. [Section 3(11)]

51
Financial Debt - "Financial debt" means a debt along with interest, if any, which is disbursed against the
consideration for the time value of money and includes any amount raised pursuant to any note purchase
facility or the issue of bonds, notes, debentures, loan stock or any similar instrument.
Question 3:
S & M Private Limited, classified as a small enterprise (a Corporate Debtor), has made an application to the
Adjudicating Authority (the Tribunal) for initiating Pre-Packaged Insolvency Resolution Process (PPIRP). The
requirement for filing an application being satisfied the Adjudicating Authority, by an order, has admitted
an application commencing the PPIRP. Referring to the provisions of the Insolvency and Bankruptcy Code,
2016 explain the following:
(i) An external agency of which an approval would be sought to base resolution plan prior to making an
application to the Adjudicating Authority.
(ii) Circumstances causing invitation for submission of resolution plan or plans.
(iii) Consequences of not approving the selected resolution plan by the Committee of Creditors (CoC).
[RTP- Nov 22]
Answer:
(i) Approval of External Agency to base Resolution Plan
S & M Private Limited, the Corporate Debtor, shall seek the approval of the financial creditors to base
the Resolution Plan as required under Section 54A (4) of the IBC, 2016.
(ii) Circumstances causing invitation for submission of resolution plan or plans are as below:
(a) Where the Committee of Creditors does not approve the base resolution plan or
(b) the base resolution plan impairs any claims owed by the corporate debtor to the operational
creditors.
(iii) Consequences of not approving the selected resolution plan by the Committee of Creditors (CoC)
If selected resolution plan is not approved by the Committee of Creditors (CoC), the resolution
professional shall file an application for termination of the pre-packaged insolvency resolution process
and the Adjudicating Authority shall, within 30, days of the date of such application, by an order,
terminate pre-packaged insolvency resolution process. (Section 54N of the Code).
Question 4:
Crown Industrial Conveyors Limited had advanced a loan of Rs. 1 crore to M & Co. Private Limited whose office
was functioning in a rented house property belonged to Mr. M, the Managing Director. The lending company
intends to attach the property of Mr. M as liquidation asset and seeks your advice with regard to its position
in a Liquidation proceeding initiated under the Insolvency and Bankruptcy Code 2016.
[MTP1- Nov 22]
Answer:
According to Section 36 of the Insolvency and Bankruptcy Code, 2016 (the Code) for the purposes of
liquidation, the liquidator shall form an estate of the assets, which will be called the liquidation estate in
relation to the corporate debtor. The liquidator shall hold the liquidation estate as a fiduciary for the benefit
of all the creditors.
Exceptions
In terms of Section 36(4) of the Code, the assets owned by a third party which are in possession of the
corporate debtor, shall not be included in the liquidation estate assets and shall not be used for recovery in
the liquidation. These assets include other contractual arrangements which do not stipulate transfer of title
but only use of the assets.
In the given instance, Crown Industrial Conveyors Limited has advanced a loan of Rs. 1 crore to M & Co.
Private Limited. Its (M & Co. Private Limited) office was functioning in a rented house property belonging to
Mr. M, the Managing Director.

52
On liquidation of M& Co. Private Limited (the Corporate debtor), Crown Industrial Conveyors Limited, the
Financial Creditor, intends to attach the property of Mr. M as a liquidation asset.
In line with above stated exclusion, the property in which M & Co. Private Limited was operating its office on
rent belonged to Mr. M i.e. third party.
Conclusion
Therefore, Crown Industrial Conveyors Limited, the lending Company, cannot attach the property of Mr. M
as it cannot be included in the liquidation estate assets and shall not be used for recovery in the liquidation.
Question 5:
Explain the time limit for completion of the Corporate Insolvency Resolution process?
[MTP1- Nov22]
Answer:
Section 12 of the Insolvency and Bankruptcy Code states that any Corporate & Insolvency Resolution Process
shall be completed within a period of one hundred and eighty days from the date of admission of the
application to initiate the process.
However, the National Company Law Tribunal (NCLT) may on an application made by the resolution
professional, under a resolution passed by the Committee of Creditors, by a vote of 66% of voting shares,
after consideration provide one extension which shall not extend more than 90 days.
Second proviso to Section 12 (3) states that the corporate insolvency resolution process (CIRP) shall
compulsorily be completed within 330 days from the insolvency commencement date including any extension
of the time period of corporate insolvency resolution process granted under Section 12 and also the time
taken in legal proceedings in relation to such resolution process of the corporate debtor.
Question 6:
Good Bank Ltd. granted a credit facility of Rs. 50 lakh to Sandhya Cosmetics Pvt Ltd. on the personal
guarantee of Sandhya, who is the Managing Director of the Company.
After some time the company defaulted in paying the dues of the Bank so the financial creditor initiated
CIRP against Sandhya. Sandhya opposed and pleaded that-
(i) The company has defaulted in payment of the dues of the Bank and not the ‘Sandhya’. ‘Sandhya’ and
‘Sandhya Cosmetics Ltd.’ are two different persons, one is individual and the second is the corporate
person. The Bank should first initiate action against the company and not against the Sandhya in her
individual capacity.
(ii) The Adjudicating Authority for individual is DRT and not the NCLT.
[MTP2- Nov22]
Answer:
(i) As per the IBC,2016, that without initiating CIRP against the principal borrower, it is open to the FC to
initiate CIRP under section 7 against corporate guarantors as the creditor is also the FC qua corporate
guarantor.
(ii) In terms of Section 5(22) “personal guarantor” means an individual who is the surety in a contract of
guarantee to a corporate debtor. In the given case ‘Sandhya’ is the personal guarantor of the Company.
Section 60(1) of the IBC provides that the Adjudicating Authority, in relation to insolvency resolution and
liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the
National Company Law Tribunal having territorial jurisdiction over the place where the registered office
of the corporate person is located.

53
Question 7:
Win Bank Ltd., invited tender for supply of stationery items to Stationery Dept. This Stationery Dept. of
the Bank is a centralised dept. of the Bank, which undertakes to supply the stationery items for whole of
the financial year for its branches.
Vallabh Stationers won the tender and supplied the materials as per the requirements of the Bank. After
some times the quality of the stationery items supplied by the Vallabh Stationers went down and the Bank
stopped making the payment. Aggrieved to this the Vallabh Stationers planned to initiated CIRP proceedings
against the Bank under section 9 of the Code.
Discuss, whether the application for initiation of CIRP by the Vallabh Stationers as Operational Creditor will
succeed?
[MTP2- Nov22]
Answer:
Corporate Person
In terms of Section 3(7) of the IBC “corporate person” means a company as defined in clause
(20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause
(n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other
person incorporated with limited liability under any law for the time being in force but shall not include any
financial service provider.
Who is Financial Service Provider

In term of Section 3(17) “financial service provider” means a person engaged in the business of providing
financial services in terms of authorisation issued or registration granted by a financial sector regulator.
Conclusion
CIRP cannot be initiated against a financial service provider/non-banking financial company as financial service
providers are excluded from definition of corporate debtor in terms of section 3(7) of the Insolvency
Bankruptcy Code, 2016.

54

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The Ultimate Solution! – Question Bank!

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Index and Number of Questions

SN Name of Chapters Additional Questions

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 1 – Appointment and Qualification of Directors

A listed company may, upon notice of not less than:

(i) Proposal to appoint Mr. Amar as a Small Shareholders' Director:

(ii) If there is no such proposal moved by the small shareholders:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Advise to the Board:

What happens if Section 192 is contravened?

The arrangement shall not be voidable;

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 2 – Meetings of Board and its powers

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

year ending the 31st March, 2021:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Notice of Board meeting

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 3 – Appointment and Remuneration of Managerial

It has, further, been informed that-

Proportionate to 10 months as the MD has

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

4 Leave Travel Concession Package (not

(ii) Computation of excess Remuneration paid to Mr. Vivek

Prospects of Recovery thereof:

Director’s Name Sitting fees (INR)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Sundry repairs to fixed Assets (Note 2) -

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 4 – Inspection, Inquiry and Investigation

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 5 – Compromise, Arrangements & Amalgamations

ii. Merger of STC Limited with HTC Limited, a Foreign Company:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 6 – Prevention of Oppression and Mismanagement

The share holding pattern of SOPS Limited is given as follows:

i. Whether the Petition is maintainable?

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Rights available to the person to be examined:

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

(ii) Validity of the petition filed by the RoC

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)

Chapter 9 - Companies Incorporated Outside India

Equity Share Capital USD 4,00,00,000

The Ultimate Solution – Question Bank – By Shubham Singhal (AIR 4)