Paper2 InterLaw MTP All Attempts May23

Corporate & Other Laws
Mock Test Papers Compilation

Intermediate
11 Attempts
3rd Edition
• Questions from May’18 to May ‘23
• For November ‘23 Attempt
• All Questions in Chapter wise format
• Amended by Acts applicable for May 2023
DEVAANAND | 9597821577
Table of Contents
Sr. No Particulars Page
Number
1 Preliminary 1.1 – 1.3
2 Incorporation of Company and Incidental Matter Thereto 2.1 – 2.16
3 Prospectus and allotment of Securities 3.1 -3.10
4 Share Capital and Debentures 4.1-4.15
5 Acceptance of Deposits by Companies 5.1- 5.9
6 Registration of Charges 6.1-6.10
7 Management & Administration 7.1-7.20
8 Declaration and Payment of Dividend 8.1- 8.13
9 Accounts of Companies 9.1-9.13
10 Audit & Auditors 10.1-10.14
11 The Indian Contract Act, 1872 11.1-11.23
12 The Negotiable Instruments Act, 1881 12.1-12.24
13 The General Clauses Act, 1897 13.1-13.13
14 Interpretation of Statutes 14.1-14.19
15 Case Scenarios 15.1-15.28
Law MTP NEW Course Compilation includes:
18 MTPS: March’18, Aug’18, Oct’18, May’19, April’19, Oct’19,
May’20, Oct’20, March’21, April’21, Oct ’21, Nov ’21, March ‘22,
April ’22 Sep’22, Oct’22, March ’23 & April ‘23
Disclaimer:
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M 1.1
Chapter 1
Preliminary
Question 1
New Private Ltd. is a company registered under the Companies Act, 2013 with a paid -up share capital
of ` 70 lakh and turnover of ` 30 crores. Explain the meaning of the “Small Company” and examine the
following in accordance with the provisions of the Companies Act, 2013:
(i) Whether the New Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ` 15 crore and the capital is same
as ` 70 lakh? (5 Marks Oct 21) (6 Marks, Oct 20)
Answer 1
(i) Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means a
company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees four crores rupees or such higher
amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees forty crore
rupees or such higher amount as may be prescribed which shall not be more than one hundred crore
rupees.
Nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub
- clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover
of the small company shall not exceed rupees two crores four crores and rupees twenty crores
forty crores respectively.
(1) In the present case, New Private Ltd., a company registered under the Companies Act, 2013
with a paid up share capital of ` 70 lakh and having turnover of ` 30 crore. Since, only one
criteria of share capital not exceeding ` 2 crores is met, but the second criteria of turnover not
exceeding ` 20 crores is not met and the provisions require both the criteria to be met in order
to avail the status of a small company, New Private Ltd. cannot avail the status of small
company.
Since both the criteria of share capital not exceeding ` 4 crores and second criteria of
turnover not exceeding 40 crores is met it can avail the status of small company.
(2) If the turnover of the company is ` 15 crore, then both the criteria will be fulfilled and New
Private Ltd. can avail the status of small company.
Question 2 (This Question also includes concepts of Chapter 2 )

Kapila Limited issued equity shares of ` 1,00,000 (10,000 shares of ` 10 each) on 01.04.2021 which have
been fully subscribed, whereby Kusha Limited holds 4000 shares and Prem Limited holds 2000 shares
in Kapila Limited. Kapila Limited is also holding 20% equity shares of Red Limited before the date of
issue of equity shares stated above. Red Limited controls the composition of Board of Directors of
Kusha Limited and Prem Limited from 01.08.2021. Examine with relevant provisions of the Companies
Act, 2013:
(i) Whether Kapila Limited is a subsidiary of Red Limited?
(ii) Whether Kapila Limited can hold shares of Red Limited? (6 Marks March ‘22)
Answer 2
This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the Companies Act,
2013.
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or "subsidiary", in
relation to any other company (i.e., the holding company), means a company in which the holding
Chapter 1 Preliminary
M 1.2
company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies.
For the purposes of this clause, Explanation is given providing that a company shall be deemed to be
a subsidiary company of the holding company even if the control referred to in point (i) or point (ii)
above, is of another subsidiary company of the holding company. Whereas section 19 provides that,
no company shall, hold any shares in its holding company and no holding company shall allot or
transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a
company to its subsidiary company shall be void. Provided that nothing in this sub-section shall apply
to a case where the subsidiary company is a shareholder even before it became a subsidiary company
of the holding company. Here in the instant case, Kapila Limited issued 10,000 equity shares on
1.4.2021 whereby Kusha Limited & Prem Limited holds 4000 & 2000 shares respectively in Kapila Ltd.,
Considering 1 share = 1 vote, Kusha Limited and Prem Limited together holds more than one-half (50%)
of the total voting power. Therefore, Kapila Limited will be subsidiary to Kusha Limited & Prem Limited
from 1.4.2021. Whereas Kapila Limited is already holding 20% equity shares of Red Limited before the
date of issue of equity shares i.e. 1.4.2021. Further, Red Limited controls the composition of Board of
Directors of Kusha Limited and Prem Limited from 01.08.2021. In the light of sub-clause (87) of Clause
2, Red Limited is a holding company of Kusha Limited and Prem Limited (Subsidiary companies).
Following are the answers to the questions:
(i) Yes, Kapila Limited is a subsidiary of Red Limited. In this case Kapila Limited shall be deemed to be a
subsidiary company of the holding company ( Red Limited) as Red Limited controls the composition of
subsidiary companies Kusha Limited & Prem Limited as per explanation to sub-clause (87) of Clause 2.
(ii) Yes, Kapila Limited can hold shares of Red Limited. In this case Kapila Limited is a subsidiary of Red
Limited as Kapila Limited was holding 20% of equity shares of Red Limited even before it became a
subsidiary company of the Red Limited (i.e. on 01.08.2021), according to the exception to section 19.
Question 3
AJD Pvt. Ltd. is having paid up share capital of ` 45 Lakhs and annual turnover of `185 Lacs. It is a
wholly owned subsidiary of K Ltd.- a listed company. Can AJD Pvt. Ltd. be called a small company as
per the provisions of the Companies Act, 2013. (6 Marks April 22)
Answer 3
As per Section 2(85) of the Companies Act 2013 read with Rule 2(1)(t) of the Companies (Specification
of definitions Details) Rules, 2014, “Small Company’’ means a company, other than a public company,
having—
(i) paid-up share capital of which does not exceed two crores rupees (four crores rupees);
and
(ii) turnover of which as per profit and loss account for the immediately preceding
financial year does not exceed twenty crore rupees (forty crore rupees):
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
In the given case, AJD Pvt. Ltd. satisfies the turnover and paid up share capital criteria to be small
company, but being a subsidiary of K Ltd (a listed), it falls under the exclusions to the definition and
hence is not a small Company.
Question 4
Kavya Ltd. has a paid up share-capital of Rs. 80 crores. Amjali Ltd. holds a total of Rs. 50 crores of
M 1.3
Kavya Ltd. Now, Kavya ltd. is making huge profits and wants to expand its business and is aiming at
investing in Amjali Ltd. Kavya Ltd. has approached you to analyse whether as per the provisions of
the Companies Act, 2013, they can hold 1/10th of the share capital of Amjali Ltd. (5 Marks March
21)
Answer 4
In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary", in relation
to any other company (that is to say the holding company), means a company in which the holding
company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of
subsidiaries beyond such numbers as may be prescribed.
Since, Kavya ltd. is holding more than one half (50 crores out of 80 crores) of the total share capital of
Kavya Ltd., it (Amjali Ltd.) is holding of Kavya Ltd.
Further, as per the provisions of section 19 of the Companies Act, 2013, no company shall, either by
itself or through its nominees, hold any shares in its holding company and no holding company shall
allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of
shares of a company to its subsidiary company shall be void:
Provided that nothing in this sub-section shall apply to a case—
(a) where the subsidiary company holds such shares as the legal representative of a
deceased member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company
In the given question, Kavya ltd. cannot acquire the shares of Amjali Ltd. as the acquisition of shares
does not fall within the ambit of any of the exceptions provided in section 19.
Question 5
A Ltd. is holding 61% shares in B Ltd. and B Ltd. holds 51% in C Ltd. State which is the correct statement
here:
(a) C Ltd. is the holding company to A Ltd.
(b) C Ltd. is the holding company to B Ltd.
(c) B Ltd. is the Subsidiary to C Ltd.
(d) Both B Ltd. and C Ltd. are subsidiary to A Ltd. (1 Mark)( Sep’22)
Answer 5: (d)
Question 6
“Associate company”, in relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company
having such influence and includes a joint venture company. Here, the words ‘significant influence’
means:
(a) Control of at least 10% of total voting power

(b) Control of at least 15% of total voting power
(c) Control of at least 20% of total voting power
(d) Control of at least 25% of total voting power (1 Mark March ‘23)
Answer 6 (c)
M 2.1
Chapter 2
Incorporation of Company and Matters Incidental there to
Question 1
XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better administrative
conveniences the company wants to shift its registered office from Mumbai to Pune (within the State of
Maharashtra). What formalities the company has to comply with under the provisions of the Companies
Act, 2013 for shifting its registered office as stated above? Explain. (Apr’19 Oct’19,5 Marks)
Answer 1
The Companies Act, 2013 under section 13 provides for the process of altering the Memorandum of a
company. Since the location or Registered Office clause in the Memorandum only names the state in which
its registered office is situated, a change in address from Mumbai to Pune, does not result in the alteration
of the Memorandum and hence the provisions of section 13 (and its sub sections) do not apply in this case.
However, under section 12 (5) of the Act which deals with the registered office of company, the change in
registered office from one town or city to another in the same state, must be approved by a special
resolution of the company. Further, presuming that the Registrar will remain the same for the whole state of
Maharashtra, there will be no need for the company to seek the confirmation to such change from the
Regional Director.
Question 2
Alfa school started imparting education on 1.4.2010, with the sole objective of providing education to
children of weaker society either free of cost or at a very nominal fee depending upon the financial
condition of their parents. However, on 30th March 2018, it came to the knowledge of the Central
Government that the said school was operating by violating the objects of its objective clause due to
which it was granted the status of a section 8 company under the Companies Act, 2013. Describe what
powers can be exercised by the Central Government against the Alfa School, in such a case?
(Aug’18-6 Marks)(Mar’19-5 Marks)
Answer 2
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to promote
the charitable objects of commerce, art, science, education, sports etc. Such company intends to apply its
profit in promoting its objects. Section 8 companies are registered by the Registrar only when a license is
issued by the Central Government to them. Since, Alfa School was a Section 8 company and it had started
violating the objects of its objective clause, hence in such a situation the following powers can be exercised
by the Central Government:
(i) The Central Government may by order revoke the license of the company where the company
contravenes any of the requirements or the conditions of this sections subject to which a license is
issued or where the affairs of the company are conducted fraudulently, or violative of the objects of
the company or prejudicial to public interest, and on revocation the Registrar shall put ‘Limited’ or
‘Private Limited’ against the company’s name in the register. But before such revocation, the Central
Government must give it a written notice of its intention to revoke the license and opportunity to be
heard in the matter.
(ii) Where a license is revoked, the Central Government may, by order, if it is satisfied that it is essential
in the public interest, direct that the company be wound up under this Act or amalgamated with
another company registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of being
heard.
(iii) Where a license is revoked and where the Central Government is satisfied that it is essential in the
public interest that the company registered under this section should be amalgamated with another
company registered under this section and having similar objects, then, notwithstanding anything to
the contrary contained in this Act, the Central Government may, by order, provide for such
amalgamation to form a single company with such constitution, properties, powers, rights, interest,
authorities and privileges and with such liabilities, duties and obligations as may be specified in the
Chapter 2 Incorporation of Company and Matters Incidental Thereto
M 2.2
order.
Question 3
The Registrar shall register any alteration of the memorandum with respect to the objects of the company
and certify the registration within a period of _ from the date of filing of the special resolution.
(Oct’19, 1 Mark)
(a) 30 days (b) 60 days (c) 90 days (d) 6 months
Answer 3 : (a)
Question 4
Shruti, a common friend of Suchitra and Sukanya, got incorporated OPC sometime before and during a
chit-chat with her friends informed them that there is some limit on the maximum capital which her OPC
can have and she would have to convert her OPC either into a private or public limited company if such
limit exceeded. Suchitra and Sukanya who are desirous of forming a private limited company for carrying
on textile trading business, are unsure about the maximum capital which a private limited company can
have. Advise.
(a) A private limited company can have maximum of Rs. One crore as share capital.
(b) A private limited company can have maximum of Rs. Two crores as share capital.
(c) A private limited company can have maximum of Rs. Five crores as share capital.
(d) A private limited company can have unlimited share capital. (March’19, 1 Mark)
Answer 4 : (d)
Question 5
In Roopali Marketing Company Private Limited (Authorised capital 50,000 shares of Rs. 10 each and paid-
up share capital of Rs. 4,50,000), 1000 shares are jointly held by Abeer and Abheek; another 800 shares
are jointly held by Seema and Srividya; and another 1200 are jointly held by Ramesh, Raksha and
Rajneesh. Further, 42,000 shares are held by 193 individual persons in their individual capacity. Is it
possible for the company to induct more persons?
a) The company is unable to induct more persons since it already has two hundred individual
members.
b) The company can induct four more persons as members.
c) The company can induct another 20 persons (i.e. 10% of two hundred individual members) after
seeking permission from the concerned ROC.
d) If the company does not want to seek permission of the concerned ROC, it can induct only 10 more
persons (i.e. 5% of two hundred individual members). (May’20,March’19, 2 Marks)
Answer 5 : (b)
Question 6
Vinay and Sanjay made a name reservation application accompanied by requisite fee to the Registrar for
forming a new private company. The Registrar accorded its approval for reservation of most preferred
name Vinanjay Softwares Private Ltd. on 7th July, 2018. By which date necessary documents for
incorporation of the company must be submitted to the Registrar so that the reserved name does not
get lapsed.
(a) Latest by 20th July, 2018 (b) Latest by 27th July, 2018
(c) Latest by 4th August, 2018 (d) Latest by 4th September, 2018
(March’19, 2 Marks)
M 2.3
Answer 6 : (b)
Question 7
Food lovers Inc. was incorporated as a one person company (OPC) on 1st September 2015 with paid up
share capital of Rs. 25 lacs. This OPC wants to convert itself into a private limited company during the year
ending on 31st March 2017. But the provisions of the Companies Act, 2013 prohibits an OPC from doing so
before the expiry of a specified period. From the following options in which situation this OPC will
mandatorily be converted into a private/public company even before expiry of such period—
a. After the expiry of two years from the date of its incorporation
b. Paid up share capital of the company is increased beyond fifty lakh rupees
c. The average annual turnover during the relevant period exceeds one crore rupees
d. If the application is filed with the ROC within 90 days of its incorporation as OPC, to be
convertedinto a Private Limited company. (April’19, 2 Marks)
Answer 7 : (b) (as per amendment answer is d)
(As per amendment the following Rule “No such company can convert voluntarily into any kind of company
unless two years have expired from the date of incorporation of One Person Company, except threshold
limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the
relevant period exceeds two crore rupees” has been omitted.)
Question 8
Swastik Private Limited passed a Special Resolution to change its name to Swastik Darshan Private
Limited on 30th May, 2019. Relevant MCA filing was done on due time and then Company got its new
stationery printed on 1st July, 2019. However there was a delay in issue of Certificate and Company
received new certificate on 20th August, 2019 which was issued on 10th August, 2019. Company wants
to enter into a lease agreement for new premise. When they can do such agreement in new name of the
Company?
(a) 30th May, 2019
(b) 1st July, 2019
(c) 20th August, 2019
(d) 10th August, 2019 (1 Mark May 20)
Answer 8 : (c)
Question 9
The directors of Smart Computers limited borrowed a sum of money from Mr. Tridev. The company's
articles provided that the directors may borrow on bonds such sums as may, from time to time, be
authorized by resolution passed at a general meeting of the company. The shareholders claimed that
there had been no such resolution authorizing the loan, and therefore, it was taken without their
authority and the company is not bound to repay the loan to Tridev. In the light of the contention of
shareholders, decide whether the company is bound to pay the loan. (6 Marks May 20)
Answer 9
Doctrine of Indoor Management: According to this doctrine, persons dealing with the company need not
enquire whether internal proceedings relating to the contract are followed correctly, once they are
satisfied that the transaction is in accordance with the memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly or
whether necessary resolution was passed properly. They are entitled to take it for granted that the
company had gone through all these proceedings in a regular manner.
M 2.4
The doctrine helps to protect external members from the company and states that the people are entitled
to presume that internal proceedings are as per documents submitted with the Registrar of Companies.
Thus,
1. What happens internal to a company is not a matter of public knowledge. An outsider can only
presume the intentions of a company, but not know the information he/she is not privy to.
2. If not for the doctrine, the company could escape creditors by denying the authority of officials to act
on its behalf.
In the given question, Mr.Tridev being a person external to the company, need not enquire whether the
necessary meeting was convened and held properly or whether necessary resolution was passed properly.
Even if the shareholders claim that no resolution authorizing the loan was passed, the company is bound to
pay the loan to Mr.Tridev.
Question 10
If a company changes its name; which of the following is most accurate:
(a) It is not allowed to use old name in any way
(b) New name should not be identical with old name
(c) Old name should be painted/printed for next 1 year along with new name
(d) Old name should be painted/printed for next 2 years along with new name (1 Mark Oct 20)
Answer 10 : (d)
Question 11
XYZ a One-Person Company (OPC) was incorporated during the year 2017-18 with an authorized capital
of ` 45.00 lakhs (4.5 lakh shares of ` 10 each), The capital was fully subscribed and paid up. Turnover of
the company during 2017-18 and 2018-19 was ` 2.00 crores and ` 2.5 crores respectively. Promoter of
the company seeks your advice in following circumstances, whether XYZ (OPC) can convert into any
other kind of company during 2019-20. Please, advise with reference to relevant provisions of the
Companies Act, 2013 in the below mentioned circumstances:
(i) If promoter increases the paid up capital of the company by` 10.00 lakhs during 2019-20.
(ii) If turnover of the company during 2019-20 was ` 3.00 crores. (5 Marks Oct 20)(6 Marks April
19)
Answer 11
As per Rule 3 of the Companies (Incorporation) Rules, 2014, no One Person Company (OPC) can convert
voluntarily into any kind of company except a section 8 company. unless two years have expired from
the date of its incorporation, except where the paid up share capital is increased beyond fifty lakh rupees
or its average annual turnover during the relevant period exceeds two crore rupees. (Has been omitted
as per amendment)
Besides, Section 18 of the Companies Act, 2013 provides that a company of any class registered under
this Act may convert itself as a company of other class under this Act by alteration of memorandum and
articles of the company in accordance with the provisions of Chapter II of the Act.
Based on the above provisions, our advice in the given circumstances will be as under:
(i) The promoter increases the paid up capital of the company by ` 10.00 lakh during 2019-
2020, i.e., to ` 55 lakhs (45+10= 55). In this situation, XYZ (OPC) can convert itself
voluntarily into any other kind of company by alteration of memorandum and articles of
the company in compliance with the Provisions of the Act.
M 2.5
(ii) Where the turnover of XYZ (OPC) during 2019-20 was ` 3.00 crore, there will be no
change in the answer. In this situation also, XYZ (OPC) can convert itself voluntarily into
any other kind of company by alteration of memorandum and articles of the company in
compliance with the Provisions of the Act.
Hence as per amendment of omission of Rule 7 there is no restriction to convert a one person
company.
Question 12
Abhilasha and Amrita have incorporated a ‘not for profit’ private limited company which is registered
under Section 8 of the Companies Act, 2013. One of their friends has informed them that their company
can be categorized as a ‘small company’ because as per the last profit and loss account for the year
ending 31st March, 2019, its turnover was less than Rs. 2.00 crores and its paid up share capital was less
than Rs. 50 Lacs. Advise.
(a) A section 8 company, which meets the criteria of ‘turnover’ and ‘paid-up share capital’ in the
last financial year, can avail the status of ‘small company’ only if it acquires at least 5% stake in
another ‘small company’ within the immediately following financial year.
(b) If the acquisition of minimum 5% stake in another ‘small company’ materializes in the second
financial year (and not in the immediately following financial year) after meeting the criteria
of ‘turnover’ and ‘paid-up share capital’ then with the written permission of concerned ROC, it
can acquire the status of ‘small company’.
(c) The status of ‘small company’ cannot be bestowed upon a ‘not for profit’ company which is
registered under Section 8 of the Companies Act, 2013.
(d) A section 8 company, if incorporated as a private limited company (and not as public limited
company) can avail the status of ‘small company’ with the permission of concerned ROC, after
it meets the criteria of ‘turnover’ and ‘paid-up share capital’. (2 Marks March 21)
Answer 12 : (c)
Question 13
Explain the provisions of the Companies Act, 2013 relating to the ‘Service of Documents’ on a
company and the members of the company. (3 Marks March 21) (5 Marks Nov 21)
Answer 13
Under section 20 of the Companies Act, 2013 a document may be served on a company or an officer
thereof by sending it to the company or the officer at the registered office of the company by registered
post or by speed post or by courier service or by leaving it at its registered office or by means of such
electronic or other mode as may be prescribed. However, in case where securities are held with a
depository, the records of the beneficial ownership may be served by such depository on the company by
means of electronic or other mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of documents with the
registrar in electronic mode, a document may be served on Registrar or any member by sending it to him
by post or by registered post or by speed post or by courier or by delivering at his office or address, or by
such electronic or other mode as may be prescribed. However, a member may request for delivery of any
document through a particular mode, for which he shall pay such fees as may be determined by the
company in its annual general meeting.
Question 14
Anu got incorporated ‘One Person Company’ with her sister Alpa as the nominee and about three
years have passed satisfactorily. From time to time, Anu does a number of charitable works and is
M 2.6
associated with three NGOs. In the meantime, her business under her OPC has also flourished. Now
she is contemplating to convert the OPC either as a Section 8 company (i.e. formation of companies with
charitable objects). Choose the correct option.
(a) Since company belongs to Anu, she has full discretion to convert the OPC either as a Section 8
company or as a private or public company
(b) Since the company was formed as a private company, the only option available with Anu is to
convert it into a public limited company.
(c) There is specific prohibition on converting OPC into a Section 8 company; otherwise, it can be
converted into a private or public company without any hindrance.
(d) Since Anu does a lot of charitable works there is no prohibition to converts his OPC into a
Section 8 company (companies formed with charitable objects). (2 Marks April 21)
Answer 14 : (c)
Question 15
Mr. Shyamlal is a B. Tech in computer science. He has promoted an IT start up and got it registered as a
Private Limited Company. Initially, only he and his family members are holding all the shares in the
company. While drafting the Articles of Association of the company, it has been included that Mr.
Shyamlal will remain as a director of the company for lifetime. Mr. Mehra, a close friend of Mr.
Shyamlal has warned him (Mr. Shyamlal) that in future if 75% or more shares in the company are held
by non- family members then by passing a Special Resolution, the relevant articles can be amended and
Mr. Shyamlal may be removed from the post of director. Mr. Shyamlal has approached you to advise
him for protecting his position as a director for lifetime. Give your answer as per the provisions of the
Companies Act, 2013. (6 Marks April 21)
Answer 15
As per the provisions of sub-section (3) of section 5 of the Companies Act, 2013, the articles may contain
provisions for entrenchment to the effect that specified provisions of the articles may be altered only if
conditions or procedures as that are more restrictive than those applicable in the case of special
resolution are met or complied with.
Usually, an article of association may be altered by passing a special resolution but entrenchment makes it
one difficult to change it. So, entrenchment means making something more protective. Manner of
inclusion of the entrenchment provision:
As per the provisions of sub-section (4) of section 5 of the Companies Act, 2013, the provisions of
entrenchment shall only be made either on formation of a company, or by an amendment in the Articles of
Association as agreed to by all the members of the company in the case of a private company and by a
special resolution in case of a public company.
Notice to the Registrar of the entrenchment provision:
As per the provisions of sub-section (4) of section 5 of the Companies Act, 2013, where the articles
contain provision for entrenchment whether made on formation or by amendment, the company shall
give notice to the Registrar of such provisions in such form and manner as may be prescribed.
In the said situation the IT startup company is a private company. Therefore, Mr. Shyamlal can get the
articles altered which is agreed to by all the members whereby the amended article will say that he can
be removed from the post of director only if, say, 95% votes are cast in favour of the resolution and give
notice of the same to the Registrar.
Question 16
Mr. Dinesh incorporated a new Private Limited Company under the provisions of the Companies Act,
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2013 and desires to commence the business immediately. Please advise Mr. Dinesh about the
procedure for commencement of business as laid under the provisions of the Section 10A of the
Companies Act, 2013. (5 Marks April 21)
Answer 16
As per Section 10A of the Companies Act, 2013, a company incorporated after the commencement of
the Companies (Amendment) Second Ordinance, 2019 and having a share capital shall not commence
any business or exercise any borrowing powers unless:
(i) A declaration is filed by a director within a period of 180 days of the date of incorporation of the
company in such form and verified in such manner as may be prescribed, with the Registrar that
every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on
the date of making of such declaration; and
(ii) The company has filed with the Registrar a verification of it registered office as provided in sub-
section (2) of section 12. Mr. Dinesh has to comply with the above requirements and procedure for
commencing the business of the company.
Question 17
The persons (not being members) dealing with the company are always protected by the doctrine of
indoor management. Explain. (6 Marks Oct 21)
Answer 17
Doctrine of Indoor Management
According to this doctrine, persons dealing with the company need not inquire whether internal proceedings
relating to the contract are followed correctly, once they are satisfied that the transaction is in accordance
with the memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly or
whether necessary resolution was passed properly. They are entitled to take it for granted that the
company had gone through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people are entitled
to presume that internal proceedings are as per documents submitted with the Registrar of Companies.
The doctrine of indoor management is opposite to the doctrine of constructive notice. Whereas the
doctrine of constructive notice protects a company against outsiders, the doctrine of indoor management
protects outsiders against the actions of a company. This doctrine also is a safeguard against the
possibility of abusing the doctrine of constructive notice.
Question 18
What is the minimum number of persons required to form a Private company and a Public company.
Explain the consequences when the number of members falls below the minimum prescribed limit.
(6 Marks Nov 21)
Answer 18
According to section 3 of the Companies Act, 2013, a company may be formed for any lawful purpose
by—
(a) 7 or more persons, where the company to be formed is to be a public company;
(b) 2 or more persons, where the company to be formed is to be a private company; or
by subscribing their names or his name to a memorandum and complying with the requirements of this Act
in respect of registration.
According to section 3A,
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 If at any time the number of members of a company is reduced,

 in the case of a public company, below 7,
 in the case of a private company, below 2,
and the company carries on business for more than six months while the number of members
is so reduced, then
 every person who is a member of the company during the time that it so carries on business after
those six months and is cognizant (aware) of the fact that it is carrying on business with less than
seven members or two members, as the case may be,
 shall be severally liable for the payment of the whole debts of the company contracted during that
time (after six months) and may be severally sued therefore.
Question 19
If a company is registered by furnishing incorrect information then its winding up may be ordered by:
(a) Central Government
(b) Registrar of Companies
(c) National Company Law Tribunal
(d) Court (1 Mark April 21)
Answer 19
The Answer is (c)
Question 20
L made an offer to MD of a company. MD accepted the offer though he had no authority to do so.
Subsequently L withdrew the offer but the company ratified the MD’s acceptance. State which of the
statement given hereunder is correct:
(a) L was bound with the offer
(b) An offer once accepted cannot be withdrawn
(c) Both option (a) & (b) is correct
(d) L is not bound to an offer. (2 Marks Mar ’19, Oct 19)
Answer 20
(d)
Question 21
Mr. X, in association with his relative formed a company to promote education for the children of
poor section. A licence was issued by the Central Government allowing the said company to be
registered under section 8 of the Company. Government aids and lot of funds were contributed by
public for the fulfilment of the benevolent object. However, on the compliant against the company,
CG came to know about the manipulation of the funds in the company and so order to revoke the
licence of the company. Further, directed for the amalgamation with another company registered
under this section with an object to save girl child.
Examine the legal position as to the order passed by the Central government in the given situation in
the light of the Companies Act, 2013. (6 Marks Oct ‘18)
Answer 21
As per the Section 8 of the Companies Act, 2013, the Central Government may by order revoke the
license of the company where the company contravenes any of the requirements or the conditions of this
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sections subject to which a license is issued or where the affairs of the company are conducted
fraudulently, or violative of the objects of the company or prejudicial to public interest.
Where a license is revoked, the Central Government may, by order, if it is satisfied that it is essential in
the public interest, direct that the company be wound up under this Act or amalgamated with another
company registered under this section.
Where a license is revoked and where the Central Government is satisfied that it is essential in the public
interest that the company registered under this section should be amalgamated with another company
registered under this section and having similar objects, then, the Central Government may, by order,
provide for such amalgamation to form a single company with such constitution, properties, powers, rights,
interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the
order.
According to the given situation, on revocation of licence, the Central Government ordered for the
amalgamation of the company with the separate entity registered under the section 8 of the Companies Act,
2013. However, an object for which both the Companies formed were promoting different objects.
Accordingly, the order passed by the Central Government after the revocation of license, is not in
compliance of the Section 8 of the Companies Act, 2013.
Question 22
Kamya Ltd. is incorporated on 3rd January, 2021. As per the Companies Act, 2013, what will be the
financial year for the company:
(a) 31st March, 2021
(b) 31st December, 2021
(c) 31st March, 2022
(d) 30th September, 2022 (2 Marks March ‘22)
Answer 22 : (C)
Question 23
Gully Gilli Danda Club was formed as a Limited Liability Company under section 8 of the Companies
Act, 2013 with the object of promoting Gilli Danda by arranging introductory courses at district level
and friendly matches. The club has been earning surplus. Of late, the affairs of the company are
conducted fraudulently and dividend was paid to its members. Mr. A, a member decided to make a
complaint with Regulatory Authority to curb the fraudulent activities by cancelling the licence given to
the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state the provisions.
(ii) Whether the company may be wound up?
(iii) Whether the Gully Gilli Danda Club can be merged with Stick Private Limited, a company engaged in
the business of networking? (5 Marks March ‘22)
Answer 23
(i) According to section 8(6) of the Companies Act, 2013, the Central Government may by order revoke the
licence of the company where the company contravenes any of the requirements or the conditions of
section 8 subject to which a licence is issued or where the affairs of the company are conducted
fraudulently, or in violation of the objects of the company or prejudicial to public interest, and on
revocation, the Registrar shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the register.
But before such revocation, the Central Government must give it a written notice of its intention to revoke
the licence and opportunity to be heard in the matter.
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Hence, in the instant case, the Central Government can revoke the license given to Gully Gilli Danda Club as
section 8 company, as the affairs of the company are conducted fraudulently and dividend was paid to its
members which is in contravention to the conditions given under section 8.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is essential in the
public interest, direct that the company be wound up under this Act or amalgamated with another
company registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of being
heard. [Section 8(7)]. Hence, the stated company may be wound up.
(iii) A company registered under this section shall amalgamate only with another company registered under
this section and having similar objects. [Section 8(10)]
In the instant case, Gully Gilli Danda Club cannot be merged with Stick Private Limited as the objects of
both the companies are different and not similar.
Question 24
__________cannot be a subscriber to the Memorandum of Association and Articles of Association.
(a) A company
(b) Government
(c) Minor
(d) Major (1 Mark April 22)
Answer 24 : (c)
Question 25
In case of a private company, the provisions for entrenchment may be made at the time of formation of
the company or by amendment of articles,
(a) By passing a special resolution
(b) With the consent of all the members
(c) By passing a special resolution and approval of the Central Government
(d) With the consent of all the members and approval of the Central Government (1 Mark April 22)
Answer 25 : (b)
Question 26
Where a company is granted licence under section 8, it is not required to use the word …………… even
though it is a limited company:
(a) Guarantee company
(b) Limited Liability Partnership
(c) Limited or Private Limited, as the case may be
(d) Development Authority (1 Mark April 22)
Answer 26 : (c)
Question 27
Sai along with his six friends desires to incorporate a Section 8 Company under the Companies Act, 2013.
He is seeking your advice in the following matters :
(i) What is the minimum paid-up capital requirement in case of a Section 8 Company ?
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(ii) Whether a firm can be member of the Section 8 Company ?

(iii) Whether the Section 8 Company can pay dividend to its members ?
Advise, Sai with reference to the provisions of Companies Act, 2013. (5 Marks April 22)
Answer 27
(i) The requirement of having a minimum paid up share capital shall not apply to a section 8 company vide
notification dated 5th June 2015.
(ii) Yes, under section 8(3) of the Companies Act, 2013, a firm may be a member of the company registered under
section 8.
(iii) According to Section 8(1)(c) of the Companies Act, 2013, section 8 company cannot pay dividend to its
members as it prohibits the payment of dividends to its members.
Question 28
Paritosh and friends got registered a company in the name of Taxmann advisory Private Limited. Taxmann
is a registered trademark. After 5 years when the owner of trademark came to know about the same, it
filed an application with relevant authority. Can the company be compelled to change its name by the
owner of trademark? Can the owner of registered trademark request the company and then company
changes its name at its discretion? (6 Marks April 22)
Answer 28
According to section 16 of the Companies Act, 2013 if a company is registered by a name which,—
 in the opinion of the Central Government, is identical with the name by which a company had been
previously registered, it may direct the company to change its name. Then the company shall by
passing an ordinary resolution change its name within 3 months.
 is identical with a registered trade mark and owner of that trade mark apply to the Central
Government within three years of incorporation of registration of the company, it may direct the
company to change its name. Then the company shall change its name by passing an ordinary
resolution within 3 months.
Company shall give notice to ROC along with the order of Central Government within 15 days of change. In
case of default, company and defaulting officer are punishable.
In the given case, owner of registered trademark is filing objection after 5 years of registration of
company with identical name. While it should have filed the same within 3 years. Therefore, the company
cannot be compelled to change its name. As per section 13, company can anytime change its name by
passing a special resolution and taking approval of Central Government. Therefore, if owner of registered
trademark requests the company for change of its name and the company accepts the same then it can
change its name voluntarily by following the provisions of section 13.
Question 29
A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited liability
company to impart class room teaching and aircraft flight training to trainee pilots. It was decided to
form a limited liability company for charitable purpose under Section 8 of the Companies Act, 2013 for a
period of ten years and thereafter the club will be dissolved and the surplus of assets over the liabilities,
if any, will be distributed amongst the members as a usual procedure allowed under the Companies Act,
2013. Examine the feasibility of the proposal and advise the promoters considering the provisions of
the Companies Act, 2013. (5 Marks Oct 20)
Answer 29
According to section 8(1) of the Companies Act, 2013, where it is proved to the satisfaction of the
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Central Government that a person or an association of persons proposed to be registered under this Act
as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members;
the Central Government may, by issue of licence, allow that person or association of persons to be
registered as a limited liability company.
In the instant case, the decision of the group of individuals to form a limited liability company for
charitable purpose under section 8 for a period of ten years and thereafter to dissolve the club and to
distribute the surplus of assets over the liabilities, if any, amongst the members will not hold good, since
there is a restriction as pointed out in point (b) above regarding application of its profits or other income
only in promoting its objects. Further, there is restriction in the application of the surplus assets of such a
company in the event of winding up or dissolution of the company as provided in sub-section (9) of
Section 8 of the Companies Act, 2013. Therefore, the proposal is not feasible.
Question 30
In a General meeting of Alpha Limited, the chairman directed to exclude certain matters detrimental to
the interest of the company from the minutes, Mukesh, a shareholder contended that the minutes of the
meeting must contain fair and correct summary of the proceedings thereat. Decide, whether the
contention of Mukesh is maintainable under the provisions of the Companies Act, 2013? (Oct ’19 , 5
Marks)
Answer 30
Under Section 118 (5) of the Companies Act, 2013, there shall not be included in the Minutes of a meeting,
any matter which, in the opinion of the Chairman of the meeting:
(i) is or could reasonably be regarded as defamatory of any person;
(ii) is irrelevant or immaterial to the proceeding; or
(iii) is detrimental to the interests of the company;
Further, under section 118(6) the chairman shall exercise absolute discretion in regard to the inclusion or
non-inclusion of any matter in the Minutes on the grounds specified in sub-section (5) above.
Hence, in view of the above, the contention of Mukesh, a shareholder of Alpha Limited is not valid because
the Chairman has absolute discretion on the inclusion or exclusion of any matter in the minutes for
aforesaid reasons.
Question 31
Where a company is granted licence under section 8, it is not required to use the word …………… even
though it is a limited company:
(a) Guarantee company
(b) Limited Liability Partnership
(c) Limited or Private Limited, as the case may be
(d) Development Authority (1 Mark)( Sep’22)
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Answer 31: (c)
Question 32
The Best Dry Fruits Ltd was incorporated under the Companies Act, 1913. Whether the provisions of the
Companies Act, 2013 shall apply on it:
(a) No, the provisions of the Companies Act, 2013 shall not apply on it .
(b) Yes, the provisions of the Companies Act, 2013 shall apply on it .
(c) The Companies Act, 1913 was enacted by the British Government, hence only an Act made
by British Government shall apply on such company.
(d) Since, this company was incorporated by the British Government, hence the Companies Act
of UK Govt shall apply. (2 Marks)( Sep’22)
Answer 32: (b)
Question 33
Octagon Limited is holding 58% of the paid up share capital of Pentagon Limited. Vijay, one of the
shareholders of Octagon Limited, holding 10% shares of the company, has made a charitable trust. He
donated his 10% shareholding in Octagon Limited and ₹ 20 crore to the trust. He appointed Pentagon
Limited as the trustee. All the assets of the trust are held in the name of Pentagon Limited.
As per the provisions of the Companies Act, 2013, decide whether Pentagon Limited can hold
shares of Octagon Limited. (6 Marks)(Sep’22 & March ;23)
Answer 33
According to section 19 of the Companies Act, 2013 a company shall not hold any shares in its holding
company either by itself or through its nominees. Also, holding company shall not allot or transfer its shares
to any of its subsidiary companies and any such allotment or transfer of shares of a company to its
subsidiary company shall be void.
Following are the exceptions to the above rule—
(a) where the subsidiary company holds such shares as the legal representative of a deceased member of the
holding company; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding
company but in this case, it will not have a right to vote in the meeting of holding company.
In the given case, one of the shareholders of holding company (Octagon Limited) has transferred his shares
in the holding company to a trust where the shares will be held by subsidiary company (Pentagon Limited). It
means now subsidiary will hold shares in the holding company. But it will hold shares in the capacity of a
trustee. Therefore, we can conclude that in the given situation Pentagon Limited can hold shares in Octagon
Limited.
Question 34
Explain the provisions of the Companies Act, 2013 relating to the ‘Service of Documents’ on a
company and the members of the company? (5 Marks)(Sep’22)
Answer 34
Under section 20 of the Companies Act, 2013 a document may be served on a company or an officer thereof
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by sending it to the company or the officer at the registered office of the company by registered post or by
speed post or by courier service or by leaving it at its registered office or by means of such electronic or
other mode as may be prescribed. However, in case where securities are held with a depository, the records
of the beneficial ownership may be served by such depository on the company by means of electronic or
other mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of documents with the
registrar in electronic mode, a document may be served on Registrar or any member by sending it to him by
post or by registered post or by speed post or by courier or by delivering at his office or address, or by such
electronic or other mode as may be prescribed. However, a member may request for delivery of any
document through a particular mode, for which he shall pay such fees as may be determined by the
company in its annual general meeting.
Question 35
The persons (not being members) dealing with the company are always protected by the doctrine of
indoor management. Explain. (6 Marks)(Sep’22)
Answer 35
Doctrine of Indoor Management
According to this doctrine, persons dealing with the company need not inquire whether internal proceedings
relating to the contract are followed correctly, once they are satisfied that the transaction is in accordance with the
memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly or whether
necessary resolution was passed properly. They are entitled to take it for granted that the company had gone
through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people are entitled to
presume that internal proceedings are as per documents submitted with the Registrar of Companies.
The doctrine of indoor management is opposite to the doctrine of constructive notice. Whereas the doctrine of
constructive notice protects a company against outsiders, the doctrine of indoor management protects outsiders
against the actions of a company. This doctrine also is a safeguard against the possibility of abusing the doctrine
of constructive notice.
Question 36
P Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013
with the object of promoting cricket by arranging introductory cricket courses at district level and friendly
matches. The club has been earning surplus. Of late, the affairs of the company are conducted
fraudulently and dividend was paid to its members. Mr. Y, a member decided make a complaint with
Regulatory Authority to curb the fraudulent activities by cancelling the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state the provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the P Cricket Club can be merged with Z Net Private Limited, a company engaged in the business
of networking?(5 Marks) (Oct’22)
Answer 36
(i) According to section 8(6) of the Companies Act, 2013, the Central Government may by order revoke the
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licence of the company where the company contravenes any of the requirements or the conditions of
section 8 subject to which a licence is issued or where the affairs of the company are conducted
fraudulently, or in violation of the objects of the company or prejudicial to public interest, and on
revocation, the Registrar shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the register.
But before such revocation, the Central Government must give it a written notice of its intention to revoke
the licence and opportunity to be heard in the matter.
Hence, in the instant case, the Central Government can revoke the license given to P Cricket Club as section
8 company, as the affairs of the company are conducted fraudulently and dividend was paid to its members
which is in contravention to the conditions given under section 8.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is essential in the
public interest, direct that the company be wound up under this Act or amalgamated with another company
registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of being heard.
[Section 8(7)] Hence, the stated company may be wound up.
(iii) A company registered under this section shall amalgamate only with another company registered under this
section and having similar objects. [Section 8(10)]
In the instant case, P Cricket Club cannot be merged with Z Net Private Limited as the objects of both the
companies are different and not similar.
Question 37
The Articles of Association of a Company may contain provisions for entrenchment under Section 5 of the
Companies Act, 2013. What is meant by entrenchment provisions in this context? Also state the relevant
provisions of the said Act dealing with entrenchment provisions. (6 Marks) (Oct’22)
Answer 37
Entrenchment: Usually an article of association may be altered by passing special resolution but entrenchment
makes it more difficult to change it. So, entrenchment means making something more protective.
Section 5 of the Companies Act, 2013 describes the provisions relating to entrenchment.
Articles may contain provisions for entrenchment [Section 5(3)]: The articles may contain provisions for
entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures
as that are more restrictive than those applicable in the case of a special resolution, are met or complied with.
Manner of inclusion of the entrenchment provision [Section 5(4)]: The provisions for entrenchment shall only be
made either on formation of a company, or by an amendment in the articles agreed to by all the members of the
company in the case of a private company and by a special resolution in the case of a public company.
Notice to the registrar of the entrenchment provision [Section 5(5)]: Where the articles contain provisions for
entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of
such provisions in such form and manner as may be prescribed.
Question 38
New Ltd. is incorporated on 3rd January, 2022. As per the Companies Act, 2013, what will be the financial
year for the company:
(a) 31st March, 2022

(b) 31st December, 2022
(c) 31st March, 2023
(d) 30th September, 2023 (2 Marks March ‘23)
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Answer 38 (c)
Question 39
In case of an application for reservation of name or for change of its name by an existing company, the
Registrar may reserve the name for a period of from the date of approval
(a) 90 days
(b) 60 days
(c) 30 days
(d) 20 days (1 Mark April ‘23)
Answer 39 (b)
Question 40
Today, it’s May 2023. Mr. Nilanjan Chattopadhyay a 24 years old Indian youngster, who returned back to
India in January month of 2023 after completing his education in bio-nutrient and willing to form an OPC;
but not sure about the requirements or pre-conditions regarding eligibility. He read some articles on
provisions related to OPC and concluded;
(i) OPC can be formed by Indian Citizen only
(ii) He can’t form OPC because in immediate previous year he was not resident in India
Choose the correct option:
(a) Both the conclusions are valid
(b) None of the conclusion is valid
(c) First conclusion is invalid
(d) Second conclusion is invalid (2 Marks April ‘23)
Answer 40 (d)
Question 41
Mr. Ram along with his brothers got registered a company in the state of Telangana by furnishing false
information knowingly. What action may be taken against the company and its promoters under the
provisions of the companies act, 2013?(4 Marks April ‘23)
Answer 41
As per section 7 of the Companies Act, 2013 where a company has been got incorporated by furnishing
any incorrect information, the Tribunal may on an application made to it, on being satisfied that the
situation so warrants:
(a) pass orders for regulation of the management of the company including changes, if any, in its
memorandum and articles; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section,—
(i) the company shall be given a reasonable opportunity of being heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the company.
Also the promoters, the persons named as the first directors of the company and the persons making
declaration at the time of registration of company shall each be liable for action under section 447.
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Chapter 3
Prospectus and Allotment of Securities
Question 1
An allottee of shares in a Company brought action against a Director in respect of false statements in
prospectus. The director contended that the statements were prepared by the promoters and he has
relied on them. Is the Director liable under the circumstances? Decide referring to the provisions of the
Companies Act, 2013. (Oct’19,5 Marks) (Mar’18, 7 Marks) (Mar’21, 6 Marks)
Answer 1
Yes, the Director shall be held liable for the false statements made in the prospectus under sections 34 and
35 of the Companies Act, 2013. Whereas section 34 imposes a criminal punishment on every person who
authorises the issue of such prospectus, section 35 more particularly includes a director of the company
in the imposition of liability for such mis-statements.
The only situations when a director will not incur any liability for mis-statements in a prospectus are as
under:
(1) No criminal liability under section 34 shall apply to a person if he proves that such statement or
omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue
of the prospectus believe, that the statement was true or the inclusion or omission was necessary.
(2) No civil liability for any mis-statement under section 35 shall apply to a person if he proves that:
(i) having consented to become a director of the company, he withdrew his consent before the issue of
the prospectus, and that it was issued without his authority or consent; or
(ii) the prospectus was issued without his knowledge or consent, and that on becoming aware of its
issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or
consent.
(iii) that, as regards every misleading statement purported to be made by an expert or contained in what
purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair
representation of the statement, or a correct copy of, or a correct and fair extract from, the report
or valuation; and he had reasonable ground to believe and did up to the time of the issue of the
prospectus believe, that the person making the statement was competent to make it and that the said
person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus
and had not withdrawn that consent before filing of a copy of the prospectus with the Registrar or, to
the defendant's knowledge, before allotment thereunder.
Therefore, in the present case the director cannot escape the liability by stating that he had relied on the
promoters for making correct statements in the prospectus. He will be liable for mis-statements in the
prospectus.
Question 2
What is meant by “Abridged Prospectus”? Under what circumstances an abridged prospectus need not
accompany the detailed information regarding prospectus along with the application form? What are the
penalties in case of default in complying with the provisions related to issue of abridged prospectus?
(March’19,4 Marks)(Oct’18, 6 Marks) (Oct’21, 5 Marks)
Answer 2
(1) Meaning of Abridged Prospectus: - According to Section 2(1) of the Companies Act, 2013, an
abridged prospectus means a memorandum containing such salient features of a prospectus as may
be specified by the Securities and Exchange Board by making regulations in this behalf.
(2) Circumstances under which the abridged prospectus need not accompany the application forms:
Section 33 (1) of the Companies Act, 2013 states that no application form for the purchase of any of the
Chapter 3 Prospectus and Allotment of Securities
M 3.2
securities of a company can be issued unless such form is accompanied by an abridged prospectus. In
terms of the Proviso to section 33 (1) an abridged prospectus need not accompany the application form
if it is shown that the form of application was issued:
(i) In connection with a bona fide invitation to a person to enter into an underwriting
agreement with respect to such securities; or
(ii) Where the securities are not offered to the public.
(3) Penalties in case of contravention of provision: a company makes any default in complying with the
provisions of this section, it shall be liable to a penalty of fifty thousand rupees for each default.
Question 3
State in what way does the Companies Act, 2013 regulate and restrict the following in respect of a company
going for public issue of shares:
(i) Minimum Subscription, and
(ii) Application Money payable on shares being issued? (April’19, 5 Marks) (Oct’18, Apr’21, 6 Marks)
Answer 3
The Companies Act, 2013 by virtue of provisions as contained in Section 39 (1) and (2) regulates and
restricts the minimum subscription and the application money payable in a public issue of shares as under:
Minimum subscription [Section 39 (1)]
No Allotment shall be made of any securities of a company offered to the public for subscription;
unless; -
(i) the amount stated in the prospectus as the minimum amount has been subscribed; and
(ii) the sums payable on application for such amount has been paid to and received by the
company-
Application money: Section 39 (2) provides that the amount payable on application on each security shall
not be less than 5% of the nominal amount of such security or such amount as SEBI may prescribe by
making any regulations in this behalf.
Further section 39 (3) provides that if the stated minimum amount is not received by the companywithin 30
days of the date of issue of the prospectus or such time as prescribed by SEBI, the company will be required
to refund the application money received within such time and manner as may be prescribed.
Rule 11 (1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 mentions that if the
stated minimum amount has not been subscribed and the sum payable on application is not received
within the period specified therein, then the application money shall be repaid within a period of fifteen
days from the closure of the issue and if any such money is not so repaid within such period, the directors
of the company who are officers in default shall jointly and severally be liable to repay that money with
interest at the rate of fifteen percent per annum.
In case of any default under sub-section, the company and its officer who is in default shall be liable to a
penalty, for each default, of one thousand rupees for each day during which such default continues or one
lakh rupees, whichever is less.
Section 40 (3) provides that all moneys received on application from the public for subscription to the
securities shall be kept in a separate bank account maintained with a scheduled bank.
Question 4
Examine the validity of the following statement referring to the provisions of the Companies Act, 2013
and/or Rules: “The Articles of Association of X Ltd. contained a provision that upto 4% of issue price of’
the shares may be paid as underwriting commission to the underwriters. The Board of Directors of X Ltd.
decided to pay 5% underwriting commission. (April’19, 5 Marks)
Answer 4
Section 40 (6) of the Companies Act 2013, provides that a company may pay commission to any person in
connection with the subscription or procurement of subscription to its securities, whether absolute or
conditional, subject to the number of conditions which are prescribed under Companies (Prospectus and
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Allotment of Securities) Rules, 2014. Under the Companies (Prospectus and Allotment of Securities) Rules,
2014 the rate of commission paid or agreed to be paid shall not exceed, in case of shares, five percent (5%)
of the price at which the shares are issued or a rate authorized by the articles, whichever is less. In the
given problem, the articles of X Ltd. have prescribed 4% underwriting commission but the directors decided
to pay 5% underwriting commission.
Question 5
With a view to issue shares to the general public a prospectus containing some false information was
issued by a company. Mr. X received copy of the prospectus from the company, but did not apply for
allotment of any shares. The allotment of shares to the general public was completed by the company
within the stipulated period. A few months later, Mr. X bought 2000 shares through the stock exchange at
a higher price which later on fell sharply. X sold these shares at a heavy loss. Mr. X claims damages from
the company for the loss suffered on the ground the prospectus issued by the company contained a false
statement. Referring to the provisions of the Companies Act, 2013 examine whether X’s claim for
damages is justified (March’18,6 Marks)
Answer 5
Under section 2 (70) of the Companies Act, 2013, “prospectus” means any document described or issued as
a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectusreferred to in
section 31 or any notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate.
A prospectus is a document inviting offers from the public. The prospectus and any statement therein has
no legal binding either on the company or its directors, promoters or experts to a person who has not
purchased securities in response to it.
Since, X purchased shares through the stock exchange (open market) which cannot be said to have bought
shares on the basis of prospectus
X cannot bring action for deceit against the directors. Hence, X will not succeed. It was also held in the case
of Peek Vs. Gurney that the above-mentioned remedy by way of damage will not be available to a person if
he has not purchased the shares on the basis of prospectus.
Question 6
Examine the validity of these allotments in the light of the provisions of the Companies Act, 2013
(i) Mars India Ltd. owed to Sunil Rs. 1,000. On becoming this debt payable, the company offered Sunil
10 shares of Rs. 100 each in full settlement of the debt. The said shares were fully paid and were
allotted to Sunil.
(ii) The Board of Directors of Reckless Investments Ltd. have allotted shares to the investors of the
company without issuing a prospectus with the concerned Registrar of Companies. Explain the
remedy available to the investors in this regard.
(Aug’18,7 Marks)
Answer 6
(i) Under section 62 (1) (c) of the Companies Act, 2013 where at any time, a company having a share
capitalproposes to increase its subscribed capital by the issue of further shares, either for cash or for a
consideration other than cash, such shares may be offered to any persons, if it is authorised by a
special resolution and if the price of such shares is determined by a valuation report of a registered
valuer, subject to the compliance with the applicable provisions of Chapter III and any other
conditions as may be prescribed.
In the present case, Mars India Ltd is empowered to allot the shares to Sunil in settlement of its debt
to him. The issue will be classified as issue for consideration other than cash must be approved by the
members by a special resolution. Further, the valuation of the shares must be done by a registered
valuer, subject to the compliance with the applicable provisions of Chapter III and any other
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(ii) According to Section 23 of the Companies Act, 2013, a public company can issue securities to the
public only by issuing a prospectus. Section 26 (1) lays down the matters required to be disclosed and
included in a prospectus and requires the registration (filing) of the prospectus with the Registrar
before its issue.
In the given case, the company has violated with the above provisions of the Act and hence the
allotment made is void. The company will have to refund the entire moneys received and will also be
punishable under section 26 of the Act.
Question 7
Dwapar Equipment Finance Limited, a non-banking finance company (NBFC), is desirous of offering
secured, redeemable, non-convertible 9% Debentures to the public in three or more tranches over a
certain period of time. Which kind of prospectus it is required to issue so that its purpose is served and
there arises no need to take out a fresh prospectus for second and subsequent offer of securities.
(Oct’19, 2 Marks)
(a) Deemed Prospectus. (b) Shelf Prospectus.
(c) Red Herring Prospectus. (d) Abridged prospectus.
Answer 7
The Answer is (b)
Question 8
Sudarshan Exports Ltd. was dealing in export of rubber to specified foreign countries. The company was
willing to purchase rubber trees in Andhra Pradesh. The prospectus issued by the company contained
some important extracts of the expert report and number of trees in Andhra Pradesh. The report was
found untrue. Mr. Alok purchased the shares of Sudarshan Exports Ltd. on the basis of the expert report
published in the prospectus. Will Mr. Alok have any remedy against the company? State also the
circumstances where an expert is not liable under the Companies Act, 2013. (5 Marks May 20)
Answer 8
Under section 35 (1) of the Companies Act 2013, where a person has subscribed for securities of a
company acting on any statement included in the prospectus which is misleading and has sustained any
loss or damage as a consequence thereof, the company and every person including an expert shall, be
liable to pay compensation to the person who has sustained such loss or damage.
In the present case, Mr. Alok purchased the shares of Sudarshan Exports Ltd. on the basis of the expert
report published in the prospectus. Mr. Alok can claim compensation for any loss or damage that he might
sustained from the purchase of shares, which has not been mentioned in the given case.
Hence, Mr. Alok will have no remedy against the company.
Circumstances when an expert is not liable: An expert will not be liable for any mis- statements in the
prospectus under the following situations:
(i) Under section 26 (5), that having given his consent, but withdrew it in writing before delivery of the
copy of prospectus for registration (filing), or
(ii) Under section 35 (2), that the prospectus was issued without his knowledge / consent and that on
becoming aware of it, he forthwith gave a reasonable public notice that it was issued without his
knowledge or consent;
(iii) that, as regards every misleading statement purported to be made by an expert or contained in what
purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair
representation of the statement, or a correct copy of, or a correct and fair extract from, the report or
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valuation; and he had reasonable ground to believe and did up to the time of the issue of the
prospectus believe, that the person making the statement was competent to make it and that the said
person had given the consent required by section 26(5) to the issue of the prospectus and had not
withdrawn that consent before delivery of a copy of the prospectus for registration or, to the
defendant's knowledge, before allotment thereunder.
Question 9
When a copy of the contract for the payment of underwriting commission is required to be delivered
to the Registrar:
(a) Three days before the delivery of the prospectus for registration
(b) At the time of delivery of the prospectus for registration
(c) Three days after the delivery of the prospectus for registration
(d) Five days after the delivery of the prospectus for registration (1 Mark Oct 20)
Answer 9
The Answer is (b)
Question 10
A prospectus which does not include complete particulars of the quantum or price of the securities
included therein is called:
(a) A deemed Prospectus
(b) A Shelf Prospectus
(c) An Abridged Prospectus
(d) A Red Herring Prospectus (1 Mark Oct 21)
Answer 10
The Answer is (d)
Question 11
The minimum amount of subscription in a public issue shall be received within days from the date
of issue of prospectus.
(a) 30
(b) 60
(c) 90
(d) 120 (1 Mark Oct 21)
Answer 11
The Answer is (a)
Question 12
Which of the following statements is not true?
(a) in case of shares, the rate of underwriting commission to be paid shall not exceed five percent
of the issue price of the share.
(b) underwriting commission should not be more than the rate specified by the Article o f
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Association.
(c) in case of debentures, the rate of underwriting commission shall not exceed five percent of
the issue price of the debentures.
(d) amount of commission may be paid out of profits of the company. (2 Marks Oct 21)
Answer 12
The Answer is (c)
Question 13
Part of the capital for which application have been received from the public and shares allotted to
them: (1 Mark Oct ‘19)
(a) Nominal capital
(b) Issued capital
(c) Subscribed capital
(d) Called up capital
Answer 13
The Answer is (c)
Question 14
The time limit within which a copy of the contract for the payment of underwriting commission is
required to be delivered to the Registrar is:
(a) Three days before the delivery of the prospectus for registration
(b) At the time of delivery of the prospectus for registration
(c) Three days after the delivery of the prospectus for registration
(d) Five days after the delivery of the prospectus for registration (1 Mark March ‘22)
Answer 14
The Answer is (b)
Question 15
Swati Limited is intending to issue its securities on private placement basis. Explain to the directors of
the company, the provisions of the Companies Act, 2013, on the following matters:
(i) Meaning of Private Placement
(ii) ‘Time Limit for Allotment of Securities’ and ‘repayment of application money in case of
default in allotment.’ (5 Marks March ‘22)
Answer 15
(i) Meaning of ‘Private Placement’: As per Explanation I to section 42(3), the term "private
placement" means any offer or invitation to subscribe or issue of securities to a select group of
persons by a company (other than by way of public offer) through private placement offer - cum-
application, which satisfies the conditions specified in section 42.
(ii) ‘Time Limit for Allotment of Securities’ and ‘repayment of application money in case of default
in allotment’: A company making an offer or invitation under section 42 shall allot its securities
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within sixty days from the date of receipt of the application money for such securities and if the
company is not able to allot the securities within that period, it shall repay the application money
to the subscribers within fifteen days from the expiry of sixty days and if the company fails to
repay the application money within the aforesaid period, it shall be liable to repay that money
with interest at the rate of twelve per cent per annum from the expiry of the sixtieth day.
Question 16
ABC Limited proposes to issue series of debentures frequently within a period of one year to raise the
funds without undergoing the complicated exercise of issuing the prospectus every time of issuing a
new series of debentures. Examine the feasibility of the proposal of ABC Limited having taken into
account the concept of deemed prospectus dealt with under the provisions of the Companies Act,
2013. (3 Marks March ‘22)
Answer 16
Information Memorandum together with Shelf Prospectus is deemed Prospectus . The expression “shelf
prospectus” means a prospectus in respect of which the securities or class of securities included therein
are issued for subscription in one or more issues over a certain period without the issue of a further
prospectus. [Explanation to Section 31]
Any class or classes of companies, as the Securities and Exchange Board may provide by regulations in
this behalf, may file a shelf prospectus with the Registrar at the stage-
(i) of the first offer of securities included therein which shall indicate a period not exceeding one year
as the period of validity of such prospectus which shall commence from the date of opening of the
first offer of securities under that prospectus, and
(ii) in respect of a second or subsequent offer of such securities issued during the period of validity of
that prospectus,
No further prospectus is required for issue of securities. [ Sub-section (1)]
Hence, the proposal of ABC Limited to take into account the concept of deemed prospectus is correct.
Question 17
The paid up share capital of ABC Ltd. Is 5000000 shares of Rs. 200 each. 20% of its paid up share capital is
held by 4 of its promoters, who wants to off load their holding by making an offer of sale to the public by
issuing a prospectus. They want to authorise someone to take all actions and complete all formalities related
to such offer of sale. From the following who can be authorised by them to do so—
(a) Any person who has agreed to fulfil all the formalities related to such offer of sale
(b) Any one or more director of the company.
(c) Company itself whose shareholding they want to offload.
(d) Any competent officer of the company. (Apr 19,2 Marks)
Answer 17: (c)
Question 18
Extra Limited is a growing Company and requires additional funds for expansion from time to time. They
are following the same process for making an offer to public and then issue those shares. This is very
time and energy consuming for them. Kindly advise them if there is any way out.
a) During first offer they shall file prospectus with a validity on one year, so subsequent offer issued during
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the period of validity of that prospectus, no further prospectus is required;

b) During first offer they shall file prospectus with a validity on two years, so subsequent offer issued during
the period of validity of that prospectus, no further prospectus is required;
c) During first offer they shall file shelf prospectus with a validity on one year, so subsequent offer issued
during the period of validity of that prospectus, no further prospectus is required;
d) During first offer they shall file shelf prospectus with a validity on two years, so subsequent offer issued
during the period of validity of that prospectus, no further prospectus is required. (1 Mark May 20)
Answer 18
The Answer is the (c)
Question 19
Being in need of further capital, Rimsi Cotton-Silk Products Limited opted to offer 50.00 lacs equity shares
of Rs. 1 each to 50 identified persons on ‘private placement’ basis and accordingly a letter of offer
accompanied by serially numbered application form was sent to them after fulfillment of due formalities
including passing of special resolution. One of the applicants, Rajan made a written complaint to the
company highlighting the fact that the letter of offer was incomplete as well as illegal, for the same did not
contain ‘renunciation clause’ though he wanted to exercise his ‘right of renunciation’ in favour of one of his
son Uday. By choosing the correct option, advise the company in this matter. (Oct’19, 2 Marks)
(a) As the ‘Right of Renunciation’ cannot be denied, the company needs to rectify its mistake by
including the same in the letter of offer and the application form.
(b) The company is prohibited from providing ‘Right of Renunciation’ and therefore, the letter of offer
and the application form need not include any such clause.
(c) Instead of absolute prohibition, the company needs to provide ‘Right of Renunciation’ limited to twenty
five percent of offering.
(d) Instead of absolute prohibition, the company needs to provide ‘Right of Renunciation’ limited to fifty
percent of offering.
Answer 19 : The Answer is (b)
Question 20
Purple Limited wants to raise funds for its upcoming project. Accordingly, it has issued private placement
offer letters for issuing equity shares to 55 persons, of which four are qualified institutional buyers and
remaining are individuals. Before the completion of allotment of equity shares under this offer letter,
company issued another private placement offer letter to another 155 persons in their individual names
for issue of its debentures.
Being a public company is it possible for Purple Limited to issue securities under a private placement
offer? By doing so, whether the company is in compliance with provisions relating to private placement or
should these offers be treated as public offers? What if the offer for debentures is given after allotment of
equity shares but within the same financial year? (6 Marks)
(Oct’22)
Answer 20
According to section 42 of the Companies Act, 2013 any private or public company may make private
placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher number as may be
prescribed, in a financial year. For counting number of persons, Qualified Institutional Buyers (QIBs) and
employees of the company being offered securities under a scheme of employees’ stock option will not be
considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes
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maximum of 200 persons who can be offered securities under the private placement in a financial year,
though this limit should be counted separately for each type of security.
It is to be noted that if a company makes an offer or invitation to more than the prescribed number of
persons, it shall be deemed to be an offer to the public and accordingly, it shall be governed by the
provisions relating to prospectus.
Also, a company is not permitted to make fresh offer under this section if the allotment with respect to any
offer made earlier has not been completed or otherwise, that offer has been withdrawn or abandoned by
the company. This provision is applicable even if the issue is of different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer
and all provisions will apply accordingly.
In the given case Purple Limited, though a public company can raise funds through private placement as
provisions related to private placement allow even a public company to raise funds through this route. The
company has given offer to 55 persons out of which 4 are qualified institutional buyers and hence, the offer
is given effectively to only 51 persons which is well within the limit of 200 persons. From this point of view,
the company complies the private placement provisions.
However, as per the question, the company has given another private placement offer of debentures before
completing the allotment in respect of first offer and therefore, the second offer does not comply with the
provisions of section 42. Hence, the offers given by the company will be treated as public offer.
In case the company gives offer for debentures in the same financial year after allotment of equity shares is
complete then both the offers can well be treated as private placement offers.
Question 21
Shilpi Developers India Limited owed to Sunil ` 10,000. On becoming this debt payable, the company
offered Sunil 100 shares of ` 100 each in full settlement of the debt. The said shares were allotted to
Sunil as fully paid-up in lieu of his debt. Examine the validity of this allotment in the light of the
provisions of the Companies Act, 2013. (5 Marks March ‘23)
Answer 21
Under Section 62 (1) (c) of the Companies Act, 2013 where at any time, a company having a share
capital proposes to increase its subscribed capital by the issue of further shares, either for cash or for a
consideration other than cash, such shares may be offered to any persons, if it is authorised by a special
resolution and if the price of such shares is determined by the valuation report of a registered valuer
(valuation report of a registered valuer, subject to the compliance with the applicable provisions of
Chapter III and any other conditions as may be prescribed).
In the present case, Shilpi Developers India Limited’s allotment, to be classified as shares issued for
consideration other than cash, must be approved by the members by a special resolution. Further, the
valuation of the shares must be done by a registered valuer, subject to the compliance with the
applicable provisions of Chapter III and any other conditions as may be prescribed.
Question 22
Which of the following statement is contrary to the provisions of the Companies Act, 2013?
(a) A private company can make a private placement of its securities.
(b) The company has to pass a special resolution for private placement.
(c) Minimum offer per person should have Market Value of ` 20,000.
(d) A public company can make a private placement of its securities. (2 Marks April ‘23)
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Answer 22 (c)
Question 23
Bheem Ltd. issued 1,00,000 equity shares of ` 100 each at par to the public by issuing a prospectus. The
prospectus discloses the minimum subscription amount of ` 15,00,000 required to be received on
application of shares and share application money shall be payable at ` 20 per share. The prospectus
further reveals that Bheem Ltd. has applied for listing of shares in 3 recognized stock exchanges of which 1
application has been rejected. The issue was fully subscribed and Bheem Ltd. received an amount of `
20,00,000 on share application. Bheem Ltd., then proceeded for allotment of shares.
Examine the three disclosures in the above case study which are the deciding factors in an allotment of
shares and the consequences for violation, if any under the provisions of the Companies Act, 2013. (6
Marks April ‘23)
Answer 23
As per the requirement of the question, disclosures which are the deciding factors in an allotment of
shares are laid down in section 39 of the Companies Act, 2013.
According to section 39(1), no allotment of any securities of a company offered to the public for
subscription shall be made unless-
 the amount stated in the prospectus as the minimum amount has been subscribed, and
 the sums payable on application for the amount so stated have been paid to and received by the
company by cheque or other instrument.
The amount payable on application on every security shall not be less than five per cent of the nominal
amount of the security or such other percentage or amount, as may be specified by the Securities and
Exchange Board by making regulations in this behalf.
In the question, Bheem Ltd. issued shares to public by issuing of prospectus, disclosing minimum
subscription, sum payable on application for the amount; and the amount received on share application is
more than 5% of the nominal amount of the security.
Further, it revealed that Bheem Ltd. has applied for listing of shares in 3 recognized stock exchanges of
which one application was rejected.
In the given instance, there is compliance to section 23, as nothing is talked about matters required to
be included in the prospectus under section 26 (1) and about filing with the registrar; assuming that the
said requirements have been complied with, requirement of section 39 as regards obtaining of minimum
subscription and the minimum amount receivable on application (not less than 5% of the nominal
value of the securities offered) are fulfilled.
The provisions of section 40 of the Companies Act, 2013 states that every company making public offer
shall, before making such offer, make an application to one or more recognized stock exchange or
exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.
The above provision is very clear that not only the company has to apply for listing of the securities at a
recognized stock exchange, but also obtain permission thereof from all the stock exchanges where it has
applied, before making the public offer. Since one of the three recognized stock exchanges, where the
company has applied for enlisting, has rejected the application and the company has proceeded with
making the offer of shares, it has violated the provisions of section 40. Therefore, this shall be deemed
to be irregular allotment of shares. Consequently, Bheem Ltd. shall be required to refund the application
money to the applicants in the prescribed manner within the stipulated time frame.
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Chapter 4
Share Capital and Debentures
Question 1
Data Limited (listed on Stock Exchange) was incorporated on 1st October, 2018 with a paid- up share
capital of Rs. 200 crores. Within this small time of 4 months it has earned huge profits and has topped the
charts for its high employee friendly environment. The company wants to issue sweat equity to its
employees. A friend of the CEO of the company has told him that they cannot issue sweat equity shares as
2 years have not elapsed since the time company has commenced its business. The CEO of the company
has approached you to advise them about the essential conditions to fulfilled before the issue of sweat
equity shares especially since their company is just a few months old.? (May’20, March’19,6 Marks)
Answer 1
Sweat equity shares of a class of shares already issued.
According to section 54 of the Companies Act, 2013, a company may issue sweat equity shares of a class of
shares already issued, if the following conditions are fulfilled, namely—
(i) the issue is authorized by a special resolution passed by the company;
(ii) the resolution specifies the number of shares, the current market price, consideration, if
any, and the class or classes of directors or employees to whom such equity shares are to
be issued;
(iii) where the equity shares of the company are listed on a recognized stock exchange, the
sweat equity shares are issued in accordance with the regulations made by the Securities
and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are
issued in accordance with such rules as prescribed under Rule 8 of the Companies (Share
and Debentures) Rules, 2014,
The rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall
be applicable to the sweat equity shares issued under this section and the holders of such shares shall
rank pari passu with other equity shareholders. Data Limited can issue Sweat equity shares by following
the conditions as mentioned above. It does not make a difference that the company is just a few
months old.
Question 2
Dhyan Dairy Ltd., a dairy products manufacturing company wants to set-up a new processing unit at
Udaipur. Due to paucity of funds, the existing shareholders are not willing to fund for expansion. Hence,
the Company approached Shayam Ltd. for subscribing to the shares of the Company for expansion
purposes. Can Dhyan Dairy Ltd. issue shares only to Shayam Ltd. under the provisions of the Companies
Act, 2013? If so, state the conditions. (March’18,6 Marks)
Answer 2
Issue of Further Shares: According to Section 62 (1) of the Companies Act, 2013 if at any time, a company
having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares
should be offered to –
(i) the existing equity shareholders of the company as at the date of the offer, in proportion to the
capital paid up on those shares.
(ii) employees under a scheme of employees’ stock option subject to a special resolution passed by the
company and subject to such conditions as may be prescribed.
(iii) to any persons, if it is authorised by a special resolution, whether or not those persons include the
persons referred to in clause (i) or clause (ii), either for cash or for a consideration other than cash, if
the price of such shares is determined by the valuation report of a registered valuer subject to such
Since, in the given case Dhyan Dairy Ltd. approached Shayam Ltd. for subscribing to the shares of the
company for its expansion and Shayam Ltd. is neither an existing equity shareholder of the
company nor an employee, Dhyan Dairy Ltd., if it is authorised by a special resolution, may issues
Chapter 4 Share Capital and Debentures
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shares to Shayam Ltd. either for cash or for a consideration other than cash, subject to the condition
that the price of such shares is determined by the valuation report of a registered valuer.
Question 3
Shree Ltd. is engaged in the manufacture of consumer goods and has got a good brand value. Over
the years, it has built a good reputation and its Balance Sheet as at March 31, 2017 shows the following
position:
Authorized Share Capital (25,00,000 equity shares of face value of ` 10/- each) ` 2,50,00,000
Issued, subscribed and paid-up capital (10,00,000 equity shares of face value of `10/- each, fully paid-up)
` 1,00,00,000
Free Reserves ` 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares held by the
existing shareholders. The Board wants to know the conditions and the manner of issuing bonus shares
under the provisions of the Companies Act, 2013. Discuss. (March ’18 , 6 Marks)
Answer 3
According to Section 63 of the Companies Act, 2013, a company may issue fully paid-up bonus shares to its
members, in any manner whatsoever, out of -
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of
assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves for the purpose of
issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting of
the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any outstanding on the date of allotment, are made fully
paid-up;
(f) it complies with such conditions as may be prescribed.
But the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
Hence, after following the above compliances on issuing bonus shares under the Companies Act, 2013,
Shree Ltd. may proceed for a bonus issue of 1 share for every 2 shares held by the existing shareholders.
Question 4
Write short notes on the following in respect of the provisions of the Companies Act, 2013:
(i) Creation of debenture redemption reserve account.
(ii) Appointment of ‘Debenture Trustee’ by a company. (Aug’18,6 Marks)
Answer 4
(i) Creation of debenture redemption reserve (DRR) account: According to section 71 of the Companies
Act, 2013, where debentures are issued by a company under this section, the company shall create a
debenture redemption reserve account out of the profits of the company available for payment of
dividend and the amount credited to such account shall not be utilized by the company except for the
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redemption of debentures.
(ii) Appointment of Debenture Trustee: Under section 71 (5) of the Companies Act, 2013, no company shall
issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred
for the subscription of its debentures, unless the company has, before such issue or offer, appointed
one or more debenture trustees and the conditions governing the appointment of such trustees shall
be such as may be prescribed.
A debenture trustee shall take steps to protect the interests of the debenture holders and redress their
grievances in accordance with the prescribed rules.
Question 5
OLAF Limited, a subsidiary of PQR Limited, decides to give a loan of Rs. 4,00,000 to the Human Resource
Manager, who is not a Key Managerial Personnel of OLAF Limited, drawing salary of Rs. 30,000 per
month, to buy 500 partly paid-up Equity Shares of Rs. 1000 each in OLAF Limited. Examine the validity
of company's decision under the provisions of the Companies Act, 2013. (Oct’20, Aug ’18 ,6 Marks)
Answer 5
Restrictions on purchase by company or giving of loans by it for purchase of its share: As per section 67
(3) of the Companies Act, 2013 a company is allowed to give a loan to its employees subject to the
following limitations:
(a) The employee must not be a Key Managerial Personnel;
(b) The amount of such loan shall not exceed an amount equal to six months’ salary of
the
employee.
(c) The shares to be subscribed must be fully paid shares
Section 2 (51) of the Companies Act, 2013 defines the “Key Managerial Personnel” (KMP) whereby a KMP
includes the Chief Executive, Company Secretary, Whole Time Director, Chief Financial Officer, such other
officer, not more than one level below the directors who is in whole-time employment, designated as key
managerial personnel by the Board; and such other officer as may be prescribed.
In the given instance, Human Resource Manager is not a KMP of the OLAF Ltd. He is drawing salary of Rs.
30, 000 per month and loan taken to buy 500 partly paid up equity shares of Rs. 1000 each in OLAF
Ltd.
Keeping the above provisions of law in mind, the company’s (OLAF Ltd.) decision is invalid due to two
reasons:
i. The amount of loan being more than 6 months’ salary of the HR Manager, which should
have restricted the loan to Rs. 1.8 Lakhs.
ii. The shares subscribed are partly paid shares whereas the benefit is available only for
subscribing fully paid shares.
Question 6
Corrupt Limited has received a request from Mr. Suresh for transfer of 100 partly paid equity shares, to
Mr. Ramesh. However, Mr. Ramesh expired in the meantime, but no intimation of the same has been
received by the company. In the given circumstances, advise as per the provisions of the Companies
Act, 2013:
(a) Corrupt Limited will not register the transfer the shares in the name of Mr. Ramesh,
without verification from Mr. Suresh
(b) Corrupt Limited can register the shares in the name of Mr. Ramesh as it is not aware of the
untoward incident.
(c) Corrupt Limited will not register the transfer the shares in the name of Mr. Ramesh,
without verification from Mr. Ramesh
(d) Corrupt Limited will give the shares back to Mr. Suresh (March’19, 2 Marks)
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Answer 6
The Answer is (d)
Question 7
The Authorized share capital clause of LMN & Co. ltd. consisted of Preference share capital and Equity
share capital both. With regard to equity share capital, the article of association of the company has
given authorization to issue differential equity shares. Apart from authorization by the Articles, from
the following strike out the condition, which is not mandatory to comply with—
(a) Such issue of shares must be authorized by an ordinary resolution passed at a general meeting of
the shareholders or by postal ballot, as the case may be
(b) The company must have consistent track record of distributable profit for the last five years.
(c) The company has no subsisting default in the payment of the declared dividend to its shareholders.
(d) The company has not defaulted in filing financial statements and annual returns for three financial
years immediately preceding the financial year in which it is decided to issue such shares
.(April’19, 2 Marks)
Answer 7
The Answer is (b)
Question 8
Mr. A was having 500 equity shares of Open Sky Aircrafts Limited. Mr. B acquired these shares of the
company from Mr. A but the signature of Mr. A, the transferor on the transfer deed was forged. The
company registered the shares in the name of Mr. B by issuing share certificate. Mr. B sold 100 equity
shares to Mr. C on the basis of share certificate issued by Open Sky Aircrafts Ltd. Mr. B and Mr. C are
not having the knowledge of forgery. State the rights of Mr. A, Mr. B and Mr. C under the Companies
Act, 2013. (5 Marks May 20)
Answer 8
According to Section 46(1) of the Companies Act, 2013, a share certificate once issued under the
common seal, if any, of the company or signed by two directors or by a director and the Company
Secretary, wherever the company has appointed a Company Secretary”, specifying the shares held by
any person, shall be prima facie evidence of the title of the person to such shares. Therefore, in the
normal course the person named in the share certificate is for all practical purposes the legal owner of
the shares therein and the company cannot deny his title to the shares.
However, a forged transfer is a nullity. It does not give the transferee (Mr. B) any title to the shares.
Similarly any transfer made by Mr. B (to Mr. C) will also not give a good title to the shares as the title of
the buyer is only as good as that of the seller.
Therefore, if the company acts on a forged transfer and removes the name of the real owner (Mr. A)
from the Register of Members, then the company is bound to restore the name of Mr. A as the holder of
the shares and to pay him any dividends which he ought to have received (Barton v. North Staffordshire
Railway Co.).
In the above case, ‘therefore, Mr. A has the right against the company to get the shares recorded in his
name. However, neither Mr. B nor Mr. C have any rights against the company even though they are bona
fide purchasers.
However, since Mr. A seems to be the perpetrator of the forgery, he will be liable both criminally and for
compensation to Mr. B and Mr. C.
Question 9
Prithvi Cements Limited is desirous of issuing debentures carrying voting rights. Which of the
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following options is best suited in such a situation:

(a) Prithvi Cements Limited can issue debentures carrying voting rights if an ordinary resolution is
passed permitting such issue.
(b) Prithvi Cements Limited can issue debentures carrying voting rights if a special resolution is
passed permitting such issue.
(c) Prithvi Cements Limited can issue debentures carrying voting rights if it mortgages land and
buildings worth two times the amount of such debentures.
(d) Prithvi Cements Limited cannot issue debentures carrying voting rights. (1 Mark Oct 20)
Answer 9
The Answer is (d)
Question 10
In a company if any change of right of one class also affects the right of other class, then:
(a) A resolution should be passed in general meeting in this case
(b) Company need not to do anything else
(c) Written consent of three fourth majority of that other class should be obtained
(d) A resolution in joint meeting of both the classes should be passed (1 Mark March 21)
Answer 10
The Answer is (c)
Question 11
Prakash Limited wants to raise funds for its upcoming project. Accordingly, it has issued private
placement offer letters for issuing equity shares to 55 persons, of which four are qualified institutional
buyers and remaining are individuals. Before the completion of allotment of equity shares under this
offer letter, company issued another private placement offer letter to another 155 persons in their
individual names for issue of its debentures.
Being a public company is it possible for Prakash Limited to issue securities under a private placement
offer? By doing so, whether the company is in compliance with provisions relating to private placement
or should these offers be treated as public offers? What if the offer for debentures is given after
allotment of equity shares but within the same financial year? (6 Marks March 21)
Answer 11
According to section 42 of the Companies Act, 2013 any private or public company may make private
placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher number as may be
prescribed, in a financial year. For counting number of persons, Qualified Institutional Buyers (QIBs) and
employees of the company being offered securities under a scheme of employees’ stock option will not be
considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes
maximum of 200 persons who can be offered securities under the private placement in a financial year,
though this limit should be counted separately for each type of security.
It is to be noted that if a company makes an offer or invitation to more than the prescribed number of
persons, it shall be deemed to be an offer to the public and accordingly, it shall be governed by the
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provisions relating to prospectus.

Also, a company is not permitted to make fresh offer under this section if the allotment with respect to any
offer made earlier has not been completed or otherwise, that offer has been withdrawn or abandoned by the
company. This provision is applicable even if the issue is of different kind of security. Any offer or invitation
not in compliance with the provisions of this section shall be treated as a public offer and all provisions will
apply accordingly.
In the given case Prakash Limited, though a public company but the private placement provisions allow even a
public company to raise funds through this route. The company has given offer to 55 persons out of which 4
are qualified institutional buyers and hence, the offer is given effectively to only 51 persons which is well
within the limit of 200 persons. From this point of view, the company complies the private placement
provisions.
However, as per the question, the company has given another private placement offer of debentures
before completing the allotment in respect of first offer and therefore, the second of fer does not comply
with the provisions of section 42. Hence, the offers given by the company will be treated as public offer.
In case the company gives offer for debentures in the same financial year after allotment of equity shares is
complete then both the offers can well be treated as private placement offers.
Question 12
Silver Oak Ltd. has following balances in their Balance Sheet as on 31st March, 2021:
`
(1) Equity shares capital (3.00 lakhs equity shares of ` 10 each) 30.00 lacs
(2) Free reserves 5.00 lacs
(3) Securities Premium Account 3.00 lacs
(4) Capital redemption reserve account 4.00 lacs
(5) Revaluation Reserve 3.00 lacs
Directors of the company seeks your advice in following cases:
(i) Whether company can give bonus shares in the ratio of 1:3?
(ii) What if company decide to give bonus shares in the ratio of 1:2? ? (6 Marks Oct 21)
Answer 12
Issue of bonus shares: As per Section 63 of the Companies Act, 2013, a company may issue fully paid-up
bonus shares to its members, in any manner whatsoever, out of—
(iii) the capital redemption reserve account:
assets.
As per the given facts, ABC Ltd. has total eligible amount of `12 lakhs (i.e. 5.00+3.00+4.00) out of which
bonus shares can be issued and the total share capital is ` 30.00 lakhs.
Accordingly:
(i) For issue of 1:3 bonus shares, there will be a requirement of ` 10 lakhs (i.e., 1/3 x 30.00
lakh) which is well within the limit of available amount of ` 12 lakhs. So, Silver Oak Limited
can go ahead with the bonus issue in the ratio of 1:3.
(ii) In case Silver Oak Limited intends to issue bonus shares in the ratio of 1:2, there will be a
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requirement of ` 15 lakhs (i.e., ½ x 30.00 lakh). Here in this case, the company cannot go
ahead with the issue of bonus shares in the ratio of 1:2, since the requirement of ` 15
Lakhs is exceeding the available eligible amount of ` 12 lakhs.
Question 13
Kat Pvt. Ltd., is an unlisted company incorporated on 2.6.2012. The company have a share capital of
rupees fifty crores. The company has decided to issue sweat equity shares to its directors and
employees on 5.7.2021. The company decided to issue 10% sweat equity shares (which in total will add
up to 30% of its paid up equity shares), with a locking period of five years, as it is a start-up company.
How would you justify these facts in relation to the provisions for issue of sweat equity shares by a
start-up company, with reference to the provisions of the Companies Act, 2013? Explain. (6 Marks
Nov 21)
Answer 13
Sweat Equity Shares are governed by section 54 of the Companies Act, 2013 and Rule 8 of
Companies (Share capital and debentures) Rules, 2014. According to section 54, the company can issue
sweat equity shares to its director and permanent employees of the company. According to proviso to
rule 8 (4), a start up company, [as defined in notification number G.S.R.127(E), dated 19th February 2019
issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry,
Government of lndia], may issue sweat equity share not exceeding 50% of its paid up share capital up to 10
years from the date of its in incorporation or registration.
According to Rule 8(5), the sweat equity shares issued to directors or employees shall be locked in/ non-
transferable for a period of three years from the date of allotment.
Hence in the above case, the company can issue sweat equity shares by passing special resolution at its
general meeting. The company as a startup company is right in issue of 10% sweat equity share as it is
overall within the limit of 50% of its paid up share capital. But the lock in period of the shares is limited to
maximum three years period from the date of allotment (as not five years, as given in the question).
Question 14
Mr. Nirmal has transferred 1000 equity shares of Perfect Private Limited to his sister Ms. Mana. The
company did not register the transfer of shares and also did not send a notice of refusal to Mr. Nirmal
or Ms. Mana within the prescribed period. Discuss as per the provisions of the Companies Act, 2013,
whether aggrieved party has any right(s) against the company? (5 Marks Nov 21)
Answer 14
The problem given in the question is governed by Section 58 of the Companies Act, 2013 dealing with the
refusal to register transfer and appeal against such refusal.
In the present case, the company has committed the wrongful act of not sending the notice of refusal to
register the transfer of shares.
Under section 58 (1), if a private company limited by shares refuses to register the transfer of, or the
transmission by operation of law of the right to any securities or interest of a member in the company,
then the company shall send notice of refusal to the transferor and the transferee or to the person giving
intimation of such transmission, within a period of thirty days from the date on which the instrument of
transfer, or the intimation of such transmission, was delivered to the company. According to Section 58
(3), the transferee may appeal to the Tribunal against the refusal within a period of thirty days from the
date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty
days from the date on which the instrument of transfer or the intimation of transmission, was
delivered to the company.
In this case, as the company has not sent even a notice of refusal, Ms. Mana being transferee can file an
appeal before the Tribunal within a period of sixty days from the date on which the instrument of transfer
was delivered to the company.
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Question 15
Give answer in the following cases as per the Companies Act, 2013
(i) X Ltd., holds 20 lacs shares in ABZ Ltd. In 2017, ABZ Ltd. controls the composition of the Board of
directors of X Ltd. and transfers certain shares to it. State whether such transfer of shares by ABZ
Ltd. to X Ltd. is valid.
(ii) In continuation of above facts, Mr. R, is a member of the ABZ Ltd. He met an accident. Mr. N
(son of Mr. R), is one of the director of the X Ltd. He was also a nominee of shares held by Mr. R.
Being a legal representative and nominee, Mr. N gets transferred the shares of Mr. R. State on the
validity of the transfer of such shares to Mr. N of X Ltd. (Oct ’18 ,7 Marks)
Answer 15
As per section 2(84) of the Companies Act, 2013, X Ltd. is a subsidiary company of ABZ Ltd. as ABZ Ltd.
controls the composition of the Board of Directors of X Ltd.
Further, section 19 of the companies Act provides that no company shall, either by itself or through its
nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares
to any of its subsidiary companies and any such allotment or transfer of shares of a company to its
subsidiary company shall be void.
Provided that this sub-section shall not apply-
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company
On the basis of the above provisions, following are the answers:
(i) In the given case, X ltd. already holds shares in ABZ Ltd. before becoming its subsidiary. The given
situations falls within the purview of the exceptions when such transfer of shares by holding
company to its subsidiary is permissible. So this transfer of shares by ABZ Ltd. to X Ltd. is
valid.
(ii) This situation falls within the purview of exemption stating that such subsidiary company who
holds such shares as the legal representative of a deceased member of the holding company,
are entitled to hold the shares of the holding company. So Mr. N being the legal representative
of the deceased member of the Holding company, was entitled for the holding of shares of ABZ
Ltd.
Question 16
Mr Nilesh has transferred 1000 shares of Perfect Ltd. to Ms. Mukta. The company has refused to
register transfer of shares and does not even send a notice of refusal to Mr. Nilesh or Ms. Mukta
respectively within the prescribed period. Discuss as per the provisions of the Companies Act, 2013,
whether aggrieved party has any right(s) against the company for such refusal? (March ’19, 5 Marks)
(Oct’19, 6 Marks)
Answer 16
The problem as asked in the question is governed by Section 58 of the Companies Act, 2013 dealing
with the refusal to register transfer and appeal against refusal.
In the present case the company has committed the wrongful act of not sending the notice of refusal of
registering the transfer of shares. Under section 58 (4), if a public company without sufficient cause
refuses to register the transfer of securities within a period of thirty days from the date on which the
instrument of transfer is delivered to the company, the transferee may, within a period of sixty days of
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such refusal or where no intimation has been received from the company, within ninety days of the
delivery of the instrument of transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub- section (4),
may, after hearing the parties, either dismiss the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the company shall
comply with such order within a period of ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained
by any party aggrieved; In the present case Ms. Mukta can make an appeal before the tribunal and
claim damages.
Question 17
Natraj Limited is engaged in the manufacturing of glass products. It wants to provide financial
assistance to its employees to enable them to subscribe for fully paid shares of the company. Advise
whether it amount to purchase of its own shares. If, in the instant case, the company itself purchasing
to redeem its preference shares, does it amount to acquisition of its own shares? (5 Marks April 21)
Answer 17
Yes, the financial assistance to its employees by the company to enable them to subscribe for the shares
of the company will amount to the company purchasing its own shares. However, section 67 (3) of the
Companies Act, 2013, permits a company to the give loans to its employees other than its directors or
key managerial personnel, for an amount not exceeding their salary or wages for a period of six months
with a view to enabling them to purchase or subscribe for fully paid -up shares in the company or its
holding company to be held by them by way of beneficial ownership. Section 68 of the Companies Act,
2013 however, allows a company to buy back its own shares under certain circumstances and subject to
fulfilment of prescribed conditions.
Purchasing in order to redemption its preference shares, does amount to acquisition or purchase of its
own shares. But this is allowed in terms of section 68 of the Companies Act, 2013 subject to the
fulfilment of prescribed conditions, and upto specified limits and only after following the prescribed
procedure.
Question 18
Shares issued by a company to its directors or employees at a discount or for a consideration other than
cash for their providing know-how or making available rights in the nature of intellectual property
rights or value additions, by whatever name called are known as:
(a) Equity Shares
(b) Preference Shares
(c) Sweat Equity Shares
(d) Redeemable preference shares (1 Mark March ‘22)
Answer 18
The Answer is (c)
Question 19
Goals Limited, a listed company has authorised share capital of ` 25,00,000 (issued, subscribed and
paid up capital of ` 20,00,000). The company has planned to buy back shares worth ` 10,00,000. What
is the maximum amount of equity shares that the company is allowed to buy back based on the total
amount of equity shares?
(a) ` 2,00,000
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(b) ` 5,00,000
(c) ` 6,25,000
(d) ` 8,00,000 (2 Marks March ‘22)
Answer 19
The Answer is (b)
Question 20
"The offer of buy-back of its own shares by a company shall not be made within a period of six months
from the date of the closure of the preceding offer of buy-back, if any and cooling period to make
further issue of same kind of shares including allotment of further shares shall be a period of one year
from the completion of buy back subject to certain exceptions." Examine the validity of this statement
by explaining the provisions of the Companies Act, 2013 in this regard. (3 Marks March ‘22)
Answer 20
According to proviso to section 68(2) of the Companies Act, 2013, no offer of buy-back, shall be made
within a period of one year from the date of the closure of the preceding offer of buy-back, if any.
Section 68 (8) casts an obligation that where a company completes a buy-back of its shares or other
specified securities under this section, it shall not make further issue of same kind of shares including
allotment of further shares under section 62 (1) (a) or other specified securities within a period of six
months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of
warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into
equity shares. Keeping in view of the above provisions, the statement “the offer of buy-back of its own
shares by a company shall not be made within a period of six months from the date of the closure of the
preceding offer of buy back, if any and cooling period to make further issue of same kind of shares
including allotment of further shares shall be a period of one year from the completion of buy back
subject to certain exceptions” is not valid.
Question 21
The Directors of Mars India Ltd. desire to alter capital clause of Memorandum of Association of their
company. Advise them, under the provisions of the Companies Act, 2013 about the ways in which the said
clause may be altered. (Oct’19,4 Marks)
Answer 21
Alteration of Capital: Under section 61(1) of the Companies Act, 2013, a limited company having a share
capital may, if authorized by its Articles, alter its Memorandum in its general meeting to:
(i) increase its authorized share capital by such amount as it thinks expedient;
(ii) consolidate and divide all or any of its share capital into shares of a larger amount than its existing
shares
However, no consolidation and division which results in changes in the voting percentage of
shareholders shall take effect unless it is approved by the Tribunal on an application made in the
prescribed manner.
(iii) convert all or any of its paid- up shares into stock and reconvert that stock into fully paid shares of any
denomination
(iv) sub-divide the whole or any part of its shares into shares of smaller amount than is fixed by the
Memorandum
(v) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken
or agreed to be taken by any person, and diminish the amount of its share capital by the amount of
the shares so cancelled.
Further, under section 64, where a company alters its share capital in any of the above mentioned ways,
the company shall file a notice in the prescribed form with the Registrar within a period of thirty days of
such alteration or increase or redemption, as the case may be, along with an altered memorandum. The
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memorandum shall be altered by a special resolution and in compliance with other relevant provisions of
section 13 of the Companies Act, 2013.
Question 22
A Private Company cannot issue securities:
(a) By way of rights issue

(b) By way of bonus issue
(c) By way of private placement
(d) By issue of Prospectus in Public (1 Mark)( Sep’22)
Answer 22: (d)
Question 23
Following is the extract of the Balance sheet ABC Ltd. as on 31st March, 2022:
Particulars Amount (₹)
Equity & Liabilities
(1) Shareholder’s Fund
(a) Share Capital:
Authorized Capital:
10,000, 12% Preference Shares of ₹ 10 each 1,00,000
1,00,000 equity shares of ₹ 10 each 10,00,000 11,00,000
Issued & Subscribed Capital:

8000,12% Preference Shares of ₹ 10 each fully paid up 80,000
90,000 equity shares of ₹ 10 each, ₹ 8 paid up 7,20,000
(b) Reserve and Surplus
General Reserve 1,20,000
Capital Reserve 75,000
Securities Premium 25,000
Surplus in statement of P& L 2,00,000 4,20,000
(2) Non-Current Liabilities:
Long-term borrowings:
Secured Loan: 12% partly convertible
Debenture @ ₹ 100 each 5,00,000
On 1st April, 2022 the company has made final call at ₹ 2 each on 90,000 Equity Shares. The call money
was received by 25th April, 2022. Thereafter, the company decided to capitalize it’s reserves by way of
bonus @ 1 share for every 4 shares to existing shareholders.
Answer the following questions according to the Companies Act, 2013, in above case:
(A) Which of the above-mentioned sources can be used by company to issue bonus shares?
(B) Calculate the amount to be capitalized from free reserves to issue bonus shares?
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(5 Marks)( Sep’22)
Answer 23
Issue of Bonus Shares
According to section 63 (1) of the Companies Act, 2013, a company may issue fully paid-up bonus shares to
its members, in any manner whatsoever, out of—
However, no issue of bonus shares shall be made by capitalising reserves created by the revaluation of
assets.
Section 63 (2) provides that the company can issue bonus shares only when the partly paid -up shares, if any
outstanding on the date of allotment, are made fully paid-up.
(A) The following sources can be used by the company to issue bonus shares:
1. General Reserve
2. Securities Premium
3. Surplus in statement of P&L
(B)
Particulars Amount
Amount of bonus shares to be issued 90,000 shares x ¼ = 22,500 shares
Amount that ought to be capitalized for issue of 22,500 x ₹ 10 per share = ₹ 2,25,000
bonus shares
Total amount available to be capitalized from free = 1,20,000+ 25,000+ 2,00,000 = ₹ 3,45,000
reserves to issue bonus shares
Hence, the amount to be capitalized from free ₹ 2,25,000
reserves to issue bonus shares will be
Question 24
Yuvan Limited is a public company incorporated in Pune. The Board of Directors (BOD) of the company
wants to bring a public issue of 1,00,000 equity shares of ₹ 10 each. The BOD has appointed an
underwriter for this issue for ensuring the minimum subscription of the issue. The underwriter advised
the BOD that due to current economic situation of the Country it would be better if the company offers
these shares at a discount of ₹ 1 per share to ensure full subscription of this public issue. The Board of
Directors agreed to the suggestion of underwriter and offered the shares at a discount of ₹ 1 per share.
The issue was fully subscribed and the shares were allotted to the applicants in due course.
(1) Decide whether the advise of underwriter to issue of shares as mentioned above is valid as per provisions
of the Companies Act, 2013.
(2) What would be your answer in the above case if the shares are issued to employees as Sweat equity
shares?(5 Marks)(Oct’22)
Answer 24
According to section 53 of the Companies Act, 2013, except as provided in section 54, a company shall not
issue shares at a discount. Any share issued by a company at a discount shall be void.
According to section 54 of the Companies Act, 2013, notwithstanding anything contained in section 53, a
company may issue sweat equity shares of a class of shares already issued, if the prescribed conditions are
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fulfilled.
(1) As per facts of the question and provisions of section 53 and 54 of the Companies Act, 2013, Yuvan
Limited cannot issue at a discount of Rs. 1 per share. Hence, the advise of the underwriter to issue
shares at a discount is not valid.
(2) In terms of provisions of section 54 of the Companies Act, 2013, if the above shares have been issued to
employees as Sweat equity shares and prescribed conditions are fulfilled, then the issue of shares at
discount is valid.
Question 25
Which among the following companies is not required to provide its members the facility to exercise
right to vote by electronic mode under the provisions of the Companies Act, 2013?
(a) B Limited, whose equity shares (the company is having both equity as well as preference shares)
are listed on a recognised stock exchange.
(b) A Limited, whose equity shares (only type of share the company is having) are listed on a
recognised stock exchange
(c) C Limited, whose preference shares (the company is having both equity as well as preference
shares) are listed on a recognised stock exchange
(d) D Limited, whose equity shares as well as preference shares are listed on a recognised stock
exchange. (2 Marks March ‘23)
Answer 25 (c)
Question 26
State the purposes for which the securities premium account can be utilized (6 Marks March ‘23)
Answer 26
Application of Securities Premium Account: As per the provisions of sub-section (2) of section 52 of the
Companies Act, 2013, the securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company as fully
paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares
or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares
or of any debentures of the company; or
for the purchase of its own shares or other securities under section 68
Question 27
Bhuj Cement Limited is engaged in the manufacture of different types of cements and has got a good
brand value. Over the years, it has built a good reputation and its Balance Sheet as at March 31, 2023
showed the following position:
1. Authorized Share Capital (25,00,000 equity shares of ` 10/- each) ` 2,50,00,000

2. Issued, subscribed and paid-up Share Capital (10,00,000 equity shares of ` 10/- each, fully paid-up)
` 1,00,00,000
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3. Free Reserves ` 3,00,00,000

The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares held by the
existing shareholders. The Board wants to know the conditions and the manner of issuing bonus shares
under the provisions of the Companies Act, 2013. (6 Marks April ‘23)
Answer 27
According to section 63 of the Companies Act, 2013, a company may issue fully paid-up bonus shares to
its members, in any manner whatsoever, out of -

assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves for the
purpose of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting of the
company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any, outstanding on the date of allotment, are made fully paid- up;
(vi) it complies with such conditions as are prescribed by Rule 14 of the Companies (Share Capital
and debentures) Rules, 2014 which states that the company which has once announced the
decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.
Further, the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
For the issue of bonus shares Bhuj Cement Limited will require reserves of ` 50,00,000 (i.e. half of `
1,00,00,000 being the paid-up share capital), which is readily available with the company. Hence, after
following the above conditions relating to the issue of bonus shares, the company may proceed for a
bonus issue of 1 share for every 2 shares held by the existing shareholders.
Question 28
"The act done negligently shall be deemed to be done in good faith."
Comment with the help of the provisions of the General Clauses Act, 1897. (4 Marks April ‘23)
Answer 28
Good Faith
In general, anything done with due care and attention, which is not malafide is presumed to have been done
in good faith.
But, according to section 3(22) of the General Clauses Act, 1897, a thing shall be deemed to be done in
“good faith” where it is in fact done honestly, whether it is done negligently or not.
The question of good faith under the General Clauses Act is one of fact. It is to determine with reference to
M 4.15
the circumstances of each case.

It is therefore understood that the General Clauses Act, 1897 considers the honesty in doing the Act as a
primary test to constitute the thing done in good faith and therefore the act done honestly but with
negligence may also be termed as done in good fai th as per the General Clauses Act, 1897.
The term “Good faith” has been defined differently in different enactments. This definition of the good faith
does not apply to that enactment which contains a special definition of the term “good faith” and there the
definition given in that particular enactment has to be followed. This definition may be applied only if there
is nothing repugnant in subject or context, and if that is so, the definition is not applicable.
M 5.1
Chapter 5
Acceptance of Deposits by Companies
Question 1
Referring to the provisions of the Companies Act, 2013, examine the validity of the following:
ABC Limited having a net worth of 120 crore rupees wants to accept deposit from its members. They have
approached you to advise them regarding that if they fall within the category of eligible company, what
special care has to be taken while accepting such deposit from members. (March’19,4 Marks)
Answer 1
“Eligible company” means a public company as referred to in sub-section (1) of section 76, having a net
worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees
and which has obtained the prior consent of the company in general meeting by means of a special
resolution and also filed the said resolution with the Registrar of Companies before making any invitation
to the Public for acceptance of deposits:
However, an eligible company, which is accepting deposits within the limits specified under clause (c) of
sub-section (1) of section 180, may accept deposits by means of an ordinary resolution.
An eligible company shall accept or renew any deposit from its members, if the amount of such deposit
together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits
from members exceeds ten per cent. of the aggregate of the Paid-up share capital, free Reserves and
securities premium account of the company.
ABC Limited is having a net worth of 120 crore rupees. Hence, it can fall in the category of eligible company.
Thus, ABC has to ensure that acceptance deposits from members should not exceed 10% of the aggregate of
the Paid-up share capital, free Reserves and securities premium account of the company.
Question 2
No deposits are repayable earlier than from the date of such deposits or renewal thereof. (1
Mark, Oct’19)
(a) 3 months (b) 6 months (c) 9 months (d) 12 months

Answer 2
The Answer is (a)
Question 3
Discuss the following situations in the light of ‘deposit provisions’ as contained in the Companies Act,
2013 and the Companies (Acceptance of Deposits) Rules, 2014, as amended from time to time.
(i) Polestar Traders Limited received a loan of Rs. 30.00 lacs from Rachna who is one of its
directors. Advise whether it is a deposit or not.
(ii) Is it in order for the Diamond Housing Finance Limited to accept and renew deposits from
the public from time to time? (4 Marks May 20)
Answer 3
I. In terms of Rule 2 (1) (c) (viii), any amount received from a person who is director of the company at
the time of giving loan to the company shall not be treated as deposit if such director furnishes to the
company at the time of giving money, a written declaration to the effect that the amount is not being
given out of funds acquired by him by borrowing or accepting loans or deposits from others and
further, the company shall disclose the details of money so accepted in the Board's report. In the
given case, it is assumed that Rachna was one of the directors of Polestar Traders Limited when the
Chapter 5 Acceptance of Deposits by Companies
M 5.2
company received a loan of Rs. 30.00 lacs from her. Further, it is assumed that she had furnished to
the company at time of giving money, a written declaration to the effect that the amount was not
being given out of funds acquired by her by borrowing or accepting loans or deposits from others and
in addition, the company had disclosed the details of money so accepted in the appropriate Board's
report. If these conditions are satisfied Rs. 30.00 lacs shall not be treated as deposit.
II. According to section 73 (1) of the Companies Act, 2013, no company can accept or renew deposits
from public unless it follows the manner provided under Chapter V of the Act (contains provisions
regarding acceptance of deposits by companies) for acceptance or renewal of deposits from public.
However, Proviso to Section 73 (1) states that such prohibition with respect to the acceptance or
renewal of deposit from public, inter-alia, shall not apply to a housing finance company registered
with the National Housing Bank established under the National Housing Bank Act, 1987.
In the given case, it is assumed that Diamond Housing Finance Limited is registered with the National
Housing Bank and therefore the prohibition contained in section 73 (1) of the Act with respect to the
acceptance or renewal of deposit from public shallnot apply to it. In other words,it being an exempted
company, can accept deposits from the public from time to time without following the prescribed
manner.
Question 4
NIM Private Limited is engaged in the business of manufacturing household plastic goods. The books
of accounts of the company provides that aggregate of its paid-up capital, free reserves and security
premium account is Rs. 35.00 lacs. The company intends to accept deposits from its members to the
extent of Rs. 35.00 lacs. Advise the company whether it can do so. Support your answer as per the
provisions of the Companies Act, 2013. (4 Marks March 21)
Answer 4
As per the provisions of Section 73 (2) of the Companies Act, 2013 read with Rule 3 (3) of the
Companies (Acceptance of Deposits) Rules, 2014, as amended from time to time, a company shall
accept any deposit from its members, together with the amount of other deposits outstanding as on
the date of acceptance of such deposits not exceeding 35% of the aggregate of the paid-up share
capital, free reserves and securities premium account of the company. It is provided that a private
company may accept from its members monies not exceeding 100% of aggregate of the paid-up share
capital, free reserves and securities premium account and such company shall file the details of
monies so accepted to the Registrar in Form DPT-3.
In the given question, since NIM Private Limited is a private company hence it may accept monies to
the extent of Rs. 35.00 lacs as deposits from its members.
Question 5
Where depositors so desire, deposits may be accepted in joint names not exceeding ____
(a) 2
(b) 3
(c) 5
(d) 7 (1 Mark April 21)
Answer 5
The Answer is (b)
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Question 6
A company shall execute a deposit trust deed at least ----- days before issuing the circular or circular
in the form of advertisement.
(a) 7
(b) 14
(c) 21
(d) 28 (1 Mark April 21)
Answer 6
The Answer is (a)
Question 7
A Government Company, which is eligible to accept deposits under Section 76 of the Companies
Act, 2013, cannot accept deposits from public exceeding 25% of the aggregate of its paid-up
capital, free reserves and security premium account. State, with reasons, whether the following
statement is ‘True or False’? (2 Marks April 21)
Answer 7
As per Rule 3 (5) of the Companies (Acceptance of Deposits) Rules 2014, a Government Company is
not eligible to accept or renew deposits under section 76, if the amount of such deposits together
with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds thirty
five per cent of the aggregate of its paid-up share capital, free reserves and securities premium
account.
Therefore, the given statement where the limit of 25% has been stated for acceptance of deposits is
‘false’.
Question 8
Comment quoting relevant provisions whether the following amounts received by a company will
be considered as deposits or not:
(i) ` 5,00,000 raised by Rohit Limited through issue of non-convertible debentures not constituting
a charge on the assets of the company and listed on a recognised stock exchange as per the
applicable regulations made by the Securities and Exchange Board of Ind ia.
(ii) ` 2,00,000 received by Rishi Limited from its employee Mr. Tarun, who draws an annual salary of
` 1,50,000, as a non-interest bearing security deposit under a contract of employment. (4 Marks
Oct 21)
Answer 8
Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts received
by a company which will not be considered as deposits. In terms of this Rule the answers to the given
situations shall be as under:
(i) ` 5,00,000 raised by Rohit Limited through issue of non-convertible debentures not
constituting a charge on the assets of the company and listed on recognised stock
exchange as per the applicable regulations made by the SEBI, will not be considered as
deposit in terms of sub-clause (ixa) of Rule 2 (1) (c).
(ii) ` 2,00,000 received by Rishi Limited from its employee Mr. Tarun, who draws an annual
salary of ` 1,50,000, as a non-interest bearing security deposit under a contract of
employment will be considered as deposit in terms of sub-clause (x) of Rule 2 (1) (c), for
the amount received is more than his annual salary of ` 1,50,000.
M 5.4
Question 9
Who all cannot be appointed as a trustee for the depositors. Enumerate with reference provisions
to the Companies Act, 2013 read with the ‘Acceptance of Deposits’ Rules, 2014. (5 Marks Oct 21)
Answer 9
In this respect following provisions are required to be observed as mentioned in Rule 7 of the
Companies (Acceptance of Deposits) Rules, 2014:
No person including a company that is in the business of providing trusteeship services shall be
appointed as a trustee for the depositors, if the proposed trustee:
(a) is a director, key managerial personnel or any other officer or an employee of the
company or of its holding, subsidiary or associate company or a depositor in the
company;
(b) is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal debts secured by the
deposits or interest thereon;
(e) is related to any person specified in clause (a) above.
Question 10
Amit Limited is accepting deposits of various tenures from its members from time to time. The
current Register of Deposits, maintained at its registered office is complete. State the minimum
period for which it should mandatorily be preserved in good order.
(a) Four years from the financial year in which the latest entry is made in the Register.
(b) Six years from the financial year in which the latest entry is made in the Register.
(c) Eight years from the financial year in which the latest entry is made in the Register.
(d) Ten years from the latest date of entry. (1 Mark Nov 21, Mar’22)
Answer 10
The Answer is (c)
Question 11
The Promoters of Green Limited contributed in the form of unsecured loan to the company in
fulfilment of the margin money requirements stipulated by State Industries Development
Corporation Ltd. (SIDCL) for granting loan. In the light of the provisions of the Companies Act, 2013
and Rules made thereunder whether the unsecured loan will be regarded as Deposit or not ? (4
Marks March ‘22)
Answer 11
According to Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014, the following
amount is not considered as deposit:
Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of
the stipulation of any lending financial institution or a bank subject to the fulfillment of following
conditions:
(a) the loan is brought because of the stipulation imposed by the lending institutions on the
promoters to contribute such finance;
(b) the loan is provided by the promoters themselves or by their relatives or by both; and
(c) such exemption shall be available only till the loans of financial institution or bank are
M 5.5
repaid and not thereafter.

Hence, in the instant case, the unsecured loan contributed by promoters of Green Limited will not be
regarded as deposit as the unsecured loan is brought because of the stipulation imposed by the SIDCL
and the loan is provided by the promoters themselves.
Question 12
Varsha Limited decides to raise deposits of ` 20.00 lacs from its members. However, it proposes to
secure such deposits partially by offering a security worth ` 15.00 lacs. Which of the following options
best describe such deposits:
(a) Fully secured deposits (except a small portion)
(b) Unsecured deposits
(c) Partially secured deposits
(d) These cannot be classified as deposits (1 Mark April 22)
Answer 12 : (b)
Question 13
What is the maximum tenure for which a company can accept or renew deposits from its members as
well as public?
(a) 12 months
(b) 24 months
(c) 36 months
(d) 48 months (1 Mark April 22)
Answer 13: (c)
Question 14
Comment quoting relevant provisions of the Companies Act, 2013, whether the following amounts
received by a company will be considered as deposits or not:
(i) ` 2,00,000 received by Yash Limited from its employee Mr. A, who draws an annual salary of
` 1,50,000, as a non-interest bearing security deposit under a contract of employment.
(ii) Textile Traders Limited received a loan of ` 30,00,000 from R who is one of its directors.
(4 Marks April 22)
Answer 14
Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts received by a
company which will not be considered as deposits. In terms of this Rule the answers to the given
situations shall be as under:
(i) In terms of Rule 2 (1)(c)(x), any amount received from an employee of the company not exceeding
his annual salary under a contract of employment with the company in the nature of non-interest
bearing security deposit, shall not be treated as deposit. ` 2,00,000 received by Yash Limited from
its employee Mr. A, who draws an annual salary of ` 1,50,000, as a non-interest bearing security
deposit under a contract of employment will be considered as deposit in terms of sub-clause (x) of
Rule 2(1)(c), for the amount received is more than his annual salary of ` 1,50,000.
(ii) In terms of Rule 2 (1)(c)(viii), any amount received from a person who is director of the company at
the time of giving loan to the company shall not be treated as deposit if such director furnishes to
M 5.6
the company at the time of giving money, a written declaration to the effect that the amount is not
being given out of funds acquired by him by borrowing or accepting loans or deposits from others
and further, the company shall disclose the details of money so accepted in the Board's report.
In the given case, ` 30,00,000 received as a loan by Textile Traders Limited from R (a director) shall not
be treated as deposit, if he was a director at the time of giving such loan and had furnished to the
company at time of giving money, a written declaration to the effect that the amount was not being
given out of funds acquired by him by borrowing or accepting loans or deposits from others and in
addition, the company had disclosed the details of money so accepted in the appropriate Board's report.
Question 15
K Limited decides to raise deposits of ₹ 10.00 lakh from its members. However, it proposes to secure
such deposits partially by offering a security worth ₹ 5.00 lakh. Which of the following options best
describe such deposits:

(d) These cannot be classified as deposits (1 Mark)( Sep’22)
Answer 15: (c)
Question 16
Every company shall pay a penal rate of interest of per annum for the overdue period in case of
deposits, whether secured or unsecured, matured and claimed but remaining unpaid:
(a) 9%
(b) 14%
(c) 18%
(d) (d) 24% (1 Mark)( Sep’22)
Answer 16: (c)
Question 17
Sasha Private Limited received ₹ 3,00,000 from one of the relatives of a Director. The said relative has
furnished a declaration that the amount was received by him from his mother as a gift. Decide as per the
relevant provisions of the Companies Act, 2013, whether the said amount received by the company will
be considered as deposits or not.(4 Marks)(Sep’22)
Answer 17
According to sub-clause (viii) of Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014, any amount
received from a person who, at the time of the receipt of the amount, was a director of the company or a relative
of the director of the private company, is not considered as deposit.
The director of the company or relative of the director of the private company, as the case may be, from whom
money is received, is required to furnish to the company at the time of giving the money, a declaration in writing
to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or
deposits from others and the company shall disclose the details of money so accepted in the Board's report. ₹
3,00,000 received by Sasha Private Limited, from one of the relatives of a Director. When the relative furnishes a
declaration that the said amount was received by him from his mothe r as a gift, then it will not be considered as
M 5.7
deposit in terms of sub-clause (viii) of Rule 2 (1) (c).

Thus, the amount given to the private company out of gifted money by one of the relatives of a director is not a
‘deposit’. As an additional requirement, the company shall disclose the details of money so accepted in the Board’s
report.
Question 18
Red Limited is accepting deposits of various tenures from its members from time to time. The current
Register of Deposits, maintained at its registered office is complete. State the minimum period for which
it should mandatorily be preserved in good order.
(a) Four years from the financial year in which the latest entry is made in the Register.
(b) Six years from the financial year in which the latest entry is made in the Register.
(c) Eight years from the financial year in which the latest entry is made in the Register.
(d) Ten years from the latest date of entry. (1 Mark)(Oct’22)
Answer 18 :( c)
Question 19
Every company shall pay a penal rate of interest of per annum for the overdue period in case of deposits,
whether secured or unsecured, matured and claimed but remaining unpaid:
(e) 9%
(f) 14%
(g) 18%
(h) (d) 24% (1 Mark) (Oct’22)
Answer 19 :(c )
Question 20
Rashmika Ltd. received share application money of ₹ 50.00 Lakh on 01.06.2021 but failed to allot shares
within the prescribed time limit.
The share application money of ₹ 5.00 Lakh received from Mr. Kumar, a customer of the company, was
refunded by way of book adjustment towards the dues payable by him to the company on 30.07.2021.
The Company Secretary of Rashmika Ltd. reported to the Board that the entire amount of ₹ 50.00 Lakh
shall be deemed to be 'Deposits' as on 31.07.2021 and the company is required to comply with the
provisions of the Companies Act, 2013 applicable to acceptance of deposits in relation to this amount.
You are required to examine the validity of the reporting of the Company Secretary in the light of the
relevant provisions of the Companies Act, 2013. (4 Marks) (Oct’22)
Answer 20
According to Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, the following category of
receipt is not considered as deposit:
Any amount received and held pursuant to an offer made in accordance with the provisions of the
Companies Act, 2013 towards subscription to any securities, including share application money or advance
towards allotment of securities, pending allotment, so long as such amount is appropriated only against the
amount due on allotment of the securities applied for;
It is clarified by way of Explanation that if the securities for which application money or advance for such
securities was received cannot be allotted within 60 days from the date of receipt of the application money
or advance for such securities and such application money or advance is not refunded to the subscribers
M 5.8
within 15 days from the date of completion of 60 days, such amount shall be treated as a deposit under
these rules.
Further, it is clarified that any adjustment of the amount for any other purpose shall not be treated as
refund.
In the given question, Rashmika Limited has received Rs. 50 Lakhs as share application money on
01.06.2021. It failed to allot shares within the prescribed limit. Further, on 30.07.2021 the company adjusted
the amount of Rs. 5 Lakhs received from Mr. Kumar (a customer of the company), by way of book
adjustment towards the dues payable by him to the company.
In the light of the facts of the question and provisions of Law:
(1) If such application money or advance is not refunded to the subscribers within 15 days from the date of
completion of 60 days, such amount shall be treated as a deposit. In the question, the prescribed limit
of 60 days will end on 31.07.2021 and the company has 15 more days to refund such application money
to the subscribers. Otherwise, after lapse of such 15 days, the amount not so refunded will be treated
as deposit. Hence, the Company Secretary of Rashmika Limited is not correct in treating the entire
amount of Rs. 50 Lakh as ‘Deposits’ on 31.07.2021.
(2) Any adjustment of the amount for any other purpose shall not be treated as refund. Thus, the amount
of Rs. 5 Lakh adjusted against payment due to be received from Mr. Kumar, cannot be treated as
refund.
Question 21
Enumerate the amounts which when received by a company in the ordinary course of business are not
to be considered as deposits. (4 Marks March ‘23)
Answer 21
According to Rule 2 (1) (c) (xii) of the Companies (Acceptance of Deposits) Rules, 2014, following
amounts if received by a company in the course of, or for the purposes of, the business of the
company, shall not be considered as deposits:
(a) any amount received as an advance for the supply of goods or provision of services accounted for in
any manner whatsoever to be appropriated within a period of three hundred and sixty-five days
from the date of acceptance of such advance:
However, in case any advance is subject matter of any legal proceedings before any court of law, the
time limit of three hundred and sixty-five days shall not apply.
(b) any amount received as advance in connection with consideration for an immovable property
under an agreement or arrangement. However, such advance is required to be adjusted against such
property in accordance with the terms of agreement or arrangement;
(c) any amount received as security deposit for the performance of the contract for supply of goods or
provision of services;
(d) any amount received as advance under long term projects for supply of capital goods except those
covered under item (b) above;
(e) any amount received as an advance towards consideration for providing future services in the form
of a warranty or maintenance contract as per written agreement or arrangement, if the period for
providing such services does not exceed the period prevalent as per common business practice or
five years, from the date of acceptance of such service whichever is less;
(f) any amount received as an advance and as allowed by any sectoral regulator or in accordance with
directions of Central or State Government;
M 5.9
(g) any amount received as an advance for subscription towards publication, whether in print or in
electronic to be adjusted against receipt of such publications;
However, if the amount received under items (a), (b) and (d) above becomes refundable (with or
without interest) due to the reasons that the company accepting the money does not have necessary
permission or approval, wherever required, to deal in the goods or properties or services for which the
money is taken, then the amount received shall be deemed to be a deposit under these rules.
Further, for the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of
fifteen days from the date it became due for refund.
Question 22
Every company shall pay a penal rate of interest of per annum for the overdue period in case of
deposits, whether secured or unsecured, matured and claimed but remaining unpaid:
(a) 9%
(b) 14%
(c) 18%
(d) 24% (1 Mark April ‘23)
Answer 22 (c)
Question 23
Prem Limited decides to raise deposits of ` 20.00 lacs from its members. However, it proposes to secure
such deposits partially by offering a security worth ` 15.00 lacs. Which of the following options best
describe such deposits:
(d) These cannot be classified as deposits (1 Mark April ‘23)
Answer 23 (b)
M 6.1
Chapter 6
Registration of Charges
Question 1
What are the powers of Registrar to make entries of satisfaction and release of charges in absence of
intimation from company. Discuss as per the provisions of the Companies Act, 2013.
(March’19, 5 Marks) (Oct’18, 6 Marks)
Answer 1
Section 83 of the Companies Act, 2013 provides powers to the registrar to make entries with respect to
the satisfaction and release of charges where no intimation has been received by him from the company.
(i) The Registrar may, on evidence being given to his satisfaction with respect to any registered charge-
(a) that the debt for which the charge was given has been paid or satisfied in whole or in part; or
(b) that part of the property or undertaking charged has been released from the charge or has ceased
to form part of the company’s property or undertaking,
- enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact
that part of the property or undertaking has been released from the charge or has ceased to
form part of the company’s property or undertaking, as the case may be, despite the fact that no
intimation has been received by him from the company.
(ii) The Registrar shall inform the affected parties within thirty days of making the entry in the register
of charges kept under section 81(1).
According to the Companies (Registration of Charges) Rules, 2014 with respect to the satisfaction of
charge-
(1) A company shall within a period of thirty days from the date of the payment or satisfaction in full
of any charge registered, give intimation of the same to the Registrar along with the fee.
(2) Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance of section
82 or 83, he shall issue a certificate of registration of satisfaction of charge.
Question 2
Define the term “charge” and also explain what is the punishment for default with respect to registration
of charge as per the provisions of the Companies Act, 2013. (April’19,5 Marks)
Answer 2
The term charge has been defined in section 2 (16) of the Companies Act, 2013 as an interest or lien created
on the property or assets of a company or any of its undertakings or both as security and includes a
mortgage.
Every company is under an obligation to keep at its registered office a register of charges and enter therein
all charges specifically affecting property of the company and all floating charges on the undertaking or any
property of the company.
Punishment for contravention – According to section 86 of the Companies Act, 2013, if a company makes
any default with respect to the registration of charges covered under chapter VI, a penalty shall be levied,
ranging from Rs. 1 lakh to 10 lakhs.
Every defaulting officer is punishable with imprisonment for a term not exceeding 6 months or fine which
shall not be less than 25,000 rupees, but not exceeding 1 lakh rupees or both.
As per amendment- If any company is in default in complying to with any of the provision of this Chapter,
the company shall be liable to a penalty of five lakh rupees and every officer of the company in default
shall be liable to a penalty of fifty thousand Rupees.
Chapter 6 Registration of Charges
M 6.2
Question 3
Explain the provisions of the Companies Act, 2013 relating to Rectification by Central Government in
register of Charges. [Aug ’18 & March’18,6 Marks]
Answer 3
(1) Rectification by Central Government in register of charges: Section 87 of the Companies Act, 2013
empowers the Central Government to make rectification in register of charges. According to the
provision-
(1) The Central Government on being satisfied that—
(i) (a) the omission to file with the Registrar the particulars of any charge created by a
company orany charge subject to which any property has been acquired by a company or any
modificationof such charge; or
(a) the omission to register any charge within the time required under this Chapter or
the omission to give intimation to the Registrar of the payment or the satisfaction of a
charge, within the time required under this Chapter; or
(b) the omission or mis-statement of any particular with respect to any such charge or
modification or with respect to any memorandum of satisfaction or other entry made
in pursuance of section 82 or section 83,
- was accidental or due to inadvertence or some other sufficient cause or it is not of a
nature to prejudice the position of creditors or shareholders of the company; or
(ii) on any other grounds, it is just and equitable to grant relief,
- it may on the application of the company or any person interested and on such terms and
conditions as it may seem to the Central Government just and expedient, direct that the
time for the filing of the particulars or for the registration of the charge or for the giving of
intimation of payment or satisfaction shall be extended or, as the case may require, that the
omission or mis-statement shall be rectified.
(2) Where the Central Government extends the time for the registration of a charge, the order shall
not prejudice any rights acquired in respect of the property concerned before the charge is
actuallyregistered.
(2) Condonation of delay and rectification of register of charges.- (1) Where the instrument creating or
modifying a charge is not filed within a period of 300 hundred days from the date of its creation (including
acquisition of a property subject to a charge) or modification and where the satisfaction of the charge is
not filed within 30 days from the date on which such payment of satisfaction, the Registrar shall not
register the same unless the delay is condoned by the Central Government.
a. The application for condonation of delay and for such other matters covered in sub-clause (a), (b)
and (c) of clause (i) of sub-section (1) of section 87 of the Act shall be filed with the Central
Government along with the fee.
b. The order passed by the Central Government under section 87(1) of the Act shall be required to be
filed with the Registrar along with the fee as per the conditions stipulated
Question 4
On receipt of intimation of satisfaction of charge, the registrar issues a notice to the holder calling a
show cause within such time not exceeding ___ _ days as to why payment or satisfaction in full
should not be regarded as intimated to the Registrar: (1 Mark, Oct’19)
(a) 14 (b) 21 (c) 30 (d) 300
Answer 4
The Answer is (a)
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Question 5
Purvi Pvt. Ltd. is maintaining a register of charges along with all other necessary books and registers. The
entry for every creation, modification and satisfaction of charges is being done properly. The company is
also preserving every instrument related to such charges. From the following for how long the instrument
of charges shall be maintained/preserved by the company—
(a) for minimum 8 years from the date of creation of charge
(b) For minimum 10 years from the date of creation of charge
(c) For minimum 8 years from the date of satisfaction of charge
(d) permanently, without any time limit (1 Mark, April’19)
Answer 5
The Answer is (c)
Question 6
Eztech Machines Limited owns a plot of land which was mortgaged to Urbane Commercial Bank Limited
for raising term loan of Rs. 2.00 crore. The mortgage was duly registered with the Central Registry. First
loan installment of Rs. 50.00 lacs was released immediately after sanction of term loan with the
condition that subsequent three installments of Rs.50.00 lacs shall be released as soon as the earlier
released installment is utilized satisfactorily. Is it necessary either for the company or the bank to
register the charge on plot with the concerned Registrar of Companies (ROC) when the mortgage is
registered with the Central Registry? (Oct ’19, 2 Marks)
(a) It is not necessary either for the bank or the company to register the charge on plot of land with the
concerned Registrar of Companies (ROC) when the mortgage is registered with the Central Registry.
(b) It is necessary to get the charge on plot on land registered with the concerned Registrar of Companies
(ROC) irrespective of the fact that mortgage is registered with the Central Registry.
(c) The charge on plot needs to be registered with the concerned Registrar of Companies (ROC) only
when the actual liability of the company with the Bank exceeds Rs. 1.00 crore.
(d) The charge on plot needs to be registered with the concerned Registrar of Companies (ROC) only
when the term loan sanctioned by the bank to the company exceeds Rs. 2.00 crores.
Answer 6
The Answer is (b)
Question 7
Answer the following in the light of the companies Act, 2013 -
(i) MNC Limited realised on 2nd May, 2019 that particulars of charge created on 12th March, 2019 in favour
of a Bank were not registered with the Registrar of Companies. What procedure should the company
follow to get the charge registered? Would the procedure be different if the company realised its
mistake of not registering the charge on 7th June, 2019 instead of 2nd May, 2019? Explain with
reference to the relevant provisions of the Companies Act, 2013.
(ii) Mr. Antriksh entered into an agreement for purchasing a commercial property in Delhi belonging to NRT
Ltd. At the time of registration, Mr. Antriksh comes to know that the title deed of the company is not
free and the company expresses its inability to get the title deed transferred in the name of Mr.
Antriksh saying that he ought to have had the knowledge of charge created on the property of the
company. Explain with the help of ‘Notice of a charge’, whether the contention of NRT LTD. is correct?
(Oct ’19,6 Marks)
Answer 7
(i) The charge in the present case was created after 02-11-2018 (i.e. the date of commencement of the
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Companies (Amendment) Second Ordinance, 2019) to which another set of provisions is applicable. These
provisions are different from a case where the charge was created before 02-11-2018.
Initially, the prescribed particulars of the charge together with the instrument, if any, by which the charge
is created or evidenced, or a copy thereof, duly verified by a certificate, are to be filed with the Registrar
within 30 days of its creation. [Section 77 (1)]. In this case particulars of charge were not filed within the
prescribed period of 30 days.
(ii)However, the Registrar is empowered under clause (b) of first proviso to section 77 (1) to extend the
period of 30 days by another 30 days (i.e. sixty days from the date of creation) on payment of prescribed
additional fee. Taking advantage of this provision MNC Limited should immediately file the particulars of
charge with the Registrar after satisfying him through making an application that it had sufficient cause
for not filing the particulars of charge within 30 days of its creation.
If the company realises its mistake of not registering the charge on 7th June, 2019 instead of 2nd May,
2019, it shall be noted that a period of sixty days has already expired from the date of creation of charge.
However, Clause (b) of Second Proviso to Section 77 (1) provides another opportunity for registration of
charge by granting a further period of sixty days but the company is required to pay advalorem fees. Since
first sixty days from creation of charge were expired on 11th May, 2019, MNC Limited can still get the
charge registered within a further period of sixty days from 11th May, 2019 after paying the prescribed
advalorem fees. The company is required to make an application to the Registrar in this respect giving
sufficient cause for non-registration of charge.
Notice of Charge : According to section 80 of the Companies Act, 2013, where any charge on any property
or assets of a company or any of its undertakings is registered under section 77 of the Companies Act,
2013, any person acquiring such property, assets, undertakings or part thereof or any share or interest
therein shall be deemed to have notice of the charge from the date of such registration.
Thus, the section clarifies that if any person acquires a property, assets or undertaking for which a charge is
already registered, it would be deemed that he has complete knowledge of charge from the date the charge
is registered. Thus, the contention of NRT Ltd. is correct.
Question 8
Briefly explain the provisions enforced by the Companies (Amendment) Act, 2019 when a charge created
before 02-11-2018 [before the commencement of Companies (Amendment) Act, 2019] is not registered
within the prescribed period of thirty days as provided in Section 77 (1) of the Companies Act, 2013. (5
Marks May 20)
Answer 8
As per Section 77 (1) of the Companies Act, 2013 every company creating a charge:
a. within or outside India,
b. on its property or assets or any of its undertakings,
c. whether tangible or otherwise, and
d. situated in or outside India, is required to register the particulars of the charge with the Registrar
within thirty days of its creation.
In case the charge was created before 02-11-2018[before the commencement of Companies (Amendment)
Act, 2019] and it was not registered within the prescribed period of thirty days of its creation, clause (a) of
the first Proviso to Section 77 (1) states that the Registrar may, on an application by the company, allow
such registration to be made within a period of 300 days of such creation. According to clause (a) of the
Second Proviso to Section 77 (1), if the registration is not made within the extended period of 300 days, it
shall be made within six months from 02-11-2018 on payment of prescribed additional fees. It is provided
that different fees may be prescribed for different classes of companies.
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Question 9
Ranjit acquired a property from ABC Limited which was mortgaged to OK Bank. He settled the dues to
Ok Bank in full and the same was registered with the sub-registrar who has noted that the mortgage has
been settled. But neither the company nor OK Bank has filed particulars of satisfaction of charge with
the Registrar of Companies. Can Mr. Ranjit approach the Registrar and seek any relief in this regard?
Discuss this matter in the light of provisions of the Companies Act, 2013. (4 Marks Oct 20)
Answer 9
Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to the
satisfaction and release of charges even if no intimation has been received by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the satisfaction of Registrar
that the debt secured by charge has been paid or satisfied in whole or in part or that the part of the
property or undertaking charged has been released from the charge or has ceased to form part of the
company’s property or undertaking, then he may enter in the register of charges a memorandum of
satisfaction that:
 the debt has been satisfied in whole or in part; or
 the part of the property or undertaking has been released from the charge or has ceased to form
part of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been received by him
from the company.
Information to affected parties: The Registrar shall inform the affected parties within 30 days of making
the entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of satisfaction of charge
in full, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5. Therefore,
Ranjit can approach the Registrar and show evidence to his satisfaction that the charge has been duly
settled and satisfied and request the Registrar to enter a memorandum of satisfaction noting the
release of charge.
Question 10
ABC Limited created a charge in favour of Z Bank. The charge was duly registered. Later, the Bank
enhanced the facility by another ` 20 crores. Due to inadvertence, this modification in the original
charge was not registered. Advise the company as to the course of action to be pursued in this regard.
(5 Marks Oct 20)
Answer 10
The company is advised to immediately file an application for rectification of the Register of Charges in
Form No CHG- 8 to the Central Government under Section 87 of the Companies Act, 2013 Section 87 of
the Act of 2013 and Rule 12 empowers the Central Government to order rectification of Register of
Charges in the following cases of default:
(i) when there was omission in giving intimation to the Registrar with respect to payment or
satisfaction of charge within the specified time;
(ii) when there was omission or mis-statement of any particulars in any filing previously made to
the Registrar. Such filing may relate to any charge or any modification of charge or with
respect to any memorandum of satisfaction or other entry made under Section 82 ( Company
to report satisfaction of charge) or Section 83 (Power of Registrar to make entries of
satisfaction and release).
Before directing that the ‘time for giving the intimation of payment or satisfaction shall be extended’ or
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the ‘omission or mis-statement shall be rectified’, the Central Government needs to be satisfied that
such default was accidental or due to inadvertence or because of some other sufficient cause or it did
not prejudice the position of creditors or shareholders.
The application in Form CHG-8 shall be filed by the company or any interested person. Therefore Z Bank
can also proceed under Section 87 as aforesaid.
The order of rectification shall be made by the Central Government on such terms and conditions as it
deems just and expedient.
Question 11
The instrument creating a charge or modification thereon shall be preserved for a period of ______
years from the date of satisfaction of charge by the company.
(a) 5
(b) 7
(c) 8
(d) 15 (1 Mark March 21)
Answer 11
The Answer is (c)
Question 12
How will a copy of an instrument evidencing creation of charge and required to be filed with the
Registrar be verified? (3 Marks March 21)
Answer 12
A copy of every instrument evidencing any creation or modification of charge and required to be filed
with the Registrar shall be verified as follows:
(i) in case property is situated outside India: where the instrument or deed relates solely to the
property situated outside India, the copy shall be verified by a certificate issued either under
the seal, if any, of the company, or under the hand of any director or company secretary of the
company or an authorised officer of the charge holder or under the hand of some person other than
the company who is interested in the mortgage or charge;
(ii) in case property is situated in India (whether wholly or partly): where the instrument or deed
relates to the property situated in India (whether wholly or partly), the copy shall be verified by a
certificate issued under the hand of any director or company secretary of the company or an
authorised officer of the charge holder.
Question 13
Mr. A is working with a reputed Chartered Accountant firm in Delhi. After gaining an experience of 5
years, now Mr. A is planning to open his own firm A and Associates. He has now purchased a
commercial property in Delhi belonging to Kesha Limited after entering into an agreement with the
company. At the time of registration, Mr. A comes to know that the title deed of the company is not
free and the company expresses its inability to get the title deed transferred in his name contending
that he ought to have the knowledge of charge created on the property of the company. Explain,
whether the contention of Kesha Limited is correct? Give your answer with respect to the provisions of
the Companies Act, 2013. (4 Marks March 21)
Answer 13
According to section 80 of the Companies Act, 2013, where any charge on any property or assets of a
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company or any of its undertakings is registered under section 77 of the Companies Act, 2013, any
person acquiring such property, assets, undertakings or part thereof or any share or interest therein
shall be deemed to have notice of the charge from the date of such registration.
Thus, Section 80 clarifies that if any person acquires a property, assets or undertaking in respect of
which a charge is already registered, it would be deemed that he has complete knowledge of charge from
the date of its registration. Mr. A, therefore, ought to have been careful while purchasing property and
should have verified beforehand that Kesha Limited had already created a charge on the property. In
view of above, the contention of Kesha Limited is correct.
Question 14
Mr. Pam purchased a commercial property in Delhi belonging to ABC Limited after entering into an
agreement with the company. At the time of registration, Mr. Pam comes
to know that the title deed of the company is not free and the company expresses its inability to get
the title deed transferred in his name contending that he ought to have the knowledge of charge
created on the property of the company. Explain, whether the contention of ABC Limited is correct? (4
Marks Nov 21, Apr 22)
Answer 14
According to section 80 of the Companies Act, 2013, where any charge on any property or assets of a
company or any of its undertakings is registered under section 77 of the Companies Act, 2013, any
person acquiring such property, assets, undertakings or part thereof or any share or interest therein
shall be deemed to have notice of the charge from the date of such registration.
Thus, Section 80 clarifies that if any person acquires a property, assets or undertaking in respect of
which a charge is already registered, it would be deemed that he has complete knowledge of charge from
the date of its registration. Mr. Pam, therefore, ought to have been careful while purchasing property
and should have verified beforehand that ABC Limited had already created a charge on the property. In
view of above, the contention of ABC Limited is correct.
Question 15
Define Charge.
Who has the authority to verify the instrument of charge created for property situated outside India?
Give your answer as per the provisions of the Companies Act, 2013. (5 Marks Nov 21)
Answer 15
Section 2(16) of the Companies Act, 2013 defines “charge” as an interest or lien created on the property
or assets of a company or any of its undertakings or both as security and includes a mortgage.
Where the instrument or deed relates solely to the property situated outside India, the copy of every
instrument creating (or modifying) any charge and required to be filed with the Registrar shall be verified
by a certificate issued either-
 under the seal, if any, of the company, or
 under the hand of any director or company secretary of the company, or an authorised
officer of the charge holder, or
 under the hand of some person other than the company who is interested in the
mortgage or charge.
Question 16
Mind Limited realised on 2nd May, 2018 that particulars of charge created on 12th March, 2018 in
favour of a Bank were not filed with Registrar of Companies for Registration. What procedure should
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the company follow to get the charge registered with the Registrar of Companies? Would the
procedure be different if the charge was created on 12 th February, 2018 instead of 12th March, 2018?
Examine with reference to the relevant provisions of the Companies Act, 2013. (March ’18 , Aug ’18 , 5
Marks)
Answer 16
According to section 77(1) of the Companies Act, 2013, the prescribed particulars of the charge together
with the instrument, if any by which the charge is created or evidenced, or a copy thereof shall be filed
with the Registrar within 30 days after the date of the creation of charge.
In the present case particulars of charge have not been filed within the prescribed period of 30 days.
However, the Registrar is empowered under proviso to section 77 (1) to extend the period of 30 days by
another 300 days on payment of such additional fee as may be prescribed. Taking advantage of this
provision, Mind Limited, should immediately file the particulars of charge with the Registrar and satisfy
the Registrar that it had sufficient cause, for not filing the particulars of charge within 30 days of creation of
charge.
There will be no change in the situation if the charge was created on 12th February, 2018.
Question 17
An interest or lien created on the property or assets of a company or any of its undertakings or both as
security is known as:
(a) Debt
(b) Charge
(c) Liability
(d) Hypothecation (1 Mark March ‘22)
Answer 17
The Answer is (b)
Question 18
The registrar shall keep a register of charges which shall be open to inspection by ____________
on payment of fee:
(a) the company
(b) the charge holder
(c) holder
(d) any person (1 Mark April 22)
Answer 18 : (d)
Question 19
Mr. Raj acquired a property from XYZ Limited which was mortgaged to ABC Bank. He settled the dues to
ABC Bank in full and the same was registered with the sub-registrar who has noted that the mortgage has
been settled. But neither the company nor ABC Bank has filed particulars of satisfaction of charge with the
Registrar of Companies. Can Mr. Raj approach the Registrar and seek any relief in this regard? Discuss this
matter in the light of provisions of the Companies Act, 2013.(5 Marks)( Sep’22)
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Answer 19
Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to the
satisfaction and release of charges even if no intimation has been received by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the satisfaction of Registrar
that the debt secured by charge has been paid or satisfied in whole or in part or that the part of the property
or undertaking charged has been released from the charge or has ceased to form part of the company’s
property or undertaking, then he may enter in the register of charges a memorandum of satisfaction that:
 the debt has been satisfied in whole or in part; or
 the part of the property or undertaking has been released from the charge or has ceased to form part
of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been received by him
from the company.
Information to affected parties: The Registrar shall inform the affected parties within 30 days of making the
entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of satisfaction of charge in
full, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.
Therefore, Mr. Raj can approach the Registrar and show evidence to his satisfaction that the charge has
been duly settled and satisfied and request the Registrar to enter a memorandum of satisfaction noting the
release of charge.
Question 20
The instrument creating a charge or modification thereon shall be preserved for a period of ______
years from the date of satisfaction of charge by the company.
(a) 5
(b) 7
(c) 8
(d) 15 (1 Mark) (Oct’22)
Answer 20 :(c )
Question 21
Krish (Private) Limited on 7th May 2022 obtained ₹ 25 lakhs working capital loan by offering its Stock and
Accounts Receivables as security and ₹ 5 Lakhs adhoc overdraft on the personal guarantee of a Director of
Krish (Private) Limited, from a financial institution. Is the company required to create charge for working
capital loan and adhoc overdraft in accordance with the provisions of the Companies Act, 2013?(4 Marks)
(Oct’22)
Answer 21
As per the provisions of section 2(16) of the Companies Act, 2013, “charge” means an interest or lien
created on the property or assets of a company or any of its undertakings or both as security and includes
mortgage.
Whenever a company borrows money by way of loans including term loans or working capital loans from
financial institutions or banks or any other persons, by offering its property or assets, as security a charge is
created on such property or assets in favour of the lender. Such a charge is compulsorily registrable under
the provisions of the Companies Act, 2013 in accordance with Chapter VI and the rules made in this regard.
Thus, when Krish (Private) Limited obtains working capital loans from financial institut ions by offering stock
and Accounts Receivables as security, it is required to create a charge on such property or assets in favour of
the lender. Hence, for Rs. 25 Lakh working capital loan, it is required to create a charge on it.
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Krish (Private) Limited is not required to create a charge for Rs. 5 Lakh adhoc overdraft on the personal
guarantee of a director. Since, charge is always created on the property or assets of a company and personal
guarantee of director is not a property or asset of company.
Question 22
Bows Limited is required to create a charge on one of its assets. However, the above charge could not be
registered within the required period of 30 days. State the provisions related to extension of time and
procedure for registration of charges, in case when the charge was not registered within 30 days of its
creation.(5 Marks)(Oct’22)
Answer 22
As per the provisions of Section 77 of the Companies Act, 2013, in case the charge was not registered within
30 days of creation of the charge, the Registrar may, on an application by the company, allow such
registration to be made within a period of 60 days of such creation (i.e. another 30 days are granted after
the expiry of original 30 days), on payment of additional fees as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the company is required to make an
application to the Registrar in the prescribed form. It should be supported by a declaration from the
company signed by its company secretary or a director that such belated filing shall not adversely affect the
rights of any other intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient cause for not filing the
particulars and the instrument of charge, if any, within the original period of thirty days. Only then he will
allow registration of charge within the extended period. Further, requisite additional fee or advalorem fee,
as applicable, must also be paid.
Question 23
Star Ltd. is having its establishment in Canada. It obtained a loan there creating a charge on the assets of
the foreign establishment. The company received a notice from the Registrar of Companies for not filing
the particulars of charge created by the company on the property or assets situated outside India. The
company wants to defend the notice on the ground that it shall not be the duty of the company to
register the particulars of the charge created on the assets not located in India. Do you agree with the
stand taken by the Star Ltd.? Give your answer with respect to the provisions of the Companies Act,
2013. (5 Marks April ‘23)
Answer 23
According to section 77 of the Companies Act, 2013, it shall be duty of the company creating a charge
within or outside India, on its property or assets or any of its undertakings, whether tangible or
otherwise and situated in or outside India, to register the particulars of the charge.
Thus, charge may be created within India or outside India. Also the subject-matter of the charge
i.e. the property or assets or any of the company’s undertakings, may be situated within India or
outside India.
In the given question, the company has obtained a loan by creating a charge on the assets of the foreign
establishment.
As per the above provisions, it is the duty of the company creating a charge within or outside India, on
its property or assets or any of its undertakings, whether tangible or otherwise and whether situated in
or outside India, to register the particulars of the charge.
Hence, the stand taken by Star Ltd. not to register the particulars of charge created on the assets located
outside India is not correct.
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Chapter 7
Management & Administration
Question 1
At a General meeting of a XYZ Limted, a matter was to be passed by a special resolution. Out of 40
members present, 20 voted in favour of the resolution, 5 voted against it and 5 votes were found invalid.
The remaining 10 members abstained from voting. The Chairman of the meeting declared the resolution
as passed. With reference to the provisions of the Companies Act, 2013, examine the validity of the
Chairman’s declaration. (Oct’19,4 Marks)
Answer 1
Under Section 114(2) of the Companies Act, 2013, for a valid special resolution to be passed at a meeting of
members of a company, the following conditions need to be satisfied:
(1) The intention to propose the resolution, as a special resolution must have been specified in the notice
calling the general meeting or other intimation given to the members;
(2) The notice required under the Companies Act must have been duly given of the general meeting;
(3) The votes cast in favour of the resolution (whether by show of hands or electronically or on a poll, as the
case may be) by members present in person or by proxy or by postal ballot are not less than 3 times the
number of votes, if any, cast against the resolution by members so entitled and voting.
Thus, in terms of the requisite majority, votes cast in favour have to be compared with votes cast against
the resolution. Abstentions or invalid votes, if any, are not to be taken into account.
Accordingly, in the given problem, the votes cast in favour (20) being more than 3 times of the votes cast
against (5), and presuming other conditions of Section 114(2) are satisfied, the decision of the Chairman is
in order.
Question 2
Examine the validity of the following with reference to the relevant provisions of the Companies Act, 2013:
(i) The Board of Directors of Shrey Ltd. called an extraordinary general meeting upon the requisition of
members. However, the meeting was adjourned on the ground that the quorum was not present at the
meeting. Advise the company.
(ii) Mr. Bheem is holding 500 shares (of ZYZ Limited) of total worth Rs. 5000 only. Advise, whether he
has the right to inspect the Register of Members? (March’19 ,6 Marks)
Answer 2
(i) According to section 100 (2) of the Companies Act 2013, the Board of directors must convene a general
meeting upon requisition by the stipulated minimum number of members.
As per Section 103 (2) (b) of the Companies Act, 2013, if the quorum is not present within half an hour
from the appointed time for holding a meeting of the company, the meeting, if called on the requisition
of members, shall stand cancelled. Therefore, the meeting stands cancelled and the stand taken by the
Board of Directors to adjourn it, is not proper.
(ii) As per section 94(2) of the Companies Act, the registers and their indices, except when they are closed
under the provisions of this Act, and the copies of all the returns shall be open for inspection by any
member, debenture-holder, other security holder or beneficial owner, during business hours without
payment of any fees and by any other person on payment of such fees as may be prescribed.
Accordingly, a director Mr. Bheem, who is a shareholder of the company, has a right to inspect the
Register of Members during business hours without payment of any fees, as per the provisions of this
section.
Question 3
Annual general meeting need to be called by giving 21 days’ clear notice. However it can be called on a
Chapter 7 Management & Administration
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shorter notice if members entitled to vote in that meeting give their consent in writing or by electronic
mode. In such case, how many members have to give their consents?
(a) 75% of members entitled;
(b) 90% of members entitled;
(c) 91% of members entitled;
(d) 95% of members entitled; (March ’19, 1 Mark)
Answer 3
The Answer is (d)
Question 4
Supertech Computers Pvt. Ltd has 120 members. It sends notice to all of them. 20 members did not
attend the meeting. Out of remaining 100 members, 20 members abstained from voting. Advice the
company, how many members should vote in favour of resolution, if it has to be passed as a Special
Resolution?
(a) 60 Votes
(b) 80 Votes
(c) 41 votes
(d) 20 votes (March ’19, 2 Marks)
Answer 4
The Answer is (a)
Question 5
ABC Ltd., a pharmaceutical company was having its manufacturing plant in Solan, Himachal Pradesh. The
address of its registered office as informed to the Registrar of Companies was of one of its Director’s
office, situated at Mumbai, Maharashtra. To comply with the provisions of the Companies Act, 2013 it
was keeping all its books of accounts, other relevant papers and financial statements at its registered
office. After sometime Directors of the company found it difficult to maintain such books etc.at the
registered office, so in a duly convened meeting of the Board of the Directors, it was decided that the
books of accounts and other relevant papers be kept at the office situated in Solan. Within which time
period the Registrar must be given notice about such decision of the board –
(a) Within 30 days from the date of taking such decision by the board.
(b) Within 15 days from the date it starts maintaining its books of accounts at the office situated at
Solan.
(c) Within 30 days from the date it starts maintaining its books of accounts at the office situated at
Solan.
(d) Within 7 days from the date of taking such decision by the board. (April ’19, 1 Mark)
Answer 5
The Answer is (d)
Question 6
ABC Infrastructures Limited is a listed company quoted at National Stock Exchange. The company
closed its Register of Members in June and August, 2017 for 12 and 21 days respectively. The CFO of
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company has informed the company secretary to consider closing of register in December for another
15 days for some strategic reasons. Referring to the provisions of Companies Act, 2013, examine the
validity of above action of the company.
(a) Valid, as the closure of register of members by company each time is not exceeding 30 days.
(b) Invalid, as company cannot go for closure of Register of members more than twice in a year.
(c) Invalid, as the period of closing register of members exceeding 30 days in a year.
(d) Invalid, as the period of closing the Register of members by the company is exceeding 45 days
in a year. (April ’19, 1 Mark)
Answer 6
The Answer is (d)
Question 7
The Annual General meeting of Tirupati Limited was scheduled for 28th December, 2017. Mr. Ananat,
shareholder of Tirupati Limited has desired to inspect inspection of proxies lodged with the company.
The notice for inspection should be given at least before the meeting:
(a) 24 hours
(b) 1 day
(c) 2 days
(d) 3 days (April ’19, 1 Mark)
Answer 7
The Answer is (d)
Question 8
General Meeting was scheduled to be held on 15th April, 2018 at 3.00 P.M. As per the notice the members
who are unable to attend a meeting in person can appoint a proxy and the proxy forms duly filled should
be sent to the company so as to reach at least 48 hours before the meeting. Mr. X, a member of the
company appoints Mr. Y as his proxy and the proxy form dated 10-04-2018 was depositedby Mr. Y with the
company at its registered Office on 11-04-2018. Similarly, another member Mr. W also gives two separate
proxies to two individuals named Mr. M and Mr. N. In the case of Mr. M, the proxy dated 12-04-2018 was
deposited with the company on the same day and the proxy form in favour of Mr.N was deposited on 14-
04-2018. All the proxies viz., Y, M and N were present before the meeting.
According to the provisions of the Companies Act, 2013, who would be the persons allowed to represent
at proxies for members X and W respectively? (April’19,6 Marks)
Answer 8
A Proxy is an instrument in writing executed by a shareholder authorizing another person to attend a
meeting and to vote thereat on his behalf and in his absence. As per the provisions of Section 105 of the
Companies Act, 2013, every shareholder who is entitled to attend and vote has a statutory right to appoint
another person as his proxy. It is not necessary that the proxy be a member of the company. Further, any
provision in the articles of association of the company requiring instrument of proxy to be lodged with the
company more than 48 hours before a meeting shall have effect as if 48 hours had been specified therein.
The members have a right to revoke the proxy’s authority by voting himself before the proxy has voted
but once the proxy has voted the member cannot retract his authority.
Where two proxy instruments by the same shareholder are lodged of in such a manner that one is lodged
before and the other after the expiry of the date fixed for lodging proxies, the former will be counted.
Thus, in case of member X, the proxy Y will be permitted to vote on his behalf as form for appointing proxy
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was submitted within the permitted time.

However, in the case of Member W, the proxy M (and not Proxy N) will be permitted to vote as the proxy
authorizing N to vote was deposited in less than 48 hours before the meeting.
Question 9
Examine the validity of the following decisions of the Board of Directors with reference of the provisions
of the Companies Act, 2013.
(i) In an Annual General Meeting of a company having share capital, 80 members present in person or
by proxy holding more than 1/10th of the total voting power, demanded for poll. The chairman of
the meeting rejected the request on the ground that only the members present in person can
demand for poll. (May’20, March’18, 4 Marks)
(ii) In an annual general meeting, during the process of poll, the members who earlier demanded for poll
want to withdraw it. The chairman of the meeting rejected the request on the ground that once poll
started, it cannot be withdrawn. (March’18, 4 Marks)
Answer 9
Section 109 of the Companies Act, 2013 provides for the demand of poll before or on the declaration of
the result of the voting on any resolution on show of hands. Accordingly law says that:-
Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be
ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken
by him on a demand made in that behalf:-
(a) In the case a company having a share capital, by the members present in person or by proxy, where
allowed, and having not less than one-tenth of the total voting power or holding shares on which an
aggregate sum of not less than five lakh rupees or such higher amount as may be prescribed has been
paid-up; and
(b) in the case of any other company, by any member or members present in person or by proxy, where
allowed, and having not less than one tenth of the total voting power.
Withdrawal of the demand: The demand for a poll may be withdrawn at any time by the persons
who made the demand.
Hence, on the basis on the above provisions of the Companies Act, 2013:
(i) The chairman cannot reject the demand for poll subject to provision in the articles of company.
(ii) The chairman cannot reject the request of the members for withdrawing the demand of thePoll.
Question 10
Examine the following with reference of the provisions of the Companies Act, 2013.
(i) Miraj Limited issued a notice with the agenda for nine businesses to be transacted in the Annual General
Meeting (two businesses were regarding appointment of Mr. S and Mr. P as directors). The chairman
decided to move the resolutions for all the nine businesses together to save the time of the members
present. Examine the validity of the resolutions. (Oct’18,4 Marks)
(ii) Zorab Limited served a notice of General Meeting upon its members. The notice stated that a resolution
to increase the share capital of the Company would be considered at such meeting. A shareholder
complained that the amount of the proposed increase was not specified in the notice. Is the notice valid?
(Oct’18,4 Marks)
Answer 10
(i) For the sake of avoiding confusion and mixing up, the resolutions are generally moved separately in the
Annual General Meeting. However, there is nothing illegal if the Chairman of the meeting desires that two
or more resolutions should be moved together, unless any member requires that each resolution
should be put to vote separately or unless a poll is demanded in respect of any.
Where notice has been given of several resolutions, each resolution must be put separately. However, if
the meeting unanimously adopts all the resolutions, this would not be illegal barring a few occasions.
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One resolution which should be moved separately is relating to appointment of directors at a general
meeting of a public or private company, where two or more directors cannot be appointed as directors by a
single resolution. Hence, in the instant case, all the nine businesses cannot be moved together as two
businesses were regarding appointment of Mr. S and Mr. P as directors. Besides these two resolutions,
other seven resolutions can be moved together if the members unanimously agree.
(ii) Under section 102(2)(b) in the case of any meeting other than an AGM, all business s transacted thereat
shall be deemed to be special business.
Further under section 102 (1), a statement setting out the following material facts concerning each item of
special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting,
namely:—
(1) the nature of concern or interest, financial or otherwise, if any, in respect of each items, of:
(i) every director and the manager, if any;
(ii) every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);
(2) any other information and facts that may enable members to understand the meaning, scope and
implications of the items of business and to take decision thereon. Thus, the objection of the
shareholder is valid since the details on the item to be considered are lacking. The information
about the amount is a material fact with reference to the proposed increase of share capital. The
notice is, therefore, not a valid notice under Section 102 of the Companies Act, 2013.
Question 11
M Limited held its Annual General Meeting on September 15, 2017. The meeting was presided over by
Mr. Venkat, the Chairman of the Company’s Board of Directors. On September 17, 2017,Mr. Venkat, the
Chairman, without signing the minutes of the meeting, left India to look after hi s father who fell sick in
London. Referring to the provisions of the Companies Act, 2013, examine the manner in which the
minutes of the above meeting are to be signed in the absence of Mr. Venkat and by whom. (OcT’18,6
Marks) (Mar’22, 5 Marks)
Answer 11
Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign and keep minutes
of proceedings of every general meeting, including the meeting called by the requisitionists and all
proceedings of meeting of any class of shareholders or creditors or Board of Directors or committee of the
Board and also resolution passed by postal ballot within thirty days of the conclusion of every such
meeting concerned. Minutes kept shall be evidence of the proceedings recorded in a meeting.
By virtue of Rule 25 of the Companies (Management and Administration ) Rules 2014 read with section
118 of the Companies Act, 2013 each page of every such book shall be initialed or signed and the last page
of the record of proceedings of each meeting or each report in such books shall be dated and signed by, in
the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within the
aforesaid period of thirty days or in the event of the death or inability of that chairman within that period,
by a director duly authorized by the Board for the purpose.
Therefore, the minutes of the meeting referred to in the case given above can be signed in the absence of
Mr Venkat, by any director who is authorized by the Board.
Question 12
In the current financial year Zunee Traders Limited, a non-listed company, has 556 members, increased
from 451 members which it had in the immediate previous financial year. For the forthcoming Annual
General Meeting (AGM), advise the company whether it is required to provide to its members the facility
to exercise their right to vote at this AGM by electronic means. (2 Marks, Oct’19)
(a) Since the company has more than 500 members it is required to provide to its members the facility
to exercise their right to vote at the forthcoming AGM by electronic means.
(b) The company is not required to provide to its members the facility to exercise their right to vote at
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the forthcoming AGM by electronic means since its members are less than one thousand.
(c) Though the company is required to provide to its members the facility to exercise their right to vote
at the forthcoming AGM by electronic means because it has more than 500 members, it can, as a one-
time measure, seek exemption from ROC beforehand and in that case, it need not provide facility of
voting by electronic means.
(d) Only a listed company is required to provide to its members the facility to exercise their right to vote
at the General Meetings by electronic means.
Answer 12
The Answer is (b)
Question 13
Which one of the following requires ordinary resolution?
(a) to change the name of the company
(b) to alter the articles of association
(c) to reduce the share capital
(d) to declare dividends. (1 Mark May 20)
Answer 13
The Answer is the (d)
Question 14
Bazaar Limited called its AGM in order to lay down the financial statements for Shareholders’ approval.
Due to want of Quorum, the meeting was cancelled. The directors did not file the annual returns with
the Registrar. The directors were of the idea that the time for filing of returns within 60 days from the
date of AGM would not apply, as AGM was cancelled. Has the company contravened the provisions of
Companies Act, 2013? If the company has contravened the provisions of the Act, how will it be
penalized? (4 Marks Oct 20)
Answer 14
According to section 92(4) of the Companies Act, 2013, every company shall file with the Registrar a copy
of the annual return, within sixty days from the date on which the annual general meeting is held or
where no annual general meeting is held in any year within sixty days from the date on which the annual
general meeting should have been held together with the statement specifying the reasons for not
holding the annual general meeting.
Sub-section (5) of Section 92 also states that if any company fails to file its annual return under sub-
section (4), before the expiry of the period specified therein, such company and its every officer who is in
default shall be liable to a penalty of fifty thousand rupees (As per amendment- ten thousand rupees) and
in case of continuing failure, with further penalty of one hundred rupees for each day during which such
failure continues, subject to a maximum of five lakh rupees. (As per amendment- two lakh rupees)
In the instant case, the annual general meeting of Bazaar Limited should have been held within a period of
six months, from the date of closing of the financial year but it did not take place. The idea of the
directors that since the AGM was cancelled, the provisions requiring the company to file annual returns
within 60 days from the date of AGM would not apply, is incorrect. Thus, the company has contravened
the provisions of section 92 of the Companies Act, 2013 for not filing the annual returns and shall attract
the penal provisions along with every officer of the company who is in default as specified in Section 92(5)
of the Act.
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Question 15
Neha is a director of Primus Limited. She intends to participate in the board meeting through video
conferencing and has intimated the same to the chairperson at the beginning of calendar year. Advise,
Neha for how long such declaration shall be valid.
(a) 1 month
(b) 6 month
(c) 1 year
(d) She has to furnish declaration for each meeting separately (1 Mark March 21)
Answer 15
The Answer is (c)
Question 16
Shambhu Limited was incorporated on 1.4.2018. The company did not have much to report to its
shareholders, so no general meeting of the company has been held till 30.4.2020. The company has
recently appointed a new accountant. The new accountant has pointed out that the company required
to hold the Annual General Meeting. The company has approached you a senior Chartered Accountant.
Please advise the company regarding the time limit for holding the first annual general meeting of the
Company and the power of the Registrar to grant extension of time for the First Annual General
Meeting. (5 Marks March 21)
Answer 16
According to Section 96 of the Companies Act, 2013, every company shall be required to hold its first
annual general meeting within a period of 9 months from the date of closing of its first financial year.
The first financial year of Shambhu Ltd is for the period 1st April 2018 to 31st March 2019, the first annual
general meeting (AGM) of the company should be held on or before 31st December, 2019.
The section further provides that the Registrar may, for any special reason, extend the time within which
any annual general meeting, other than the first annual general meeting, shall be held, by a period not
exceeding three months.
Thus, the first AGM of Infotech should have been held on or before 31st December, 2019. Further, the
Registrar does not have the power to grant extension to time limit for the first AGM of the company.
Question 17
A resolution shall be a special resolution when the votes cast in favour of the resolution by members
are not less than __ _ _ the number of votes, if any, cast against the resolution.
(a) Twice
(b) Three times
(c) One third
(d) One fourth (1 Mark April 21)
Answer 17
The Answer is (b)
Question 18
Lalit made an offer to Managing Director (MD) of a company. MD accepted the offer though he had no
authority to do so. Subsequently Lalit withdrew the offer but the company had already ratified the
MD’s acceptance. State which of the statement given hereunder is correct:
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(a) Lalit is bound with the offer due to ratification

(b) An offer once accepted cannot be withdrawn
(c) Both option (a) & (b) is correct
(d) Lalit is not bound to an offer. (2 Marks April 21)
Answer 18
The Answer is (c)
Question 19
P Limited had called its Annual General Meeting on 30th August 2019. Mr. Pawan has filed a complaint
against the company, that he could attend the meeting as the company did not serve the notice to him
for attending the annual general meeting. The company, in turn, provided the proof that they had sent
the notice, by way of an email to Mr. Pawan, inviting him to attend the annual general meeting of the
company. Mr. Pawan alleged that he never received the email. In the light of the provisions of the
Companies Act, 2013, advise the whether the company has erred in serving the notice of Annual
General Meeting to Mr. Pawan. (4 Marks April 21)
Answer 19
As per Rule 18 of the Companies (Management & Administration) Rules, 2014, sending of notices
through electronic mode has been statutorily recognized.
A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing
electronic link or Uniform Resource Locator for accessing such notice.
The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the
company as provided by the depository. Also, the company shall provide an advance opportunity at least
once in a financial year, to the member to register his e-mail address and the changes therein and such
request may be made by only those members who have not got their email id recorded or to update a
fresh email id and not from the members whose email id s are already registered.
In the light of the above provisions of the Act, the company’s obligation shall be satisfied when it transmits
the e-mail and the company shall not be held responsible for a failure in transmission beyond its control.
Also, if the member entitled to receive the notice fails to provide or update relevant e-mail address to the
company, or to the depository participant as the case may be, the company shall not be in default for not
delivering notice via e-mail.
Hence, the company has not erred in serving notice of Annual General Meeting to Mr. Pawan.
Question 20
The Board of Directors of Swati Limited called an extraordinary general meeting upon the requisition
of members. However, the meeting was adjourned on the ground that the quorum was not present at
the meeting. Advise the company on the basis of the provisions of the Companies Act, 2013. (2
Marks April 21)
Answer 20
According to section 100 (2) of the Companies Act 2013, the Board of directors must convene a general
meeting upon requisition by the stipulated minimum number of members.
As per Section 103 (2) (b) of the Companies Act, 2013, if the quorum is not present within half an hour
from the appointed time for holding a meeting of the company, the meeting, if called on the requisition
of members, shall stand cancelled. Therefore, the meeting stands cancelled and the stand taken by the
Board of Directors to adjourn it, is not proper.
Question 21
State with reason whether the following statement is correct or incorrect:
(i) An annual general meeting can be held on a national holiday.
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(ii) A company should file its annual return within six months of the closing of the financial year.
(5 Marks April 21)
Answer 21
(i) An annual general meeting cannot be held on a national holiday. Under section 96 (2) of the
Companies Act, 2013 every annual general meeting shall be called during business hours, that is,
between 9 a.m. and 6 p.m. on any day that is not a National Holiday. A national holiday has been
defined in the explanation to section 96 as a day declared as National Holiday by the Central
Government.
Thus, the statement ‘An annual general meeting can be held on a national holiday’ is incorrect.
(ii) The statement is incorrect in terms of section 92 (4) of the Companies Act, 2013.
Section 92 (4) states that every company shall file with the Registrar a copy of the annual return,
within sixty days from the date on which the annual general meeting is held or where no annual
general meeting is held in any year within sixty days from the date on which the annual general
meeting should have been held together with the statement specifying the reasons for not holding
the annual general meeting, with such fees or additional fees as may be prescribed.
Question 22
Best Limited has decided to conduct its Annual General Meeting on 28th September 2021. They have
sent the notice of the meeting on 9th September 2021 (for which they have taken consent from 90% of
the members entitled to vote thereat). Comment on the validity of notice of the Annual General
Meeting, as per the provisions of the Companies Act, 2013. (4 Marks Oct 21)
Answer 22
Section 101 of the Companies Act, 2013 states that to properly call a general meeting notice of at least 21
clear days’, before the meeting, should be given to all the members, legal representative of any deceased
member or the assignee of insolvent members, the auditors and directors, in writing or electronic mode
or other prescribed mode.
Generally, general meetings need to be called by giving at least a notice of 21 clear days.
However, a general meeting may be called after giving shorter notice than that specified in this sub-
section if consent, in writing or by electronic mode, is accorded thereto in the case of an annual general
meeting, by not less than ninety-five per cent. of the members entitled to vote thereat.
In the given question, the Annual General Meeting (AGM) was called by giving less than 21 days clear days
notice. Also, consent for calling the meeting at a shorter notice period was given by only 90% members
(i.e. less than 95% members). Hence, such meeting can not be said to be validity called.
Question 23
The Annual General Meeting (AGM) of ALL- WELL Limited was held on 31.8.2021. Suppose the Chairman
of the company after two days of AGM went abroad for next 31 days. Due to the unavailability of the
Chairman, within time period prescribed for submission of copy of report of AGM with the registrar,
the report as required was signed by two Directors of the company, of which one was additional
Director of the company. Comment on the signing of this report of AGM.
(a) Yes, the signing is in order as the report can be signed by any director in the absence of
Chairman.
(b) No, the signing is not in order as only the Chairman is authorised to sign the report
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors should sign
the report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall be
signed by any two directors of the company, one of whom shall be the Managing director, if
there is one and company secretary of the company. (2 Marks Nov 21)
M 7.10
Answer 23
The Answer is (d)
Question 24
The Annual General Meeting of Brother Limited was held on 25th May 2021. According to the
provisions of Companies Act, 2013, till what date the company should submit report of AGM to the
registrar?
(a) 04.06.2021
(b) 09.06.2021
(c) 24.06.2021
(d) 25.06.2021 (2 Marks Nov 21)
Answer 24
The Answer is (c)
Question 25
Gama Limited’s General Meetings are held at its registered office situated in Delhi. The minute book of
General meetings of Gama Limited will be kept at:
(a) That place where members of Gama Limited will decide.
(b) That place where all employees of Gama Limited will decide.
(c) Registered office of the company Gama Limited.
(d) That place where senior officials of Gama Limited will decide. (1 Mark Nov 21)
Answer 25
The Answer is (c)
Question 26
Kavita Ltd. scheduled its Annual General Meeting to be held on 11th March, 2020 at 11:00 A.M. The
company has 900 members. On 11th March, 2020 following persons were present by 11:30 A.M.
1. P1, P2 & P3 shareholders
2. P4 representing ABC Ltd.
3. P5 representing DEF Ltd.
4. P6 & P7 as proxies of the shareholders
(i) Examine with reference to relevant provisions of the Companies Act, 2013, whether quorum was
present in the meeting.
(ii) What will be your answer if P4 representing ABC Ltd., reached in the meeting after 11:30 A.M.? (4
Marks Nov 21)
Answer 26
According to section 103 of the Companies Act, 2013, unless the articles of the company provide for a
larger number, the quorum for the meeting of a Public Limited Company shall be 5 members personally
present, if number of members is not more than 1000.
(i) (1) P1, P2 and P3 will be counted as three members.
(2) If a company is a member of another company, it may authorize a person by
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resolution to act as its representative at a meeting of the latter company, then such
a person shall be deemed to be a member present in person and counted for the
purpose of quorum. Hence, P4 and P5 representing ABC Ltd. and DEF Ltd.
respectively will be counted as two members.
(3) Only members present in person and not by proxy are to be counted. Hence, proxies
whether they are members or not will have to be excluded for the purposes of
quorum. Thus, P6 and P7 shall not be counted in quorum.
In the light of the provision of the Act and the facts of the question, it can be concluded
that the quorum for Annual General Meeting of Kavita Ltd. is 5 members personally
present. Total 5 members (P1, P2, P3, P4 and P5) were present. Hence, the requirement
of quorum is fulfilled.
(ii) The section further states that, if the required quorum is not present within half an hour,
the meeting shall stand adjourned for the next week at the same time and place or such
other time and place as decided by the Board of Directors.
Since, P4 is an essential part for meeting the quorum requirement, and he reaches after
11:30 AM (i.e. half an hour after the starting of the meeting), the meeting will be
adjourned as provided above.
Question 27
Examine the following with reference of the provisions of the Companies Act, 2013.
(i) The Articles of Association of DJA Ltd. require the personal presence of 7 members to constitute
quorum of General Meetings. The company has 965 members as on the date of meeting. The
following persons were present in the extra-ordinary meeting to consider the appointment of
Managing Director:
(1) A, the representative of Governor of Uttar Pradesh.
(2) D, representing Y Ltd. and Z Ltd.
(3) E, F, G and H as proxies of shareholders.
Determine whether the quorum was present in the meeting? (5 Marks)
(ii) Sirhj, a shareholder, gives a notice for inspecting proxies, five days before the meeting is
scheduled and approaches the company two days before the scheduled meeting for inspecting
the same. What is the legal position relating to his actions (as per the provisions of the
Companies Act, 2013)? ( Aug ’18, 3 Marks)
Answer 27
(i) According to section 103 of the Companies Act, 2013, unless the articles of the company provide for a
larger number in case of a public company, five members personally present if the number of members as
on the date of meeting is not more than one thousand, shall be the quorum.
In this case the quorum for holding a general meeting is 7 members to be personally present
(higher of 5 or 7). For the purpose of quorum, only those members are counted who are entitled
to vote on resolution proposed to be passed in the meeting.
Again, only members present in person and not by proxy are to be counted. Hence, proxies whether
they are members or not will have to be excluded for the purposes of quorum.
If a company is a member of another company, it may authorize a person by resolution to act as its
representative at a meeting of the latter company, then such a person shall be deemed to be a
member present in person and counted for the purpose of quorum Where two or more companies
which are members of another company, appoint a single person as their representative then each
such company will be counted as quorum at a meeting of the latter company. Further the
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President of India or Governor of a State, if he is a member of a company, may appoint such a

person as he thinks fit, to act as his representative at any meeting of the company. A person so
appointed shall be deemed to be a member of such a company and thus considered as member
personally present.
In view of the above there are only three members personally present.
‘A’ will be included for the purpose of quorum. D will have two votes for the purpose of quorum as
he represents two companies ‘Y Ltd.’ and ‘Z Ltd.’ E, F, G and H are not to be included as they are not
members but representing as proxies for the members.
Thus, it can be said that the requirements of quorum has not been met and it shall not constitute a
valid quorum for the meeting.
(ii) Under section 105 (8) of the Companies Act, 2013 every member entitled to vote at a meeting of
the company, or on any resolution to be moved thereat, shall be entitled during the period
beginning twenty-four hours before the time fixed for the commencement of the meeting and
ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the
business hours of the company, provided not less than three days’ notice in writing of the
intention so to inspect is given to the company. In the given case, Sirhj has given proper notice.
However, such inspection can be undertaken only during the period beginning 24 hours before the
time fixed for the commencement of the meeting and ending with the conclusion of the meeting.
So, Sirhj can undertake the inspection only during the above mentioned period and not two days
prior to the meeting.
Question 28
A General Meeting was scheduled to be held on 15th April, 2017 at 3.00 P.M. As per the notice the
members who are unable to attend a meeting in person can appoint a proxy and the proxy forms duly
filled should be sent to the company so as to reach at least 48 hours before the meeting. Mr. X, a
member of the company appoints Mr. Y as his proxy and the proxy form dated 10 -04-2017 was
deposited by Mr. Y with the company at its registered Office on 11-04-2017. Similarly, another member
Mr. W also gives two separate proxies to two individuals named Mr. M and Mr. N. In the case of Mr. M,
the proxy dated 12-04-2017 was deposited with the company on the same day and the proxy form in
favour of Mr. N was deposited on 14-04-2017. All the proxies viz., Y, M and N were present before the
meeting. According to the provisions of the Companies Act, 2013, who would be the persons allowed to
represent at proxies for members X and W respectively?. (Oct ’18,5 Marks)
Answer 28
Section 146 of the Companies Act, 2013 provides for auditors to attend general meeting. According to
this section:
(i) All notices of, and other communications relating to, any general meeting shall be forwarded to the
auditor of the company.
(ii) The auditor shall, unless otherwise exempted by the company, attend either by himself or through his
authorised representative, who shall also be qualified to be an auditor, any general meeting.
(iii) The auditor shall have right to be heard at such meeting on any part of the business which concerns
him as the auditor.
Question 29
Vinod is a director of Prem Limited. He intends to participate in the board meeting through video
Vinod for how long such declaration shall be valid.
(a) 1 month
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(b) 6 month
(c) 1 year
(d) She has to furnish declaration for each meeting separately (1 Mark March ‘22)
Answer 29
The Answer is (c)
Question 30
Awareness Limited’s General Meetings are held at its registered office situated in Delhi. The minute
book of General meetings of Awareness Limited will be kept at:
(a) That place where members of Awareness Limited will decide.
(b) That place where all employees of Awareness Limited will decide.
(c) Registered office of Awareness Limited.
(d) That place where senior officials of Awareness Limited will decide. (1 Mark March ‘22)
Answer 30
The Answer is (c)
Question 31
Examine the validity of the following statements in respect of Annual General Meeting (AGM) as per
the provisions of the Companies Act, 2013:
(i) The first AGM of a company shall be held within a period of six months from the date of
closing of the first financial year.
(ii) The Registrar may, for any special reason, extend the time within which the first AGM shall
be held. (4 Marks March ‘22)
Answer 31
(i) According to section 96 of the Companies Act, 2013, first annual general meeting of the
company should be held within nine months from the closing of the first financial year. Hence,
the statement that the first Annual General Meeting (AGM) of a company shall be held within a
period of six months from the date of closing of the first financial year is incorrect.
(ii) According to proviso to section 96(1), the Registrar may, for any special reason, extend the time
within which any annual general meeting, other than the first annual general meeting, shall be
held, by a period not exceeding three months. Thus, the Registrar cannot extend (for any
reason) the time period within which the first AGM shall be held. Given statement is incorrect.
Question 32
A resolution shall be a special resolution when the votes cast in favour of the resolution by members
are not less than the number of votes, if any, cast against the resolution :
(a) Twice
(b) Three times
(c) Three fourth of
(d) Two third of (1 Mark April 22)
Answer 32 : (b)
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Question 33
Amar, a director of Gokul Electricals Ltd. gave in writing to the company that the notice for any
general meeting and of the Board of Directors' meeting be sent to him only by registered post at his
residential address at Kanpur for which he deposited sufficient money. The company sent notice to
him by ordinary mail under certificate of posting. Amar did not receive this notice and could not
attend the meeting and contended that the notice was improper.
Decide, as per the provisions of the Companies Act, 2013:
(i) Whether the contention of Amar is valid.
(ii) Will your answer be the same if Amar remains in U.S.A. for one month during which the notice
of the meeting was served and the meeting was held? (5 Marks April 22)
Answer 33
According to section 20(2) of the Companies Act, 2013, a document may be served on Registrar or any
member by sending it to him by post or by registered post or by speed post or by courier or by delivering
at his office or address, or by such electronic or other mode as may be prescribed. Provided that a
member may request for delivery of any document through a particular mode, for which he shall pay
such fees as may be determined by the company in its annual general meeting. Thus, if a member wants
the notice to be served on him only by registered post at his residential address at Kanpur for which he
has deposited sufficient money, the notice must be served accordingly, otherwise service will not be
deemed to have been effected.
Accordingly, the questions as asked may be answered as under:
(i) The contention of Amar shall be tenable, for the reason that the notice was not properly
served.
(ii) In the given circumstances, the company is bound to serve a valid notice to Amar by
registered post at his residential address at Kanpur and not outside India.
Question 34
Kurt Limited is a company engaged in the business of manufacturing papers. The company has
approached you to explain them the following as per the provisions of the Companies Act, 2013:
(a) Quorum for the general meeting if the company has 800 members.
(b) Quorum for the general meeting if the company has 6500 members.
(c) Quorum for the general meeting if the company has 5500 members. The articles of
association has prescribed the quorum for the meeting to be 50. (5 Marks April 22)
Answer 34
According to section 103(1) of the Companies Act, 2013, unless the articles of the company provide for a
larger number, in case of a public company:
(1) five members personally present if the number of members as on the date of meeting is
not more than one thousand,
(2) fifteen members personally present if the number of members as on the date of meeting
is more than one thousand but up to five thousand,
(3) thirty members personally present if the number of members as on the date of the
meeting exceeds five thousand.
The term ‘members personally present’ as mentioned above refers to the members entitled to vote in
respect of the items of business on the agenda of the meeting. Thus,
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(a) If the company has 800 members, quorum shall be 5 members personally present.
(b) If the company has 6500 members, quorum shall be 30 members personally present.
(c) If the company has 5500 members, quorum shall be 30 members personally present.
However, since the articles of association has prescribed the quorum for the meeting to be 50, the
quorum shall be 50 (higher of 30 and 50).
Question 35
The Annual General Meeting of Yellow Limited was held on 25th June 2022. According to the provisions
of Companies Act, 2013, till what date the company should submit report on AGM to the registrar?
(a) 30.06.2022
(b) 10.07.2022
(c) 24.07.2022
(d) 25.07.2022 (2 Marks)( Sep’22)
Answer 35: (d)
Question 36
The Articles of Association of ABC Limited require the personal presence of 7 members to constitute
quorum of General Meetings. The company has 870 members as on the date of meeting. The following
persons were present in the extra-ordinary meeting to consider the appointment of Managing Director:
(i) A, the representative of Governor of Karnataka.
(ii) B and C, shareholders of preference shares,
(iii) D, representing Green Limited and Blue Limited
(iv) E, F, G and H as proxies of shareholders.
Can it be said that the quorum was present in the meeting?(6 Marks)(Sep’22)
Answer 36
According to section 103 of the Companies Act, 2013, unless the articles of the company provide for a larger
number in case of a public company, five members personally present if the number of members as on the
date of meeting is not more than one thousand, shall be the quorum.
In this case the quorum for holding a general meeting is 7 members to be personally present (higher of 5 or
7). For the purpose of quorum, only those members are counted who are entitled to vote on resolution
proposed to be passed in the meeting.
Again, only members present in person and not by proxy are to be counted. Hence, proxies whether they
are members or not will have to be excluded for the purposes of quorum.
If a company is a member of another company, it may authorize a person by resolution to act as its
representative at a meeting of the latter company, then such a person shall be deemed to be a member
present in person and counted for the purpose of quorum. Where two or more companies which are
members of another company, appoint a single person as their representative then each such company will
be counted as quorum at a meeting of the latter company.
Further the President of India or Governor of a State, if he is a member of a company, may appoint such a
person as he thinks fit, to act as his representative at any meeting of the company. A person so appointed
shall be deemed to be a member of such a company and thus considered as member personally present.
In view of the above there are only three members personally present.
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‘A’ will be included for the purpose of quorum. B & C have to be excluded for the purpose of quorum
because they represent the preference shares and since the agenda being the appointment of Managing
Director, their rights cannot be said to be directly affected and therefore, they shall not have voting rights. D
will have two votes for the purpose of quorum as he represents two companies Green Limited and Blue
Limited. E, F, G and H are not to be included as they are not members but representing as proxies for the
members.
Thus, it can be said that the requirement of quorum has not been met and it shall not constitute a valid
quorum for the meeting.
Question 37
Shreya is a director of Shree Limited. She intends to participate in the board meeting through video
Shreya for how long such declaration shall be valid.
(a) 1 month
(b) 6 month
(c) 1 year
(d) She has to furnish declaration for each meeting separately (1 Mark) (Oct’22)
Answer 37 :(c )
Question 38
The Annual General Meeting (AGM) of Green Limited was held on 31.8.2022. Suppose the Chairman of the
company after two days of AGM went abroad for next 31 days. Due to the unavailability of the Chairman,
within time period prescribed for submission of copy of report of AGM with the registrar, the report as
required was signed by two Directors of the company, of which one was additional Director of the
company. Comment on the signing of this report of AGM.
Chairman.
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors should sign the
report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall be
signed by any two directors of the company, one of whom shall be the Managing director, if
there is one and company secretary of the company. (2 Marks) (Oct’22)
Answer 38:(d )
Question 39
Yellow Limited’s General Meetings are held at its registered office situated in Kochi. The minute book of
General meetings of Yellow Limited will be kept at:
(a) That place where members of Yellow Limited will decide.
(b) That place where all employees of Yellow Limited will decide.
(c) Registered office of the company Yellow Limited.
(d) That place where senior officials of Yellow Limited will decide. (1 Mark) (Oct’22)
Answer 39:( c)
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Question 40
The AGM shall be called by giving 21 clear days’ notice. However, it can be called by giving shorter notice
if members entitled to vote at that meeting give their consent in writing or by electronic mode. In such
cases how many members have to give their consent?
(a) 75% of members entitled
(b) 90% of members entitled
(c) 91% of members entitled
(d) 95% of members entitled (1 Mark) (Oct’22)
Answer 40:( d)
Question 41
First annual general meeting of the company should be held within ……… from the closing of the first
financial year.
(a) 6 months
(b) 9 months
(c) 12 months
(d) 18 months (1 Mark March ‘23)
Answer 41 (b)
Question 42
Happy Limited received a proxy form 54 hours before the time fixed for the start of the meeting. The
company refused to accept the proxy form on the ground that the Articles of the company provided that
a proxy form must be filed 60 hours before the start of the meeting. Define proxy and decide under the
provisions of the Companies Act, 2013, whether the proxy holder can compel the company to admit the
proxy in this case? (4 Marks March ‘23)
Answer 42
Section 105(1) of the Companies Act, 2013, provides that any member of a company entitled to attend
and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend
and vote at the meeting on his behalf.
Further, section 105(4) of the Act provides that a proxy received 48 hours before the meeting will be
valid even if the articles provide for a longer period.
In the given case, the company received a proxy form 54 hours before the time fixed for start of the
meeting. Happy Limited refused to accept proxy on the ground that articles of the company provides
filing of proxy before 60 hours of the meeting. In the said case, in line with requirement of the above
stated legal provision, a proxy received 48 hours before the meeting will be valid even if the articles
provide for a longer period. Accordingly, the proxy holder can compel the company to admit the proxy.
Question 43
Examine the validity of the following different decisions/proposals regarding change of office by A
Limited under the provisions of the Companies Act, 2013:
(i) The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar (Local limit of
M 7.18
Mumbai District), both places falling within the jurisdiction of the Registrar of Mumbai, by
passing a special resolution but without obtaining the approval of the Regional Director.
(ii) The registered office situated in certain place of a city is proposed to be shifted to another place
within the local limits of the same city under the authority of Board Resolution.(4 Marks March
‘23)
Answer 43
Regarding the validity of Proposals w.r.t change of registered office by A Limited in the light of section
12 of the Companies Act, 2013:
(i) In the first case, the Registered office is shifted from Thane to Dadar (one District to another
District) falling under jurisdiction of same ROC i.e. Registrar of Mumbai.
As per Section 12 (5) of the Act which deals with the change in registered office outside the local
limit from one town or city to another in the same state, may take place by virtue of a special
resolution passed by the company. No approval of regional director is required. Accordingly, said
proposal is valid.
(ii) In the second case, change of registered office within the local limits of the same city. Said
proposal is valid in terms it has been passed under the authority of Board resolution.
Question 44
With a view to transact some urgent business, Ratna, Rimpi and Ratnesh, the three directors of
Shilpkaar Constructions Limited are desirous of calling a general meeting of shareholders by giving
shorter notice than 21 days’ clear notice. The fourth director, Nilesh is of the opinion that such an
action will attract penalty provisions since there is contravention. The paid-up share capital of the
company is ` 30 crores divided into 3 crores shares of ` 10 each. Keeping in view the applicable
provisions of the Companies Act, 2013, discuss the possibility of calling a general meeting by giving
shorter notice. (6 Marks March ‘23)
Answer 44
Normally, general meetings are to be called by giving at least 21 clear days’ notice as required by section
101 (1) of the Companies Act, 2013.
As an exception, first proviso to Section 101 (1) states that a general meeting may be called after giving
shorter notice than that specified in sub-section (1) of section 101, if consent, in writing or by electronic
mode, is accorded thereto— in the case of any other general meeting (i.e. other than annual general
meeting), by members of the company—
(a) holding, if the company has a share capital, majority in number of members entitled to vote and
who represent not less than ninety-five per cent. of such part of the paid-up share capital of the
company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety-five per cent. of the total voting
power exercisable at that meeting.
Second proviso to section 101 (1) clarifies that where any member of a company is entitled to vote
only on some resolution or resolutions to be moved at a meeting and not on the others, those
members shall be taken into account for the purposes of sub section (1) of section 101 in respect of the
former resolution or resolutions and not in respect of the latter.
M 7.19
In view of the above provisions, Shilpkaar Constructions Limited is permitted to call the requisite
general meeting by giving a shorter notice. However, the members holding at least ninety-five per cent
of the paid-up share capital of the company which gives them a right to vote at the meeting must
consent to the shorter notice.
Thus, if the meeting is called after obtaining the consent from members holding at least ninety- five
per cent of the paid-up share capital of the company, the meeting can be validly called at shorter
notice.
Question 45
In case of a Private company, quorum of Annual General Meeting is:
(a) 1 member personally present
(b) 2 members personally present
(c) 3 members personally present
(d) 5 members personally present (1 Mark April ‘23)
Answer 45 (b)
Question 46
Moon Light Ltd. held its Annual General Meeting on September 15, 2022. The meeting was presided over
by Mr. Shreeram, the Chairman of the Company's Board of Directors. On September 17, 2022, Mr.
Shreeram, the Chairman, without signing the minutes of the meeting, left India to look after his father
who fell sick in USA. Referring to the provisions of the Companies Act, 2013, state the manner in which
the minutes of the above meeting are to be signed in the absence of Mr. Shreeram and by whom? (5
Marks April ‘23)
Answer 46
Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign and keep
minutes of proceedings of every general meeting, including the meeting called by the requisitionists and
all proceedings of meeting of any class of shareholders or creditors or Board of Directors or committee
of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every
such meeting concerned. Minutes kept shall be evidence of the proceedings recorded in a meeting.
By virtue of Rule 25 of the Companies (Management and Administration) Rules, 2014 read with section
118 of the Companies Act, 2013, each page of every such book shall be initialed or signed and the last
page of the record of proceedings of each meeting or each report in such books shall be dated and
signed by, in the case of minutes of proceedings of a general meeting, by the chairman of the same
meeting within the aforesaid period of thirty days or in the event of the death or inability of that
chairman within that period, by a director duly authorized by the Board for the purpose.
Therefore, the minutes of the meeting referred to in the case of Moon Light Ltd. can be signed in the
absence of Mr. Shreeram, by any director, authorized by the Board in this respect.
Question 47
Mr. Krish, a shareholder of ABC Ltd., has made a request to the company for providing a copy of minutes
book of general meeting. His name is already entered in the register of members of the company.
M 7.20
Whether the Mr. Krish is entitled to receive a copy of minutes book? Explain, provisions of the
Companies Act, 2013. (4 Marks April ‘23)
Answer 47
In line with section 119 read with Rule 26 of the Companies (Management and Administration) Rules,
2014, any member shall be entitled to be furnished, within seven working days after he has made a
request in that behalf to the company, with a copy of any minutes of any general meeting, on payment
of such sum as may be specified in the articles of association of the company.
As Mr. Krish, in the given case, is the member of ABC Ltd., so shall be entitled to receive a copy of any
minutes book of general meeting.
Question 48
Ganges Limited, a listed public company, conducted its Annual General Meeting on 31st
August, 2022. However, 10 days have passed since 31st August, 2022, but it has still not filed report on
Annual General Meeting. The Accountant of the company has approached you to advise them whether
Ganges Limited is required to file report on Annual General Meeting? (4 Marks April ‘23)
Answer 48
According to section 121, every listed public company shall prepare a report on each annual general
meeting including the confirmation to the effect that the meeting was convened held and conducted as
per the provisions of the Act and the rules made thereunder. A copy o f the report is to be filed with the
Registrar within thirty days of the conclusion of AGM along with the prescribed fee.
Since, Ganges Ltd. is a listed company, hence it has to file a copy of report on annual general meeting with
the Registrar within 30 days from 31st August, 2022.
M 8.1
Chapter 8
Declaration and Payment of Dividend
Question 1
TAT Ltd. incurred loss in business upto current quarter of financial year 2017-18. The company has
declared dividend at the rate of 12%, 15% and 18% respectively in the immediate preceding three years.
Inspite of the loss, the Board of Directors of the company have decided to declare interim dividend @
15% for the current financial year. Examine the decision of TAT Ltd. stating the provisions of declaration
of interim dividend under the Companies Act, 2013. (May’20,March’19,Aug’18 6 Marks)(Similar to
Apr’21 & Apr’22 but different figures)
Answer 1
Interim Dividend: According to section 123(3) of the Companies Act, 2013, the Board of Directors of a
company may declare interim dividend during any financial year or at any time during the period from
closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss
account or out of profits of the financial year for which such interim dividend is sought to be declared or
out of profits generated in the financial year till the quarter preceding the date of declarationof the interim
dividend.
However, in case the company has incurred loss during the current financial year up to the end of the
quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall
not be declared at a rate higher than the average dividends declared by the company during the
immediately preceding three financial years.
In the instant case, Interim dividend by TAT Ltd. shall not be declared at a rate higher than the average
dividends declared by the company during the immediately preceding three financial years [i.e.
(12+15+18)/3 = 45/3 =15%]. Therefore, decision of Board of Directors to declare 15% of the interim
dividend for the current financial year is tenable.
Question 2
(i) YZ Ltd is a manufacturing company & has proposed a dividend @ 10% for the year 2017-18 out of
the current year profits. The company has earned a profit of Rs. 910 crores during 2017-18. YZ Ltd.
does not intend to transfer any amount to the general reserves of the company out of current
year profit. Is YZ Ltd. allowed to do so? Comment (Oct’20, April ’19 , 3 Marks)
(ii) Karan was holding 5000 equity shares of Rs. 100 each of M/s. Future Ltd. A final call of Rs.
10 per share was not paid by Karan. M/s. Future Ltd. declared dividend of 10%. Examine with
reference to relevant provisions of the Companies Act, 2013, the amount of dividend Karan
should receive. (Mar’21, April ’19 , 3 Marks)
Answer 2
(i) Transfer to reserves (Section 123 of the Companies Act, 2013): A company may, before the
declaration of any dividend in any financial year, transfer such percentage of its profits for that
financial year as it may consider appropriate to the reserves of the company. Therefore, the
company may transfer such percentage of profit to reserves before declaration of dividend as it may
consider necessary. Such transfer is not mandatory and the percentage to be transferred to reserves
is at the discretion of the company.
As per the given facts, YZ Limited has earned a profit of Rs. 910 crores for the financial year 2017-18.
It has proposed a dividend @ 10%. However, it does not intend to transfer any amount to the
reserves of the company out of current year profit.
As per the provisions stated above, the amount to be transferred to reserves out of profits for a
financial year is at the discretion of the YZ Ltd. acting vide its Board of Directors.
(ii) As per the proviso to section 127 of the Companies Act, 2013, no offence will be said to have been
committed by a director for adjusting the calls in arrears remaining unpaid or any other sum due
from a member from the dividend as is declared by a company.
Thus, as per the given facts, M/s Future Ltd. can adjust the sum of Rs. 50,000 unpaid call money
against the declared dividend of 10%, i.e. 5,00,000 x 10/100 = 50,000. Hence, Karan’s unpaid call
money (Rs. 50,000) can be adjusted fully from the entitled dividend amount of Rs. 50,000/-.
Chapter 8 Declaration and Payment of Dividend
M 8.2
Question 3
State any 6 amounts that can be credited to the Investor Education and Protection Fund. Give your
answer as per the provisions of the Companies Act, 2013. (April-19,6 Marks)
Answer 3
Credit of amount to the Fund: There shall be credited to the Investor Education and Protection Fund
the following amounts—
(a) Amount given by the Central Government- the amount given by the Central Government by way of
grants after due appropriation made by Parliament by law in this behalf for being utilized for the
purposes of the Fund;
(b) Donations by the Central Government- donations given to the Fund by the Central Government,
State Governments, companies or any other institution for the purposes of the Fund;
(c) Amount of Unpaid Dividend Account- the amount in the Unpaid Dividend Account (UDA) of
companies transferred to the Fund under section 124(5);
(d) Amount of the general revenue account of the Central Government- the amount in the general
revenue account of the Central Government which had been transferred to that account under
section 205A(5) of the Companies Act, 1956 as it stood immediately before the commencement of
the Companies (Amendment) Act, 1999 and remaining unpaid or unclaimed on the
commencement of this Act;
(e) Amount in IEPF- the amount lying in the Investor Education and Protection Fund under section 205C
of the Companies Act, 1956;
(f) Income from investments- the interest or other income received out of investments made from the
Fund;
(g) Amount received through disgorgement or disposal of securities- The amount received under
section 38(4) i.e. amount received through disgorgement or disposal of securities under section 38(3)
shall be credited to the IEPF provided under section 38(4);
(h) Application money- the application money received by companies for allotment of any securities and
due for refund;
(i) Matured deposits- matured deposits with companies other than banking companies;
(j) Matured debentures- matured debentures with companies;
(k) Interest- interest accrued on the amounts referred to in clauses (h) to (j);
(l) Amount received from sale proceeds- sale proceeds of fractional shares arising out of issuance of
bonus shares, merger and amalgamation for seven or more years;
(m) Redemption amount- redemption amount of preference shares remaining unpaid or unclaimedfor
seven or more years; and
(n) Other amount- such other amount as prescribed in Rule 3 of the Investor Education and Protection
Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
Question 4
During the financial year 2016-17, Perfect Limited declared an interim dividend for the second time.
After declaration, the Board of Directors decided to revoke the second interim dividend as its financial
position was poor, to accommodate the said interim dividend.
(i) Examine the validity of the Board’s decision under the provisions of the Companies Act, 2013.
(ii) Examine what will be your answer, if the Board proposes to transfer more than 10% of the profits
of the company to the reserves for the current year before the declaration of any dividend?
(March’18,6 Marks)
Answer 4
According to section 123(3) of the Companies Act, 2013, the Board of Directors of a company may
declare interim dividend during any financial year out of the surplus in the profit and loss account and
out of profits of the financial year in which such interim dividend is sought to be declared.
M 8.3
Further a dividend when declared becomes a debt and a shareholder is entitled to recovery of the same
after expiry of 30 days as prescribed under Section 127 of the Companies Act, 2013. Section 2(14A) of the
Act defines dividend to include interim dividend. Therefore, dividend once declared becomes a debt and
payable within 30 days of declaration.
In the present case, Perfect Limited declared an interim dividend for the second time. After declaration,
the Board of Directors decided to revoke the second interim dividend as its financial position was poor.
However, in view of the above, the Board of directors cannot revoke the second interim dividend.
Therefore, decision of the Board to revoke the declared 2nd Interim dividend is invalid.
Question 5
The Director of Rom Limited proposed dividend at 12% on equity shares for the financial year 2016-
17. The same was approved in the annual general meeting of the company held on 20th
September, 2017. The Directors declared the approved dividends. They seek your opinion on the
following matters:
(i) Mr. A, holding equity shares of face value of Rs. 10 lakhs has not paid an amount of Rs. 1 lakh
towards call money on shares. Can the same be adjusted against the dividend amount payable to him?
(ii) Ms. N was the holder of 1,000 equity shares on 31st March, 2017, but she has transferred the shares
to Mr. R, whose name has been registered on 20th May, 2017. Who will be entitled to the above
dividend? (Oct ’18,6 Marks)
Answer 5
I. The given problem is based on the proviso provided in the section 127 (d) of the Companies Act, 2013.
As per the law where the dividend is declared by a company and there remains calls in arrears and any
other sum due from a member, in such case no offence shall be deemed to have been committed where
the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of Rs. 10 Lakhs and has
not paid an amount of Rs. 1 lakh towards call money on shares. Referring to the above provision, Mr. A is
eligible to get Rs. 1.20 lakh towards dividend, out of which an amount of Rs. 1 lakh can be adjusted
towards call money due on his shares. Rs. 20,000 can be paid to him in cash or by cheque or in any
electronic mode.
II. According to section 123(5), dividend shall be payable only to the registered shareholder of the share
or to his order or to his banker. Facts in the given case state that Ms. N, the holder of equity shares
transferred the shares to Mr. R whose name has been registered on 20 th May 2017. Since, he became
the registered shareholder before the declaration of the dividend in the Annual general meeting of the
company held on 20th September 2017, so, Mr. R will be entitled to the dividend.
Question 6
In how many days from the date of declaration of interim dividend, it shall be deposited in a separate
bank account
(a) 5 days (b) 7 days (c) 15 days (d) 21 days
(April-19, 1 Mark)
Answer 6
The Answer is (a)
Question 7
After Declaration of dividend it should be paid within
(a) 14 days (b) 21 days (c) 30 days (d) 45 days
M 8.4
(April-19- 1 Mark)
Answer 7
The Answer is (c)
Question 8
ABC Ltd., a listed company proposed a dividend @ 15% on equity shares for the financial year ended on
31st March 2018. The Annual General Meeting (AGM) of the company was held on 15th July 2018 and the
proposed dividend was approved and declared in the same. Due to some technical issues, dividend on
600 shares neither be paid within the time limit prescribed by the Act nor was transferred to unpaid
dividend account. In such a situation which regulatory authority can take action against the company
and its officers in default? (April 19, 2 Marks)
(a) Central Government (b) SEBI
(c) Tribunal (d) Investor Education and Protection Fund Authority
Answer 8
The Answer is (b)
Question 9
Komal Ltd. declares a dividend for its shareholders in its Annual General Meeting held on
27thSeptember, 2019. Referring to provisions of the General Clauses Act, 1897 and Companies Act, 2013,
advice:
(i) The dates during which Komal Ltd. is required to pay the dividend?
(ii) The dates during which Komal Ltd. is required to transfer the unpaid or unclaimed dividend to
unpaid dividend account? (4 Marks May 20)
Answer 9
As per section 9 of the General Clauses Act, 1897, for computation of time, the section states that in any
legislation or regulation, it shall be sufficient, for the purpose of excluding the first in a series of days or any
other period of time to use the word “from” and for the purpose of including the last in a series of days or
any other period of time, to use the word “to”.
(i) Payment of dividend : In the given instance, Komal Ltd. declares dividend for its shareholder in its
Annual General Meeting held on 27/09/2019. Under the provisions of Section 127 of the Companies
Act, 2013, a company is required to pay declared dividend within 30 days from the date of declaration,
i.e. from 28/09/2019 to 27/10/2019. In this series of 30 days, 27/09/2019 will be excluded and last
30thday, i.e. 27/10/2019 will be included. Accordingly, Komal Ltd. will be required to pay dividend
within 28/09/2019 and 27/10/2019 (both days inclusive).
(ii) Transfer of unpaid or unclaimed divided : As per the provisions of Section 124 of the Companies Act,
2013, where a dividend has been declared by a company but has not been paid or claimed within 30
days from the date of the declaration, to any shareholder entitled to the payment of the dividend, the
company shall, within 7 days from the date of expiry of the said period of 30 days, transfer the total
amount of dividend which remains unpaid or unclaimed to a special account to be opened by the
company in that behalf in any scheduled bank to be called the “Unpaid Dividend Account” (UDA).
Therefore, Komal Ltd. shall transfer the unpaid/unclaimed dividend to UDA within the period of 28th
October, 2019 to 3rd November, 2019 (both days inclusive).
Question 10
Alpha Herbals, a Section 8 company is planning to declare dividend in the Annual General Meeting for
the Financial Year ended 31-03-2020. Mr. Chopra is holding 800 equity shares as on date. State
M 8.5
whether the act of the company is according to the provisions of the Companies Act, 2013. (3 Marks
Oct 20)
Answer 10
According to Section 8(1) of the Companies Act, 2013, the companies licenced under Section 8 of the Act
(Formation of companies with Charitable Objects, etc.) are prohibited from paying any dividend to their
members. Their profits are intended to be applied only in promoting the objects for which they are
formed.
Hence, in the instant case, the proposed act of Alpha Herbals, a company licenced under Section 8 of the
Companies Act, 2013, which is planning to declare dividend, is not according to the provisions of the
Companies Act, 2013.
Question 11
Vishal Limited declared and paid 10% dividend to all its shareholders except Mr. Ricky, holding 500
equity shares, who instructed the company to deposit the dividend amount directly in his bank
account. The company accordingly remitted the dividend, but the bank returned the payment on the
ground that the account number as given by Mr. Ricky doesn't tally with the records of the bank. The
company, however, did not inform Mr. Ricky about this discrepancy. ·Comment on this issue with
reference to the provisions of the Companies Act, 2013 regarding failure to distribute dividend. (3
Marks March 21)
Answer 11
Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute dividend on
time. One of such situations is where a shareholder has given directions to the company regarding the
payment of the dividend and those directions cannot be complied with and the same has not been
communicated to the shareholder.
In the instant case, Vishal Ltd. has failed to communicate to the shareholder Mr. Ricky about non-
compliance of his direction regarding payment of dividend. Hence, the penal provisions under section 127
will be attracted.
Question 12
Alpha Limited is facing loss in business during the financial year 2019-2020. In the immediate
preceding three financial years, the company had declared dividend at the rate of 7%, 11% and 12%
respectively. The Board of Directors has decided to declare 12% interim dividend for the current
financial year atleast to be in par with the immediately preceding year. Is the act of the Board of
Directors valid ? Give your answer as per the provisions of the Companies Act, 2013. (5 Marks April
21, April 22) (Similar to Aug’18, May’20 & Mar 19 but different figures)
Answer 12
As per Section 123(3) of the Companies Act, 2013, the Board of Directors of a company may declare
interim dividend during any financial year out of the surplus in the profit and loss account and out of
profits of the financial year in which such interim dividend is sought to be declared.
Provided that in case the company has incurred loss during the current financial year up to the end of the
quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall
not be declared at a rate higher than the average dividends declared by the company during the
According to the given facts, Alpha Limited is facing loss in business during the financial year 2019- 2020.
In the immediate preceding three financial years, the company declared dividend at the rate of 7%, 11%
and 12% respectively. Accordingly, the rate of dividend declared shall not exceed
10%, the average of the rates (7+11+12=30/3) at which dividend was declared by it during the
M 8.6

Therefore, the act of the Board of Directors as to declaration of interim dividend at the rate of 12% during
the F.Y 2019-2020 is not valid.
Question 13
The Board of Directors of Vidyut Limited are contemplating to declare interim dividend in the last
week of July, 2021 but the company has incurred loss during the current financial year up to the end of
June, 2021. However, it is noted that during the previous five financial years i.e., 2016-17, 2017-18,
2018-19, 2019-20 and 2020-21, the company had declared dividend at the rate of 8%, 9%, 12%, 11%
and 10% respectively. Advise the Board as to the maximum rate at which they can declare interim
dividend despite incurring loss during the current financial year.
(a) Maximum at the rate of 10%.
(b) Maximum at the rate of 11%.
(c) Maximum at the rate of 10.5%.
(d) Maximum at the rate of 11.5%. (2 Marks Oct 21)
Answer 13
The Answer is (b)
Question 14
Amount to be transferred to reserves out of profits before any declaration of dividend is ___________
(a) 5%
(b) 7.5%
(c) 10%
(d) at the discretion of the company. (1 Mark Oct 21, Apr’22)
Answer 14
The Answer is (d)
Question 15
The Director of Lion Limited proposed dividend at 12% on equity shares for the financial year 2019-20.
The same was approved in the annual general meeting of the company held on 20th September,
2020. Mr. A, holding equity shares of face value of ` 10 lakhs has not paid an amount of ` 1 lakh
towards call money on shares. Can the same be adjusted against the dividend amount payable to him?
(3 Marks Oct 21)
Answer 15
The given problem is based on the proviso provided in the section 127 (d) of the Companies Act, 2013. As
per the law where the dividend is declared by a company and there remains calls in arrears and any
other sum due from a member, in such case no offence shall be deemed to have been committed where
the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of ` 10 Lakhs and has
not paid an amount of ` 1 lakh towards call money on shares. Referring to the above provision, Mr. A is
eligible to get ` 1.20 lakh towards dividend, out of which an amount of ` 1 lakh can be adjusted towards
call money due on his shares. ` 20,000 can be paid to him in cash or by cheque or in any electronic mode.
According to the above mentioned provision, company can adjust sum of ` 1 lakh due towards call money
on shares against the dividend amount payable to Mr. A.
M 8.7
Question 16
Mr. Guru bought 40,000 shares of Real Consultancy Services (RCS) of face value 10 each out of his
savings. On such shares, the final call of Rs. 2 is due but unpaid by Mr. Guru. In the meantime, RCS
declared dividend at a rate of 15%. Regarding un-paid call money by Mr. Guru, in light of dividend due
to him from RCS, state which of following the statements is correct?
(a) Dividend cannot be adjusted against the unpaid call money
(b) The dividend of Rs. 48,000 can be adjusted against unpaid call money
(c) The dividend of Rs. 48,000 can be adjusted against unpaid call money, only if consent is given
by Mr. Guru.
(d) The dividend of Rs. 64,000 can be adjusted against unpaid call money, even if consent is not
given by Mr. Guru. (2 Marks Nov 21)
Answer 16
The Answer is (b)
Question 17
When the dividend is declared at the Annual General Meeting of the company, it is known as ….
(a) Final Dividend
(b) Interim Dividend
(c) Dividend on preference shares
(d) Scrip Divided (1 Mark Nov 21)
Answer 17
The Answer is (a)
Question 18
The Board of Directors of Dew Fashions Limited at its meeting recommended a dividend on its paid-up
equity share capital which was later on approved by the shareholders at the Annual General Meeting.
Thereafter, the directors at another meeting of the Board passed a board resolution for diverting the
total dividend to be paid to the shareholders for purchase of certain short-term investments in the
name of the company. As a result, dividend was paid to shareholders after 45 days.
Examining the provisions of the Companies Act, 2013, state whether the act of directors is in violation
of the provisions of the Act and if so, state the consequences that shall follow for the above violative
act. (6 Marks Nov 21)
Answer 18
According to section 124 of the Companies Act, 2013, where a dividend has been declared by a company
but has not been paid or claimed within 30 days from the date of the declaration, the company shall,
within 7 days from the date of expiry of the said period of 30 days, transfer the total amount of
dividend which remains unpaid or unclaimed to a special account to be opened by the company in any
scheduled bank to be called the Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has been declared by a
company but has not been paid or the warrant in respect thereof has not been posted within 30 days
from the date of declaration to any entitled shareholder, every director of the company shall, if he is
knowingly a party to the default, be liable for punishment.
In the present case, the Board of Directors of Dew Fashions Limited at its meeting recommended a
dividend on its paid-up equity share capital which was later on approved by the shareholders at the
Annual General Meeting. Thereafter, the directors at another meeting of the Board decided by passing
a board resolution for diverting the total dividend to be paid to the shareholders for purchase of certain
M 8.8
short-term investments in the name of the company. As a result, dividend was paid to shareholders
after 45 days.
1. Since, declared dividend has not been paid within 30 days from the date of the declaration to
any shareholder entitled to the payment of dividend, the company shall, within 7 days from the
date of expiry of the said period of 30 days, transfer the total amount of dividend which remains
unpaid or unclaimed to a special account to be opened by the company in any scheduled bank to
be called the Unpaid Dividend Account.
2. The Board of Directors of Dew Fashions Limited has violated section 127 of the Companies Act,
2013 as it failed to pay dividend to shareholders within 30 days due to its decision to divert the
total dividend to be paid to shareholders for purchase of certain short-term investments in the
name of the company.
Consequences: The following are the consequences for violation of the above provisions:
(i) Every director of the company shall, if he is knowingly a party to the default, be
punishable with maximum imprisonment of two years and shall also be liable for a
minimum fine rupees one thousand for every day during which such default continues.
(As per amendment- If a company fails to comply to with any of the requirements of this
section, such a company shall be liable to a penalty of one lakh rupees and in case of
continuing failure with a further penalty of five hundred rupees for each day after the
first during which the failure continues subject to maximum of ten lakh rupees and every
officer of the company who is in default shall be liable to a penalty of twenty five
thousand rupees and in case of continuing failure with a further penalty of one hundred
rupees for each day after the first during which such failure continues subject to a
maximum of two lakh rupees.)
(ii) The company shall also be liable to pay simple interest at the rate of 18% p.a. during the
period for which such default continues.
Question 19
Sumitra Healthcare and Hospitality Limited had issued 9% non-convertible debentures which matured
four years back. However, 1000 such debentures of Rs. 100 each are still remaining unclaimed and
unpaid even after the maturity. State the period after which the company needs to transfer them to
Investor Education and Protection Fund (IEPF) if they remain unclaimed and unpaid. (Oct ’19, 2
Marks)
(a) After the expiry of five years from the maturity date.
(b) After the expiry of six years from the maturity date.
(c) After the expiry of seven years from the maturity date.
(d) After the expiry of eight years from the maturity date.
Answer 19
The Answer is (c)
Question 20
Mars Ltd. declared and paid dividend in time to all its equity holders for the financial year 2016 -17,
except in the following two cases:
(i) Mrs. Sheetal, holding 250 shares had mandated the company to directly deposit the dividend amount in
her bank account. The company, accordingly remitted the dividend but the bank returned the payment
on the ground that there was difference in surname of the payee in the bank records. The company,
however, did not inform Mrs. Sheetal about this discrepancy.
(ii) Dividend amount of Rs. 50,000 was not paid to Mr. Piyush, deceased, in view of court order restraining
M 8.9
the payment due to family dispute about succession.

You are required to analyse these cases with reference to provisions of the Companies Act, 2013
regarding failure to distribute dividends. (Oct ’19,6 Marks)
Answer 20
I. Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute dividend on time.
One of such situations is where a shareholder has given directions to the company regarding the payment
of the dividend and those directions cannot be complied with and the same has not been communicated to
her.
In the given situation, the company has failed to communicate to the shareholder Mrs. Sheetal about non-
compliance of her direction regarding payment of dividend. Hence, the penal provisions under section 127
will be applicable.
II. Section 127, inter-alia, provides that no offence shall be deemed to have been committed where the
dividend could not be paid by reason of operation of law.
In the present circumstance, the dividend could not be paid because it was not allowed to be paid by the
court until the matter was resolved about succession. Hence, there will not be any liability on the
company and its Directors etc.
Question 21
The Annual General Meeting of ABC Limited declared a dividend at the rate of 30 percent payable on
paid up equity share capital of the Company as recommended by Board of Directors on 30th April, 2019.
But the Company was unable to post the dividend warrant to Mr. Ranjan, an equity shareholder of the
Company, up to 30th June, 2019. Mr. Ranjan filed a suit against the Company for the payment of
dividend along with interest at the rate of 20 percent per annum for default period. Decide in the light of
provisions of the Companies Act, 2013, whether Mr. Ranjan would succeed? Also, state the directors’
liability in this regard under the Act. (Oct ’19,5 Marks)
Answer 21
Section 127 of the Companies Act, 2013 lays down the penalty for non - payment of dividend within the
prescribed time period. Under section 127 where a dividend has been declared by a company but has not
been paid or the warrant in respect thereof has not been posted within 30days from the date of
declaration to any shareholder entitled to the payment of the dividend:
(i) every director of the company shall, if he is knowingly a party to the default, be punishable with
imprisonment which may extend to two years and with fine which shall not be less than one thousand
rupees for every day during which such default continues; and
(ii) the company shall be liable to pay simple interest at the rate of eighteen per cent. per annum during the
period for which such default continues.
Therefore, in the given case Mr Rajan will not succeed in his claim for 20% interest as the limit under
section 127 is 18% per annum.
Question 22
When the dividend is declared at the Annual General Meeting of the company, it is known as ….
(a) Final Dividend
(b) Interim Dividend
(c) Dividend on preference shares
(d) Scrip Divided (1 Mark)( Sep’22)
Answer 22: (a)
M 8.10
Question 23
The Annual General Meeting of ABC Bakers Limited held on 30 th May, 2022, declared a dividend at the
rate of 30% payable on its paid-up equity share capital as recommended by Board of Directors. However,
the Company was unable to post the dividend warrant to Mr. Ranjan, an equity shareholder, up to 25th
July, 2022. Mr. Ranjan filed a suit against the Company for the payment of dividend along with interest at
the rate of 20 percent per annum for the period of default. Decide in the light of provisions of the
Companies Act, 2013, whether Mr. Ranjan would succeed? Also, state the directors’ liability in this regard
under the Act.(6 Marks) (Sep’22)
Answer 23
Section 127 of the Companies Act, 2013 lays down the penalty for non-payment of dividend within the
prescribed time period of 30 days. According to this section where a dividend has been declared by a
company but has not been paid or the warrant in respect thereof has not been posted within 30 days from
the date of declaration of dividend to any shareholder entitled to the payment of dividend:
(1) every director of the company shall, if he is knowingly a party to the default, be punishable with
imprisonment maximum up to two years and with minimum fine of rupees one thousand for every day
during which such default continues; and
(2) the company shall be liable to pay simple interest at the rate of 18% per annum during the period for
which such default continues.
In the given question, the company was unable to post dividend warrant within 30 days from the date
of declaration of dividend. Thus, the directors will be liable as per the above provisions and the
company is liable to pay simple interest. However, Mr. Ranjan will not succeed if he claims interest at
20% per annum interest as the limit prescribed under section 127 is 18% per annum.
Question 24
During the half year ended September 2021, the board of directors (BOD) of New Era Limited has made an
application to the Tribunal for revision in the accounts of the company for the financial year ended on
March 2019. Further during the year ended March 2022, the BOD has again made an application to the
Tribunal for revision in the board’s report pertaining to the year ended March 2021. You are required to
state the validity of the acts of the Board of directors.
(a) The act of the BOD is valid only to the extent of application made for revisions in accounts as board’s
report are not eligible for revision.
(b) The act of the BOD is valid as application made for revision in the accounts and board’s report
pertains to two different financial year.
(c) The act of the BOD is invalid as the law provides for only one time application to be made in a
financial year for revision of accounts and boards report.
(d) The act of the BOD is invalid as to the application made for revision in accounts pertains to a period
beyond 2 years immediately preceding the year 2022. The application made for revision in the Board
report is however valid in law. (2 Marks) (Oct’22)
Answer 24:( d)
Question 25
One Person Company shall file a copy of the duly adopted financial statements to the Registrar in:
(a) 30 days of the date of meeting in which it was adopted.
(b) 90 days of the date of meeting in which it was adopted.
(c)90 days from the closure of the financial year.
(d) 180 days from the closure of the financial year. (1 Mark) (Oct’22)
M 8.11
Answer25 :(d )
Question 26
A Limited declared and paid 10% dividend to all its shareholders except Mr. B, holding 500 equity shares,
who instructed the company to deposit the dividend amount directly in his bank account. The company
accordingly remitted the dividend, but the bank returned the payment on the ground that the account
number as given by Mr. B doesn't tally with the records of the bank. The company, however, did not
inform Mr. B about this discrepancy. Comment on this issue with reference to the provisions of the
Companies Act, 2013 regarding failure to distribute dividend.(6 Marks , Oct ’22)
Answer 26
Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute dividend on time.
One of such situations is where a shareholder has given directions to the company regarding the payment of
the dividend and those directions cannot be complied with and the same has not been communicated to the
shareholder.
In the instant case, A Ltd. has failed to communicate to the shareholder Mr. B about the discrepancy (as per
bank, account number as given by Mr. B doesn't tally with the records of the bank) which led to non-
compliance of his direction regarding payment of dividend. Hence, the penal provisions under section 127
will be attracted.
Question 27
G Medical Instruments Limited is a manufacturing company & has proposed a dividend @ 10% for the
year 2021-2022 out of the profits of current year. The company has earned a profit of ₹ 910 crores during
2021-2022. The company does not intend to transfer any amount to the general reserves out of the
profits. Is G Medical Instruments Limited allowed to do so, as per the provisions of the Companies Act,
2013? (6 Marks) (Oct’22)
Answer 27
According to section 123 of the Companies Act, 2013, a company may, before the declaration of any
dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider
appropriate to the reserves of the company. Such transfer is not mandatory and the percentage to be
transferred to reserves is at the discretion of the company.
As per the given facts, G Medical Instruments Limited has earned a profit of ₹ 910 crores for the financial
year 2021-2022. It has proposed a dividend @ 10%. However, it does not intend to transfer any amount to
the reserves of the company out of the profits of current year.
As per the provisions stated above, the amount to be transferred to reserves out of profits for any financial
year is at the discretion of the company acting through its Board of Directors. Therefore, at its discretion, if G
Medical Instruments Limited decides not to transfer any profit to reserves before the declaration of dividend
at 10%, it is legally allowed to do so.
Question 31
The Annual General Meeting of Angels Limited held on 30th May, 2022, declared a dividend at the rate
of 30% payable on its paid-up equity share capital as recommended by Board of Directors. However, the
Company was unable to post the dividend warrant to Mr. A, an equity shareholder, up to 25th July,
2022. Mr. A filed a suit against the Company for the payment of dividend along with interest at the
rate of 20 percent per annum for the period of default. Decide in the light of provisions of the
Companies Act, 2013, whether Mr. A would succeed? Also, state the directors’ liability in this regard
under the Act. (5 Marks March ‘23)
M 8.12
Answer 31
Section 127 of the Companies Act, 2013 lays down the penalty for non-payment of dividend within
the prescribed time period of 30 days. According to this section where a dividend has been declared by
a company but has not been paid or the warrant in respect thereof has not been posted within 30 days
from the date of declaration of dividend to any shareholder entitled to the payment of dividend:
(a) every director of the company shall, if he is knowingly a party to the default, be punishable with
imprisonment maximum up to two years and with minimum fine of rupees one thousand for every
day during which such default continues; and
(b) the company shall be liable to pay simple interest at the rate of 18% per annum during the period
for which such default continues.
Therefore, in the given case Mr. A will not succeed if he claims interest at 20% interest as the limit
under section 127 is 18% per annum.
Question 32
Mr. R, holder of 1000 equity shares of ` 10 each of Vimal Ltd. approached the company in the last week of
September, 2022 with a claim for the payment of dividend of ` 2000 declared @ 20% by the Company at
its Annual General Meeting held on 31.08.2014 with respect to the financial year 2013-14. The Company
refused to accept the request of R and informed him that his shares on which dividend has not been
claimed till date, have also been transferred to the Investor Education and Protection Fund.
Examine, in the light of the provisions of the Companies Act, 2013, the validity of the decision of the
Company and suggest the remedy, if available, to him for obtaining the unclaimed amount of dividend
and re-transfer of corresponding shares in his name. (6 Marks April ‘23)
Answer 32
According to section 124 of the Companies Act, 2013:
(1) Unpaid or Unclaimed Dividend to be transferred to the Unpaid Dividend Account - Where a
dividend has been declared by a company but has not been paid or claimed within thirty (30) days
from the date of declaration, the company shall, within seven (7) days from the expiry of the said
period of 30 days, transfer the total amount of unpaid or unclaimed dividend to a special account
called the Unpaid Dividend Account (UDA). The UDA shall be opened by the company in any
scheduled bank.
(2) Transfer of Unclaimed Amount to Investor Education and Protection Fund (IEPF) - Any money
transferred to the Unpaid Dividend Account which remains unpaid or unclaimed for a period of seven
(7) years from the date of such transfer shall be transferred by the company along with interest
accrued thereon to the Investor Education and Protection Fund.
(3) Transfer of Shares to IEPF- All shares in respect of which dividend has not been paid or claimed for 7
consecutive years or more shall be transferred by the company in the name of Investor Education and
Protection Fund along with a statement containing the prescribed details.
(4) Right of Owner of ‘transferred shares’ to Reclaim - Any claimant of shares so transferred to IEPF
shall be entitled to reclaim the ‘transferred shares’ from Investor Education and Protection Fund in
accordance with the prescribed procedure and on submission of prescribed documents.
As per the provisions of sub-section (3) of section 125 of the Companies Act, 2013, read with rule 7 of
Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016,
any person, whose unclaimed dividends have been transferred to the Fund, may apply for refund, to the
Authority, by submitting an online application.
In the given question, Mr. R did not claim the payment of dividend on his shares for a period of more
M 8.13
than 7 years (i.e. expiry of 30 days from 31.08.2014 to last week of September 2022). As a result, his
unclaimed dividend (` 2,000) along with such shares (1,000 equity shares) must have been transferred to
Investor Education and Protection Fund Account. Therefore, the company is justified in refusing to
accept the request of Mr. R for the payment of dividend of ` 2,000 (declared in Annual General
Meeting on 31.8.2014).
In terms of the above stated provisions, Mr. R should be advised as under:
(i) If Mr. R wants to reclaim the transferred shares, he should apply to IEPF authorities along with the
necessary documents in accordance with the prescribed procedure.
(ii) He is also entitled to get refund of the dividend amount, which was transferred to the above fund;
in accordance with the prescribed rules.
9.1
Chapter 9
Accounts of Companies
Question 1
From the following information in respect of BMR Consultants Pvt. Ltd., compute the amount company
is required to contribute on account of CSR:
Financial Year Net Profit (in
Lacs)
2015-16 15
2016-17 50
2017-18 70
(a) Nil. If in any of the three financial years company has incurred losses, then company is not
required to spend amount towards CSR but explain the reason for not spending the amount.
(b) Rs. 2.4 Lacs
(c) Rs. 80,000/-
(d) Rs. 2.1 Lacs ( March ’19 , 2 Marks)
Answer 1
The Answer is (c)
Question 2
Amex limited is a public company having a net- worth of Rs. 950 crores, turnover of 200 crores (the
company is just 5 years since the date of its incorporation) during the immediately preceding financial
year, has to constitute a Corporate Social Responsibility (CSR) Committee. It has 9 Directors (A, B, C, D,
E, F, G, H and I). Further, Mr. F, G, H and I are independent directors. Out of the following statements
which statement is correct:
(a) CSR committee may constitute of A, B and C
(b) CSR committee may constitute of A, B and D
(c) CSR committee may constitute of A, F and G
(d) There is no need to constitute a CSR committee as the turnover is just 200 crores during the
immediately preceding financial year (March ’19,2 Marks)
Answer 2
The Answer is (c)
Question 3
Excellent Art Private Limited, has a paid up capital of Rs.50 crore, Turnover of Rs.25 crore and borrowing
of Rs.25 crore and outstanding deposits of Rs.30 crore. Decide if the Company needs to comply with
internal audit requirements under the Act?
(a) No. The provisions of Internal audit are not applicable on private companies.
(b) Yes. Company is having Paid up capital of Rs.50 Crore and outstanding deposits more than
Rs.25 crore.
(c) No. Because the borrowings are less than Rs.100 crore and Turnover is less than Rs.200 crore
(d) None of the above (March ’19, 2 Marks)
Answer 3 The Answer is (c)
Chapter 9 Accounts of Companies
9.2
Question 4
The directors of Ninja Ltd. having a paid- up capital of Rs. 1500 crores have approached you to state
them the provisions of the Companies Act, 2013 and rules thereunder, regarding which companies are
required to constitute CSR Committee? Also, state the composition of CSR Committee. (March’18,6
Marks)
Answer 4
Which Company is required to constitute CSR committee:
Every company including its holding or subsidiary, and a foreign company defined under section 2(42) of
the Companies Act, 2013 having its branch office or project office in India, having
(1) net worth* of rupees 500 crore or more, or
(2) turnover of rupees 1000 crore or more or
(3) a net profit of rupees 5 crore or more
during any financial year shall constitute a Corporate Social Responsibility Committee of the Board.
However, the net worth, turnover or net profit of a foreign company shall be computed in accordance
with balance sheet and profit and loss account of such company as prepared in accordance with the
provisions of section 381(1)(a) and section 198 of the Act.
*”Net worth” [Section 2(57)] means the aggregate value of the paid-up share capital and all reserves
created out of the profits and securities premium account, after deducting the aggregate value of the
accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the
audited balance sheet, but does not include reserves created out of revaluation of assets, write-backof
depreciation and amalgamation.
Composition of CSR Committee:
(a) The CSR Committee shall be consisting of three or more directors, out of which at least one director shall
be an independent director.
(b) An unlisted public company or a private company which is not required to appoint an independent
director shall have its CSR Committee without such director.
(c) A private company having only two directors on its Board shall constitute its CSR Committee with two
such directors.
(d) With respect to a foreign company covered as above, the CSR Committee shall comprise of at least
two persons of which one person shall be as specified under section 380(1)(d) of the Act and another
person shall be nominated by the foreign company.
(e) The Board’s report under sub-section (3) of section 134 shall disclose the composition of the CSR
Committee
Question 5
Natraj Limited is an unlisted Public company having paid up share capital of ` 80 crores during the
preceding financial year 2016-17. The turnover of the company was ` 110 crores for the same period.
Referring to the provisions of the Companies Act, 2013, discuss the answer to the following:
(i) Is it mandatory for the above company to appoint an internal auditor for the financial year 2017-18?
(ii) What are the qualifications of the Internal Auditor? (March ’18, 6 Marks)
Answer 5
(i) Class of companies required to appoint Internal Auditor: Section 138 of the Companies Act,
2013 and the Companies (Accounts) Rules, 2014 prescribes the class of companies required to
appoint Internal Auditor. According to it, following class of companies shall be required to appoint
an internal auditor or a firm of internal auditors which may be either an individual or a partnership
firm or a body corporate, namely:
1. Every listed company;
2. Every unlisted public company having –
9.3
(a) Paid up share capital of 50 crore rupees or more during the preceding financial year; or
(b) Turnover of 200 crore rupees or more during the preceding financial year; or
(c) Outstanding loans or borrowings from banks or public financial institutions exceeding 100
crore rupees or more at any point of time during the preceding financial year; or
(d) Outstanding deposits of 25 crore rupees or more at any point of time during the preceding
financial year; and
3. Every private company having –
(a) Turnover of 200 crore rupees or more during the preceding financial year; or
(b) Outstanding loans or borrowings from banks or public financial institutions exceeding 100
crore rupees or more at any point of time during the preceding financial year.
As per the facts given in the question, Natraj Limited is an unlisted public company with the paid up
share capital of ` 80 cores during the preceding financial year with the turnover of ` 110 crores.
Since, Natraj Limited fulfills one of the criteria with paid up share capital of more than 50 crore
rupees during the preceding financial year, it is mandatory for the Natraj Limited to appoint an
internal auditor for the financial year 2017-18.
(ii) Qualifications of Internal Auditor
(a) Internal Auditor shall either be a chartered accountant or a cost accountant or such other
professional as may be decided by the Board to conduct internal audit of the functions and
activities of the company.
Here, the term “Chartered Accountant” or “Cost Accountant” shall mean a “Chartered Accountant”
or a “Cost Accountant”, as the case may be, whether engaged in practice or not.
(b) The internal auditor may or may not be an employee of the company.
Question 6
The Tribunal has ordered the re-opening of the accounts of MIT Ltd. The directors of the company has
approached you to explain to them the provisions of the Companies Act, 2013 in respect of the re-
opening of accounts on court’s or Tribunal’s order. (Oct ’18 , 6 Marks)
Answer 6
According to section 130 of the Companies Act, 2013,
(1) On Filing of an application: A company shall not re-open its books of account and not recast its financial
statements, unless an application in this regard is made by the Central Government, the Income-tax
authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any
person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect
that— (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the
company were mismanaged during the relevant period, casting a doubt on the reliability of financial
statements:
Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government,
the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or
authority concerned or any other person concerned and shall take into consideration the representations,
if any, made by that Government or the authorities, Securities and Exchange Board or the body or
authority concerned or the other person concerned before passing any order under this section.
(2) Nature of Revised Accounts: The accounts so revised or re-cast shall be final.
(3) Time Period: No order shall be made in respect of re-opening of books of account relating to a period
earlier than eight financial years immediately preceding the current f inancial year:
9.4
Provided that where a direction has been issued by the Central Government under the proviso to sub-
section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of
account may be ordered to be re-opened within such longer period.
Question 7
The Companies Act, 2013 has prescribed an additional duty on the Board of Directors to include in the
Board’s Report a ‘Directors’ Responsibility Statement’. Explain briefly the details to be furnished in the
said statement. (Aug’18,6 Marks)
Answer 7
Section 134(3)(c) of the Companies Act, 2013 provides that there shall be attached to statements laid
before a company in general meeting, a report by its Board of Directors, which shall include a numberof
statements as prescribed in the sub section including Directors’ Responsibility Statement.
Further section 134(5) states that the Directors Responsibility Statement shall state that:
(i) In the preparation of the annual accounts, the applicable accounting standards had been followed along
with proper explanation relating to material departures;
(ii) the directors had selected such accounting policies and applied them consistently and made judgments
and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of
the company at the end of the financial year and of the profit or loss of thecompany for that period;
(iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in
accordance with the provisions of this Act for safeguarding the assets of the company and for preventing
and detecting fraud and other irregularities;
(iv) that the directors had prepared the annual accounts on a going concern basis; and
(v) the directors, in the case of a listed company, had laid down internal financial controls to be followed by
the company and that such internal financial controls are adequate and were operating effectively; and
(vi) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws
and that such systems were adequate and operating effectively.
Question 8
A company can re- open / recast its book of accounts on an application to Tribunal made by:
(a) Registrar (b) Member
(c) Board of Directors (d) Income –tax authorities
(April’19, 1 Mark)
Answer 8
The Answer is (d)
Question 9
Feel Rich Co. Ltd. Having its registered office at New Delhi, is a subsidiary of a German company named
Richman Company limited. The financial year of the parent/holding company ends on 31st December
every year. The subsidiary company intends to follow a different financial year for consolidation of its
accounts with its parent company, situated outside India. For doing so it is required to take prior
permission of the competent authority. For the purpose from the following who will be this competent
authority—
(a) Registrar of Companies at New Delhi (b) Tribunal
(c) Ministry of Corporate Affairs (d) SEBI (April’19, 1 Mark)
Answer 9
The Answer is (b)
9.5
Question 10
ABC Limited has on its Board, four Directors viz. W, X, Y and Z. In addition, the company has Mr. D as the
Managing Director. The company also has a full time Company Secretary, Mr. C, on its rolls. The financial
statements of the company for the year ended 31 March,2019 were authenticated by two of the
directors, Mr. X and Mr. Y under their signatures.
Referring to the provisions of the Companies Act, 2013:
(i) Examine the validity of the authentication of the Balance Sheet and Statement of Profit & Loss and
the Board’s Report.
(ii) What would be your answer in case the company is a One Person Company (OPC) and has only one
Director, who has authenticated the Balance Sheet and Statement of Profit & Loss and the Board’s
Report? (6 Marks May 20)
Answer 10
In accordance with the provisions of the Companies Act, 2013, as contained under section 134 (1), the
financial statement, including consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board by the chairperson of the company where he is
authorised by the Board or by two directors out of which one shall be managing director, if any, and the
Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever
they are appointed, or in the case of One Person Company, only by one director, for submission to the
auditor for his report thereon.
The Board’s report and annexures thereto under section 134(3), shall be signed by its Chairperson of the
company, if he is authorized by the Board and where he is not so authorized, shall be signed by at least two
directors one of whom shall be a managing director or by the director where there is one director.
(i) In the given case, the Balance Sheet and Profit & Loss Account have been signed by Mr. X and Mr. Y,
the directors. In view of the provisions of Section 134 (1), the Managing Director, Mr. D should be one
of the two signatories. Since, the company has also employed a full- time Secretary Mr. C, he should
also sign the Balance Sheet and Profit & Loss Account. Therefore, authentication done by two
directors is not valid.
(ii) In case of OPC, the financial statements should be signed by one director and hence, the
authentication is in order.
Question 11
Whether a Company can keep books of Accounts in electronic mode accessible only outside India? (3
Marks Oct 20)
Answer 11
A Company has the option of keeping its books of account or other relevant papers in electronic mode as
per Rule 3 of the Companies (Accounts) Rules, 2014. According to such Rule,
(a) such books of accounts or other relevant books or papers maintained in electronic mode shall
remain accessible in India, at all times so as to be usable for subsequent reference.
(b) There shall be a proper system for storage, retrieval, display or printout of the electronic records as
the Audit Committee, if any, or the Board may deem appropriate and such records shall not be
disposed of or rendered unusable, unless permitted by law.
(c) The back-up of the books of account and other books and papers of the company maintained in
electronic mode, including at a place outside India, if any, shall be kept in servers physically located
in India on a periodic basis daily basis.
9.6
Hence, a company cannot keep books of Account in electronic mode accessible only outside India.
As per amendment- Provided that for the financial year commencing on or after the 1st day of April,
2022, every company which uses accounting software for maintaining its books of account, shall use only
such accounting software which has a feature of recording audit trail of each and every transaction,
creating an edit log of each change made in books of account along with the date when such changes
were made and ensuring that the audit trail cannot be disabled
Question 12
The Income Tax Authorities in the current financial year 2020-21 observed, during the assessment
proceedings, a need to re-open the accounts of Shrey Ltd. for the financial year 2009-10 and,
therefore, filed an application before the National Company Law Tribunal (NCLT) to issue the order to
Shrey Ltd. for re-opening of its accounts and recasting the financial statements for the financial year
2009-10. Examine the validity of the application filed by the Income Tax Authorities to NCLT. (6 Marks
Nov 21) (5 Marks Oct 20)
Answer 12
As per section 130 of the Companies Act, 2013, a company shall not re-open its books of account and
not recast its financial statements, unless an application in this regard is made by the Central
Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory body or
authority or any person concerned and an order is made by a court of competent jurisdiction or the
Tribunal to the effect that—
(i) the relevant earlier accounts were prepared in a fraudulent manner; or
(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt
on the reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account relating to a period earlier
than eight financial years immediately preceding the current financial year.
In the given instance, an application was filed for re-opening and re-casting of the financial statements of
Shrey Ltd. for the financial year 2009-2010 which is beyond 8 financial years immediately preceding the
current financial year.
Though application filed by the Income Tax Authorities to NCLT is valid, its recommendation for reopening
and recasting of financial statements for the period earlier than eight financial years immediately preceding
the current financial year i.e. 2020-2019, is invalid.
Question 13
State the persons responsible for complying with the provisions regarding maintenance of Books of
Accounts of a Company. Support with the help of relevant provisions of the Companies Act, 2013. (3
Marks March 21, Oct’21)
Answer 13
Persons responsible to maintain books: As per Section 128 (6) of the Companies Act, 2013, the person
responsible to take all reasonable steps to secure compliance by the company with the requirement of
maintenance of books of account etc. shall be:
(a) Managing Director,
(b) Whole-Time Director, in charge of finance
(c) Chief Financial Officer
9.7
(d) Any other person of a company charged by the Board with duty of complying with provisions
of section 128.
Question 14
Green Limited is a company dealing in trading of spices. It has maintained its books of accounts under
Single Entry System of Accounting. The company has recently hired a new account. The new
accountant, Mr. Dubey, is doubtful that the accounts can be maintained under Single Entry System.
Advise the company whether it is allowed to do so? (4 Marks March 21)
Answer 14
According to Section 128(1) of the Companies Act, 2013, every company shall prepare “books of account”
and other relevant books and papers and financial statement for every financial year. These books of
account should give a true and fair view of the state of the affairs of the company, including that of its
branch office(s). These books of account must be kept on accrual basis and according to the double entry
system of accounting. Hence, maintenance of books of account under Singly Entry System of Accounting
by Green Limited is not permitted.
Question 15
One Person Company shall file a copy of the duly adopted financial statements to the Registrar in:
(a) 30 days of the date of meeting in which it was adopted.
(b) 90 days of the date of meeting in which it was adopted.
(c) 90 days from the closure of the financial year.
(d) 180 days from the closure of the financial year. (2 Marks Oct 21)
Answer 15
The Answer is (d)
Question 16
Shri Limited (a company having CSR Committee as per the provision of Section 135 of the Companies
Act, 2013) decides to spend and utilize the amount of Corporate Social Responsibility on the activities
for the benefit of all the employees of Shri Limited. As per the provision of Companies Act, 2013 this
would mean that:-
(a) This is the total amount spent on Corporate Social Responsibility activities by Shri Limited
for that financial year
(b) No amount spent on Corporate Social Responsibility activities by Shri Limited for that
financial year
(c) Only Half of the total amount spent, shall be considered to be spent on Corporate Social
Responsibility activities by Shri Limited for that financial year
(d) Only the amount that has been spent on the employees having salary of Rs. 20,000 per month
or less, shall be considered be considered to be spent on Corporate Social Responsibility
activities by Shri Limited for that financial year. (2 Marks Nov 21)
Answer 16
The Answer is (b)
Question 17
As per the provisions of the Companies Act, 2013, which of the following statement is correct with
respect to the surplus arising out of the CSR activities:
9.8
(a) The surplus cannot exceed five percent of total CSR expenditure of the company for the financial
year.
(b) The surplus shall not form part of the business profit of a company
(c) The surplus cannot exceed 10 percent of total CSR expenditure of the company for the financial
year.
(d) The surplus shall form part of the business profit of a company (1 Mark March ‘22)
Answer 17
The Answer is (b)
Question 18
Aura Ltd. is a listed company having a paid-up share capital of ` 25 crore as at 31st March, 2021 and
turnover of ` 100 crore during the financial year 2020-21. The Company Secretary has advised the
Board of Directors that Aura Ltd. is not required to appoint 'Internal Auditor' as the company's paid up
share capital and turnover are less than the threshold limit prescribed under the Companies Act, 2013.
Do you agree with the advice of the Company Secretary? Explain your view referring to the provisions
of the Companies Act, 2013. (6 Marks March ‘22)
Answer 18
According to the provisions of section 138 of the Companies Act, 2013, read with Rule 13 of the
Companies (Accounts) Rules, 2014, the following class of companies shall be required to appoint an
internal auditor which may be either an individual or a partnership firm or a body corporate, namely:
(1) every listed company;
(2) every unlisted public company having-
(A) paid up share capital of 50 crore rupees or more during the preceding financial year; or
(B) turnover of 200 crore rupees or more during the preceding financial year;
(C) outstanding loans or borrowings from banks or financial institutions exceeding one hundred
crore rupees or more at any point of time during the preceding financial year; or
(D) outstanding deposits of twenty five crore rupees or more at any point of time during the
preceding financial year.
Besides, some private companies are also required to appoint an internal auditor which may be either an
individual or a partnership firm or a body corporate.
Thus, Aura limited (which is a listed company) is required to appoint an internal auditor, irrespective of
its paid-up share capital or turnover (as the limit of paid- up share capital or turnover is applicable for
unlisted public company). Hence, the advice of the Company Secretary is not correct.
Question 19
ABC Limited has its shares listed on a recognized stock exchange in India. During the current financial
year ending on 31st March 2021, the securities and exchange board of India (SEBI) has found some
irregularities in the filings made by the company. Accordingly, SEBI proposes to make an application to
the Tribunal for reopening of the books of accounts of the Company. You, as an expert, are called upon
by SEBI to advise with which last financial year for reopening of books of accounts an application can
be made?
(a) 2016-2017
(b) 2014-2015
(c) 2011-2012
9.9
(d) 2012-2013 (2 Marks April 22)
Answer 19 : (d)
Question 20
Adil is a student of CA Intermediate. His friend (who is also in CA Intermediate) has approached him to
explain to him the provisions of the Companies Act, 2013, on the following:
(i) Inspection of books of account and other books and papers of the company.
(ii) Period of preservation of books of accounts (6 Marks April 22)
Answer 20
(i) Inspection by Directors
As per Section 128(3) of the Companies Act, 2013, any director can inspect the books of account and
other books and papers of the company during business hours. Such inspection may be done by any
type of director - nominee, independent, promoter or whole time.
The proviso to sub-section 3 provides that a person can inspect the books of account of the
subsidiary, only on authorization by way of the resolution of Board of Directors.
Assistance by officers and Employees
As per Section 128(4), where an inspection is made under sub-section (3), the officers and other
employees of the company shall give to the person making such inspection all assistance in
connection with the inspection which the company may reasonably be expected to give.
(ii) Period for preservation of books
According to section 128(5) of the Companies Act, 2013, the books of accounts, together with
vouchers relevant to any entry in such books, are required to be preserved in good order by the
company for a period of not less than eight years immediately preceding the relevant financial year.
In case of a company incorporated less than eight years before the financial year, the books of
accounts for the entire period preceding the financial year together with the vouchers shall be so
preserved. As per proviso to sub-section 5, where an investigation has been ordered in respect of a
company under Chapter XIV of the Act related to inspection, inquiry or investigation, the Central
Government may direct that the books of account may be kept for such period longer than 8 years,
as it may deem fit and give directions to that effect.
Question 21
During the half year ended September 2020, the board of directors (BOD) of Gold Leaf Limited has
made an application to the Tribunal for revision in the accounts of the company for the financial year
ended on March 2018. Further during the year ended March 2021, the BOD has again made an
application to the Tribunal for revision in the board’s report pertaining to the year ended March 2020.
You are required to state the validity of the acts of the Board of directors.
(a) The act of the BOD is valid only to the extent of application made for revisions in accounts as
board’s report are not eligible for revision.
(b) The act of the BOD is valid as application made for revision in the accounts and board’s report
pertains to two different financial year.
(c) The act of the BOD is invalid as the law provides for only one time application to be made in a
financial year for revision of accounts and boards report.
(d) The act of the BOD is invalid as to the application made for revision in accounts pertains to a period
beyond 2 years immediately preceding the year 2021. The application made for revision in the
Board report is however valid in law. (2 Marks Oct 21)
9.10
Answer 21
The Answer is (b)

Question 22
The financial statement in relation to a dormant company may not include:
(a) balance sheet
(b) cash flow statement
(c) applicable explanatory note
(d) profit and loss account (1 Mark)( Sep’22)
Answer 22: (b)
Question 23
The Companies Act, 2013, prescribes certain classes of unlisted public companies to appoint internal
auditor. Enumerate such unlisted public companies that are required to appoint internal auditor.(4
Marks)(Sep’22)
Answer 23
The following class of companies shall be required to appoint an internal auditor which may be either an
individual or a partnership firm or a body corporate, namely:
(1) every listed company;
(2) every unlisted public company having-
(A) paid up share capital of 50 crore rupees or more during the preceding financial year; or
(B) turnover of 200 crore rupees or more during the preceding financial year; or
(C) outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore
rupees or more at any point of time during the preceding financial year; or
(D) outstanding deposits of 25 crore rupees or more at any point of time during the preceding financial
year; and
Question 24
The Companies Act, 2013 has prescribed an additional duty on the Board of directors to include in the
Board’s Report a “Directors’ Responsibility Statement”. Briefly enumerate any four matters to be
furnished in the said statement.(6 Marks) (Oct’22)
Answer 24
Directors’ Responsibility Statement: According to section 134(5) of the Companies Act, 2013, the Directors’
Responsibility Statement referred to in 134(3)(c) shall state that—
(1) in the preparation of the annual accounts, the applicable accounting standards had been followed along
with proper explanation relating to material departures;
(2) the directors had selected such accounting policies and applied them consistently and made judgments and
estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the
company at the end of the financial year and of the profit and loss of the company for that period;
(3) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in
accordance with the provisions of this Act for safeguarding the assets of the company and for preventing
and detecting fraud and other irregularities;
9.11
(4) the directors had prepared the annual accounts on a going concern basis; and
(5) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the
company and that such internal financial controls are adequate and were operating effectively.
(6) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and
that such systems were adequate and operating effectively.
Question 25
Pratham Limited has decided to spend ` 40 lakhs on project of CSR. The average net profit of the
company is ` 10 crores. But due to some reasons, company was able to spend only ` 30 lakhs. Now
what will be the option for the company for the rest ` 10 lakhs.
(a) Penal provision will be applicable for unspent amount of ` 10 lakhs.

(b) No penal provision but explanation is required in Board report for not spending ` 10 lakhs
(c) No penal provision
(d) The company is required to transfer the amount to separate fund.(2 Marks March ‘23)
Answer 25 (c)
Question 26
The company X plans to cover its skilled as well as semi-skilled workers of its units under medical
health insurance plan, for which the company X will bear the expenses. Will this expenditure be
permissible under CSR activities as per the provisions of the Companies Act, 2013:
(a) only expenditure on skilled workers is allowed
(b) expenditure on both skilled and semi- skilled workers is allowed
(c) Resolution to be passed in board meeting before incurring this expenditure and in the board report
it must be mentioned, so that the same will be permissible under CSR activities
(d) such expenditure is not permissible under eligible CSR activities (2 Marks March ‘23)
Answer 26 (d)
Question 27
The Corporate Social Responsibility Committee of the board shall consist of:
(a) Three or more directors out of which at two directors shall be Independent Director
(b) Three or more directors out of which at least one director shall be Independent Director.
(c) Three or more directors and all should be Independent Directors
(d)Three or more directors with condition of not a single director should be Independent Director (1
Mark March ‘23)
Answer 27 (b)
Question 28
Victory Limited was incorporated in January 2015. How much expenditure Victory Limited shall ensure
to spend in pursuance of its Corporate Social Responsibility Policy:
(a) The company shall ensure to spend in every financial year, at least 2% of the average gross profits
9.12
of the company made during the 2 immediately preceding financial years.

(b) The company shall ensure to spend in every financial year, at least 2% of the average net profits of
the company made during the 3 immediately preceding financial years.
(c) The company shall ensure to spend in every financial year, at least 1% of the average net profits of
the company made during the 2 immediately preceding financial years.
(d) The company shall ensure to spend in every financial year, at least 1% of the average net profits of
the company made during the 3 immediately preceding financial years. (1 Mark March ‘23)
Answer 28 (b)
Question 29
Explain the following as per the provisions of the Companies Act, 2013:
(i) Who shall sign Board’s Report

(ii) Filing of financial statements with the Registrar when AGM is not held (6 Marks March ‘23)
Answer 29
I. Signing of Board’s Report [Section 134(6)]: The Board’s report and any annexures thereto under
section 134(3) shall be signed by its chairperson of the company if he is authorised by the Board
and where he is not so authorised, shall be signed by at least two directors, one of whom shall be
a managing director, or by the director where there is one director.
II. Annual General meeting not held [Section 137(2)]: Where the AGM of a company for any year has
not been held, the financial statements along with the documents required to be attached, duly
signed along with the statement of facts and reasons for not holding the AGM shall be filed with
the Registrar within thirty days of the last date before which the AGM should have been held and
in such manner, with such fees or additional fees as may be prescribed.
Question 30
Which of the following is not mandatorily required to include cash flow as part of its financial statement.
(a) Shiv Limited
(b) Shiv Private Limited (not a startup company)
(c) Shiv (OPC) Private Limited
(d) Shiv Limited, having paid up share capital of 3 crore and turnover of 30 crore (2 Marks April ‘23)
Answer 30 (c)
Question 31
Compute the minimum amount the company (Natraj Limited) is required to spend on account of
Corporate Social responsibility year 2022-2023, if during the financial years 2019-2020, 2020-2021 and
2021-2022 net profits are ` 30 crore, ` 25 crore and ` 32 crore respectively.
(a) ` 87 lac
(b) ` 1.14 crore
(c) ` 1.64 crore
(d) ` 58 lac (2 Marks April ‘23)
9.13
Answer 31 (d)
Question 32
The Income Tax Authorities in the current financial year 2022-23 observed, during the assessment
proceedings, a need to re-open the accounts of Sun Ltd. for the financial year 2011-12 and, therefore,
filed an application before the National Company Law Tribunal (NCLT) to issue the order to Sun Ltd. for
re-opening of its accounts and recasting the financial statements for the financial year 2011-12. Examine
the validity of the application filed by the Income Tax Authorities to NCLT. (6 Marks April ‘23)
Answer 32
As per section 130 of the Companies Act, 2013, a company shall not re-open its books of account and
not recast its financial statements, unless an application in this regard is made by the Central
Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory body
or authority or any person concerned and an order is made by a court of competent jurisdiction or the
Tribunal to the effect that—
(i) the relevant earlier accounts were prepared in a fraudulent manner; or

(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the
reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account relating to a period earlier
than eight financial years immediately preceding the current financial year.
In the given instance, an application was filed for re-opening and re-casting of the financial statements of
Sun Ltd. for the financial year 2011-2012 which is beyond 8 financial years immediately preceding the
current financial year.
Though application filed by the Income Tax Authorities to NCLT is valid, its recommendation for reopening
and recasting of financial statements for the period earlier than eight financial years immediately
preceding the current financial year i.e. 2022-2023, is invalid.
M 10.1
Chapter 10
Audit & Auditors
Question 1
I. The Auditor of the company (other than government company) has resigned on 31st December,
2018, while the Financial year of the company ends on 31st March, 2019. Discuss as per the
provisions of the Companies Act, 2013, how the auditor will be appointed in this case.
II. A company includes the following shareholders also:
(I) Bank of Baroda (A Nationalized Bank) holding 12% of the subscribed capital in the
company.
(II) National Insurance Company Limited (carrying on General Insurance Business) holding
10% of the subscribed capital in the company.
(III) Maharashtra State Financial Corporation (A Public Financial Institution) holding 8% of
the subscribed capital in the company.
Advise the company, whether the provisions related to ‘appointment of auditor in case of
Government Company’ are applicable to it. Discuss in the light of the provisions of the
Companies Act, 2013. (Oct’19,6 Marks)
Answer 1
(i) The situation as stated in the question relates to the creation of a casual vacancy in the office of
an auditor due to resignation of the auditor before the AGM in case of a company other
government company. Under section 139 (8)(i) any casual vacancy in the office of an auditor
arising as a result of his resignation, such vacancy can be filled by the Board of Directors within 30
days thereof and in addition the appointment of the new auditor shall also be approved by the
company at a general meeting convened within 3 months of the recommendation of the Board
and he shall hold the office till the conclusion of the next annual general meeting.
(ii) According to section 139(5) of the Companies Act, 2013, in the case of a Government company
or any other company owned or controlled, directly or indirectly, by the Central Government, or
by any State Government or Governments, or partly by the Central Government and partly by one
or more State Governments, the Comptroller and Auditor-General of India shall, in respect of a
financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under
this Act, within a period of one hundred and eighty days from the commencement of the
financial year, who shall hold office till the conclusion of the annual general meeting.
In the given case as the total shareholding of the three institutions adds up to 30% of the
subscribed capital of the company it is not a government company. Hence, the provisions
applicable to non- government companies in relation to the appointment of auditors shall apply.
Question 2
Explain how the auditor will be appointed in the following cases :
(i) A Government Company within the meaning of section 394 of the Companies Act,2013.
(ii) A Public Company whose shareholders include XYZ Bank (a nationalized bank) holding 18% of
the subscribed capital of the company. (March’19,6 Marks)
Answer 2
(i) The appointment and re-appointment of auditor of a Government Company or a
government controlled company is governed by the provisions of section 139 of the
Companies Act, 2013 which are summarized as under:
The first auditor shall be appointed by the Comptroller and Auditor General of India within
60 days from the date of incorporation and in case of failure to do so, the Board shall appoint
auditor within next 30 days and on failure to do so by Board of Directors, it shall inform the
Chapter 10 Audit & Auditors
M 10.2
members, who shall appoint the auditor within 60 days at an extraordinary general meeting
(EGM), such auditor shall hold office till conclusion of first Annual General Meeting.
In case of subsequent auditor for existing government companies, the Comptroller & Auditor
General of India shall appoint the auditor within a period of 180 days from the
commencement of the financial year and the auditor so appointed shall hold his position till
the conclusion of the Annual General Meeting.
(ii) In the given case as the total shareholding of the XYZ Bank is just 18% of the subscribed capital
of the company it is not a government company. Hence, the provisions applicable to non-
government companies in relation to the appointment of auditors shall apply.
The auditor shall be appointed as follows:
a. The company shall, at the first annual general meeting, appoint an individual or a firm as an
auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth
annual general meeting and thereafter till the conclusion of every sixth meeting.
b. Before such appointment of auditor is made, the written consent of the auditor to such
appointment, and a certificate from him or firm of auditors that the appointment, if made,
shall be obtained from the auditor:
Further, the company shall inform the auditor concerned of his or its appointment, and also
file a notice of such appointment with the Registrar within 15 days of the meeting in which
the auditoris appointed.
Question 3
(i) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the Annual
General Meeting of the company held in September, 2018, in which he accepted the
assignment. Subsequently, in January, 2019 he joined B, as a partner for the consultancy firm
of Mr. B. Mr. B is working also workingas a Finance Executive of X Ltd.
(ii) “Mr. Abhi”, a practicing Chartered Accountant, is holding securities of “Abhiman Ltd.” having
face value of Rs. 1000/-. Whether Mr. Abhi is qualified for appointment as an Auditor of
Abhiman Ltd.”? (May’20, March’19,5 Marks)
Answer 3
(i) Provisions and Explanation: Section 141(3) (c) of the Companies Act, 2013 prescribes that any
person who is a partner or in employment of an officer or employee of the company will be
disqualified to act as an auditor of a company. Sub-section (4) of Section 141 provides that an
auditor who becomes subject, after his appointment, to any of the disqualifications specified in
sub-sections (3) of Section 141, he shall be deemed to have vacated his office as an auditor.
Conclusion: In the present case, Ayush, an auditor of X Ltd., joined as partner with B, who is
Finance executive of X Ltd., has attracted clause (3) (c) of Section 141 and, therefore, he shall be
deemed to have vacated office of the auditor ofX Limited.
(ii) As per section 141 (3)(d) (i) an auditor is disqualified to be appointed as an auditor if he, or his
relative or partner holding any security of or interest in the company or its subsidiary, or of its
holding or associate company or a subsidiary of such holding company:
In the present case, Mr. Abhi. is holding security of Rs. 1000 in the Abhiman Ltd, therefore he is
not eligible for appointment as an Auditor of “Abhiman Ltd.”
Question 4
EF Limited appointed an individual firm, Naresh & Company, Chartered Accountants, as Auditors of
the company at the Annual General Meeting held on 30th September, 2018. Mrs. Kamala, wife of Mr.
Naresh, invested in the equity shares face value of Rs. 1 lakh of EF Limited on 15th October, 2018. But
Naresh & Company continues to function as statutory auditors of the company. Advice as per the
provisions of the Companies Act, 2013. (April’19,5 Marks)(Aug’18, 3 Marks)
Answer 4
M 10.3
Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013, a person
who, or his relative or partner holds any security of the company or its subsidiary or of its holding or
associate company a subsidiary of such holding company, which carries voting rights, such person
cannot be appointed as auditor of the company. Provided that the relative of such person may hold
security or interest in the company of face value not exceeding 1 lakh rupees as prescribed under the
Companies (Audit and Auditors) Rules, 2014.
In the case Mr. Naresh, Chartered Accountants, did not hold any such security. But Mrs. Kamala, his
wifeheld equity shares of EF Limited of face value Rs. 1 lakh, which is within the specified limit.
Further Section 141(4) provides that if an auditor becomes subject, after his appointment, to any of
the disqualifications specified in sub-section 3 of section 141, he shall be deemed to have vacated
his office of auditor. Hence, Naresh & Company can continue to function as auditors of the Company
even after 15th October 2018 i.e. after the investment made by his wife in the equity shares of EF
Limited.
Question 5
State the provisions of the Companies Act, 2013 regarding the signing of the Audit report by the
Auditorsof the company. (March’18,4 Marks)
Answer 5
Section 145 of the Companies Act, 2013 provides for auditors to sign audit reports, etc. According to this
section:
(i) The person appointed as an auditor of the company shall sign the auditor’s report or sign or
certify any other document of the company in accordance with the provisions of sub-section (2)
of section 141 (i.e. in case of firm including LLP, only Chartered Accountants are authorised to act
andsign).
(ii) The qualifications, observations or comments on financial transactions or matters, which have
any adverse effect on the functioning of the company mentioned in the auditor’s report shall be
read before the company in general meeting and shall be open to inspection by any member of
the company.
Question 6
Examine the validity of the following with reference to the provisions of the Companies Act,
2013:-
Mr. Suresh, a Chartered Accountant, was appointed by the Board of Directors of AB Limited as the
First Auditor. The company in General Meeting removed Mr. Suresh without seeking the approval of
the Central Government and appointed Mr. Gupta as Auditor in his place?
[MTP-Aug’18,3 Marks)
Answer 6
Removal of first auditor: Section 140(1) stipulates that any auditor appointed under section 139 may
be removed from office before the expiry of his term by passing special resolution in general
meeting,after obtaining the previous approval of the Central Government in that behalf.
Provided that before taking any action under subsection (1) of Section 140, the auditor concerned
shall be given a reasonable opportunity of being heard.
The first auditors appointed by Board of Directors can be removed in accordance with the provision of
Section 140(1) of the Companies Act, 2013. Hence, the removal of the first auditor appointed by the
Board without seeking approval of the Central Government is invalid. The company contravened the
provision of the Act.
Question 7
Mr. Honest, an auditor of MM company ltd. has colluded with the company for a fraud. The
M 10.4
Central Government has applied to Tribunal about the said fraud by Mr. Honest. State the provisions
of the Companies Act, 2013 regarding the steps that can be taken by Tribunal when it finds that the
auditor of a company has acted in a fraudulent manner.
(Aug’18,4 Marks)
Answer 7
Auditor acts in a fraudulent manner or abetted or colluded in any fraud [Section 140(5) of the
CompaniesAct, 2013]
(i) On satisfaction of Tribunal that the auditor of a company has acted in a fraudulent manner etc.:
Without prejudice to any action under the provisions of this Act or any other law for the time
being in force, the Tribunal either suo moto or on an application made to it by the Central
Government or by any person concerned, if it is satisfied that the auditor of a company has,
whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud
by, or in relation to, the company or its directors or officers, it may, by order, direct the company
to change its auditors.
(ii) Requirement for change of auditor: If the application is made by the Central Government and the
Tribunal is satisfied that any change of the auditor is required, it shall within fifteen days of
receipt of such application, make an order that he shall not function as an auditor and the Central
Government may appoint another auditor in his place.
Question 8
BSP Ltd appointed XPP & Co LLP as their statutory auditors for the year ended 31 March 2018 on 18
June 2018, as per Section 139(8) of the Companies Act 2013, to fill the casual vacancy caused by
resignation of previous statutory auditors to hold office till the conclusion of next Annual General
Meeting (AGM) of BSP Ltd. BSP Ltd is listed with Bombay Stock Exchange and National Stock
Exchange. BSP Ltd is covered under auditors rotation requirements and wants to re-appoint XPP &
Co LLP at their next AGM. Please advise.
(Oct’19, 2 Marks)
(a) XPP & Co LLP can be re-appointed for a term of five consecutive years at the AGM and after that
can be considered for re-appointment for another five consecutive years.
(b) XPP & Co LLP can be re-appointed for a term of four consecutive years at the AGM and after that
can be considered for re-appointment for another five consecutive years.
(c) XPP & Co LLP can be re-appointed for a term of five consecutive years at the AGM.
(d) XPP & Co LLP cannot be re-appointed at the AGM.
Answer 8
The Answer is (a)
Question 9
NTW Ltd is listed on National Stock Exchange and has a turnover of INR 4500 crores. NTW Ltd has 12
subsidiaries, 3 associate companies and 5 joint venture companies (collectively referred to as NTW
Group). AKW & Co LLP is the statutory auditor of NTW Ltd. NTW Ltd wants to appoint AKW as the
statutory auditors for entire NTW Group. In respect of this, please advise the management of NTW
Group. (Oct’19, 2 Marks)
(a) AKW & Co LLP can be appointed as statutory auditors for only 10 companies of NTW Group.
(b) AKW & Co LLP can be appointed as statutory auditors for only 20 companies of NTW Group.
(c) AKW & Co LLP can be appointed as statutory auditors for all the companies of NTW Group.
(d) AKW & Co LLP can be appointed as statutory auditors for all the companies of NTW Group
providedthey meet the limits requirements as per the Companies Act 2013.
Answer 9
The Answer is (d)
M 10.5
Question 10
Advise whether the auditor appointed by a private limited company with paid up capital of Rs.30.00
Crore, in the following cases are valid for the financial year 2017-18:-
(a) Amanpreet (an Individual auditor) who has been the auditor since the Financial Year 2011-12
(b) Firm MGA & associates, was appointed as auditor in the Financial Year 2011-12.
(c) Firm MGA & associates, who completed 10 years continuously as auditor in company. Now
company wants to appoint VGA & associates wherein Mr. V is a partner who is also partner is MGA
& Associates.
(d) The provisions of rotation of auditor are not applicable on private companies
(March’19, 2 Marks)
Answer 10
The Answer is (b)
Question 11
Which of the following is a prohibited services to be rendered by the auditor of the Company
(a) design and implementation of any financial information system
(b) making report to the members of the company on the accounts examined by him
(c) compliance with the auditing standards
(d) Reporting of fraud against the company by officers or employees to the Central Government.
(Oct’21, April’19, & March ’23, 1 Mark)
Answer 11
The Answer is (a)
Question 12
For appointing an auditor other than the retiring auditor,
(a) Special notice is required.
(b) Ordinary notice is required.
(c) Neither ordinary nor special notice is required
(d) Approval of Central Government is required. (Oct’21, May’20, April’19, 1 Mark)
Answer 12
The Answer is (a)
Question 13
Which of the non-financial matter, Statutory auditor is required to report in his report:
(a) Whether employees appointed during the period covered by audit meet the requisite
educational/professional qualification at the time of appointment.
(b) Whether every page of minute book of General meetings bears full signature of Chairman as per
provisions of Companies Act, 2013.
(c) Whether the incorporation documents are managed properly.
(d) Whether any director is disqualified from being appointed as a director under section 164(2). (1
Mark Oct 20)
Answer 13
The Answer is (d)
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Question 14
One-fourth of the subscribed capital of AMC Limited was held by the Government of Rajasthan.
Mr. Vikas, a Chartered Accountant, was appointed as an auditor of the Company at the Annual
General Meeting held on 30th April, 2020 by an ordinary resolution. Mr. Mukesh, a shareholder of
the Company, objects to the manner of appointment of Mr. Vikas on the ground of violation of the
Companies Act, 2013. Decide whether the objection of Mr. Mukesh is tenable? Also examine the
consequences of the above appointment under the said Act. (3 Marks Oct 20)
Answer 14
As per the section 2(45) of the Companies Act, 2013, the holding of 25% shares of AMC Ltd. by the
Government of Rajasthan does not make it a government company. Hence, it will be treated as a non-
government company.
Under section 139 of the Companies Act, 2013, the appointment of an auditor by a company vests
generally with the members of the company except in the case of the first auditors and in the filling
up of the casual vacancy not caused by the resignation of the auditor, in which case, the power to
appoint the auditor vests with the Board of Directors. The appointment by the members is by way of
an ordinary resolution only and no exceptions have been made in the Act whereby a special
resolution is required for the appointment of the auditors.
Therefore, the contention of Mr. Mukesh is not tenable. The appointment is valid under the Companies
Act, 2013.
Question 15
Shivam Limited is incorporated on 1.1.2020. The company wants to appoint its first auditor. Please
enumerate to the company the relevant provisions of the Companies Act, 2013 with respect to the
appointment of first auditor. (3 Marks March 21)
Answer 15
According to section 139(6) of the Companies Act, 2013, the first auditor of a company, other than a
Government Company, shall be appointed by the Board of directors within 30 days of the date of
registration of the company and the auditor so appointed shall hold office until the conclusion of the
first AGM.
If the Board fails to exercise its powers i.e. appointment of first auditor, it shall inform the members of
the company and the company may appoint the first auditor within 90 days at an extra ordinary general
meeting (EGM) and such auditor shall hold office till the conclusion of the first AGM.
Question 16
Shiv Limited is incorporated on 3.10.2020. The company is having a paid- up share capital of Rs.
5 crores. Following are key shareholders of the company:
Name of the Party holding shares Amount (in
Rs.)
Central Government 1.50
Punjab Government 1.23
Others 2.27
The first auditor of the company has been appointed by the Board of Directors on 31.10.2020. The
members of the company have objected to such an appointment by the Board of Directors.
According to the members its only the members who can appoint the first auditor. Advise the
company on the validity of such appointment as per the provisions of the Companies Act, 2013.
Also, advise whether the contention of members of the company is correct. (6 Marks April 21)
M 10.7
Answer 16
According to section 2(45) of the Companies Act, 2013, "Government company" means any company
in which not less than 51% of the paid-up share capital is held by the Central Government, or by any
State Government or Governments, or partly by the Central Government and partly by one or more
State Governments, and includes a company which is a subsidiary company of such a Government
company.
As per section 139(7), in the case of a Government company or any other company owned or
controlled, directly or indirectly, by the Central Government, or by any State Government, or
Governments, or partly by the Central Government and partly by one or more State Governments,
the first auditor shall be appointed by the Comptroller and Auditor-General of India within 60 days
from the date of registration of the company and in case the Comptroller and Auditor - General of
India does not appoint such auditor within the said period, the Board of Directors of the company
shall appoint such auditor within the next 30 days; and in the case of failure of the Board to appoint
such auditor within the next 30 days, it shall inform the members of the company who shall appoint
such auditor within the 60 days at an extraordinary general meeting, who shall hold office till the
conclusion of the first annual general meeting .
In the given question, Shiv Limited is a government company as 54.6% [(1.5+1.23)/ 5= 54.6%] of the
share capital is held by Central government and State Government (Punjab Government). Thus, the
first auditor of Shiv Limited shall be appointed by the Comptroller and Auditor-General of India
within 60 days from the date of registration. Thus, the appointment of first auditor by Board of
Directors on 31.10.2020 is not valid. The Board of Directors can appoint the first auditor in case the
Comptroller and Auditor-General of India does not appoint such auditor within the said period of
period 60 days. The Board of Directors of the company shall appoint such auditor within the next 30
days.
In the case of failure of the Board to appoint such auditor within the next 30 days, it shall inform
the members of the company who shall appoint such auditor within 60 days at an extraordinary
general meeting, who shall hold office till the conclusion of the first annual general meeting . Thus,
the contention of members that its only the members who can appoint the first auditor of the
Government company, is not correct.
Question 17
Mr. R brother of CA. Sana, a practicing chartered accountant, acquired securities of Hot Ltd. having
market value of `1,20,000 (face value ` 95,000). State whether CA. Sana is qualified to be
appointed as a statutory auditor of Hot Ltd. (3 Marks Oct 21)
Answer 17
As per the provisions of Section 141(3)(d) of the Companies Act, 2013, a person who, or his relative or
partner is holding any security of or interest in the company or its subsidiary, or of its holding or
associate company or a subsidiary of such holding company shall not be appointed as an auditor of
the Company.
However, the proviso to the said section states that the above restriction will not apply where such
relative holds security or interest in any of the above companies of face value not exceeding ` 1,00,000
[as prescribed under the Company (Audit and Auditors) Rules, 2014].
In the given instance, CA. Sana is not disqualified to be appointed as a statutory auditor in Hot Ltd. due
to the fact that the value of securities held by his brother (relative) is of face value of ` 95,000 in the said
company, which is within the prescribed limit.
Question 18
The Auditor of the company (other than government company) has resigned on 31st
December, 2020, while the Financial year of the company ends on 31st March, 2021. Discuss as per
M 10.8
the provisions of the Companies Act, 2013, how the auditor will be appointed in this case. (3
Marks Oct 21)
Answer 18
The situation as stated in the question relates to the creation of a casual vacancy in the office of an
auditor due to resignation of the auditor before the Annual General Meeting in case of a company
other government company. Under section 139 (8)(i) of the Companies Act, 2013, any casual vacancy
in the office of an auditor arising as a result of his resignation, such vacancy can be filled by the Board
of Directors within 30 days thereof and in addition the appointment of the new auditor shall also be
approved by the company at a general meeting convened within 3 months of the recommendation of
the Board and he shall hold the office till the conclusion of the next annual general meeting.
Question 19
Mr. Yash is a partner and in charge of PQR firm. The firm is appointed as an auditor firm of A. K.
Company limited (listed company). Mr. Yash retires from PQR firm and after some time join Gupta
& Gupta firm as a partner, on 20/05/21. In the general meeting of the company held on 15/06/21,
the company appointed Gupta & Gupta firm as next auditor of the company. Do you think the
company has adhered to the provision of appointing Gupta & Gupta as auditor for the company,
under the Company Act 2013. Explain? (5 Marks Oct 21)
Answer 19
According to Section 139(2) of the Companies Act, 2013, no listed company or a company belonging
to such class or classes of companies as may be prescribed, shall appoint or re - appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years. Provided that –
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-
appointment as auditor in the same company for five years from the completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re -
appointment as auditor in the same company for five years from the completion of such term.
Provided further that as on the date of appointment no audit firm having a common partner or
partners to the other audit firm, whose tenure has expired in a company immediately preceding
the financial year, shall be appointed as auditor of the same company for a period of five years.
Under Rule 6(3)(ii)(b) of The Companies (Audit and Auditors) Rules, 2014. if a partner, who is in
charge of an audit firm and also certifies the financial statements of the company, retires from the
said firm and joins another firm of chartered accountants, such other firm shall also be ineligible
to be appointed for a period of five years.
Here Mr. Yash has retired from PQR Firm and joined Gupta & Gupta Firm. Mr. Yash was a
partner in PQR firm, where he certifies the financial statement of the company, and retires from
the said firm and joins Gupta & Gupta firm. Hence Gupta & Gupta Firm will also be ineligible, to
be appointed as auditor firm for a period of 5 years.
Question 20
The word ‘firm’ for the purpose of Section 139 shall include-
(a) An individual auditor
(b) LLP
(c) An individual auditor and LLP both
(d) A company (1 Mark Nov 21)
Answer 20
M 10.9
The Answer is (b)
Question 21
Examine whether the following persons are eligible for being appointed as auditor under the
provisions of the Companies Act, 2013:
(i) Mr. Ray is a practicing Chartered Accountant indebted to ABC Ltd. for rupees 6 lakh. Directors
of ABC Ltd. want to appoint Mr. Ray as an auditor of the company. Can ABC Ltd. do so?
(ii) Mrs. Kavita spouse of Mr. Kumar, a Chartered Accountant, is the store- keeper of PRC Ltd.
Directors of PRC Ltd. want to appoint Mr. Kumar as an auditor of the company. (5 Marks Nov
21)
Answer 21
(i) As per section 141(3)(d)(ii), an auditor is disqualified to be appointed as an auditor if he or his
relative or partner is indebted to the company, or its subsidiary, or its holding or associate
company or a subsidiary of such holding company, in excess of rupees 5 Lacs. In the instant case,
Mr. Ray will be disqualified to be appointed as an auditor of ABC Ltd. as he indebted to ABC Ltd.
for rupees 6 lacs.
(ii) As per section 141(3)(f), an auditor is disqualified to be appointed as an auditor if a person
whose relative is a director or is in the employment of the company as a director or a key
managerial personnel. In the instant case, since Mrs. Kavita, spouse of Mr. Kumar (Chartered
Accountant) is the store keeper (not a director or Key Managerial Personnel) of PRC Ltd., hence
Mr. Kumar will not be disqualified to be appointed as an auditor in the said company.
Question 22
Examine the validity of the following with reference to the provisions of the Companies Act,
2013:-
(i) “Mr. A”, a practicing Chartered Accountant, is holding securities of “XYZ Ltd.” having face
value of Rs. 900/-. Whether Mr. A is qualified for appointment as an Auditor of “XYZ Ltd.”?
(ii) “Mr. P” is a practicing Chartered Accountant and “Mr. Q”, the relative of “Mr. P”, is holding
securities of “ABC Ltd.” having face value of Rs. 90,000/-. Whether “Mr. P” is Qualified from being
appointed as an Auditor of “ABC Ltd.”? (Oct ’18 , 6 Marks)
Answer 22
According to section 141 (3)(d) (i), an auditor is disqualified to be appointed as an auditor if he, or
his relative or partner holding any security of or interest in the company or its subsidiary, or of its
holding or associate company or a subsidiary of such holding company:
(i) In the present case, Mr. A. is holding security of Rs. 900 in the XYZ Ltd, therefore he is not eligible
for appointment as an Auditor of “XYZ Ltd”.
(ii) As per section 141 (3)(d)(i), an auditor is disqualified to be appointed as an auditor if he, or his
holding or associate company or a subsidiary of such holding company: Further as per proviso to
this Section, the relative of the auditor may hold the securities or interest in the company of
face value not exceeding of Rs. 1,00,000.
In the present case, Mr. Q. (relative of Mr. P, an auditor), is having securities of Rs. 90,000 face Value
in the ABC Ltd., which is as per requirement of proviso to section 141 (3)(d)(i), Therefore, Mr. P will
not be disqualified to be appointed as an auditor of ABC Ltd.
Question 23
What are the rights of the auditor of a company in respect of attending the General Meeting. (Oct
M 10.10
’18 ,4 Marks)
Answer 23
Section 146 of the Companies Act, 2013 provides for auditors to attend general meeting. According to
this section:
(i) All notices of, and other communications relating to, any general meeting shall be forwarded to
the auditor of the company.
(ii) The auditor shall, unless otherwise exempted by the company, attend either by himself or
through his authorised representative, who shall also be qualified to be an auditor, any general
meeting.
(iii) The auditor shall have right to be heard at such meeting on any part of the business which
concerns him as the auditor.
Question 24
Birthday Card Limited, a listed company can appoint or re-appoint, Mishra & Associates (a firm of
Chartered Accountants), as their statutory auditors for:
(a) One year only
(b) One term of 3 consecutive years only
(c) One term of 4 consecutive years only
(d) Two terms of 5 consecutive years (1 Mark March ’22 & March ‘23)
Answer 24
The Answer is (d)
Question 25
Advise as per the provisions of the Companies Act, 2013, with regard to appointment of auditor:
(i) Mr. Shepra is a practicing Chartered Accountant. He holds shares in X Limited. The nominal value
of these shares is ` 50,000. Whether X Limited can appoint Mr. Shepra as auditor?
(ii) Mr. Showik, a practicing Chartered Accountant has business relationship with Primus Hotels
Limited. The hotel used to provide services to Mr. Showik frequently, on the same price as
charged from other customers. Whether Primus Hotels Limited can appoint Mr. Showik as its
auditor? (6 Marks March ‘22)
Answer 25
I. As per section 141 (3)(d)(i) an auditor is disqualified to be appointed as an auditor if he, or his
holding or associate company or a subsidiary of such holding company.
In this case Mr. Sherpa, a practicing Chartered Accountant holding shares in X Limited cannot be
appointed as auditor of X Limited.
II. Section 141(3) of the Companies Act, 2013 read with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014 provides that a person or a firm who, whether directly or indirectly, has
business relationship with the company, or its subsidiary, or its holding or associate company or
subsidiary of such holding company or associate company, shall not be eligible for appointment as
an auditor of a company.
The term business relationship shall be construed as any transaction entered into for a commercial
purpose except –
- commercial transactions which are in the nature of professional services permitted to be
rendered by an auditor or audit firm under the Act and the Chartered Accountant Act, 1949
M 10.11
and the rules or the regulations made under those Act;

- commercial transactions which are in the ordinary course of business of the company at arm's
length price – like sale of products or services to the auditors, as customer, in the ordinary
course of business, by companies engaged in the business of telecommunications, airlines,
hospitals, hotels and such other similar businesses.
In the given question, since the transaction is at arm’s length price so Mr. Showik can be
appointed as an auditor of Primus Hotels Limited.
Question 26
Gajendra Ltd. was incorporated in 1995 in the town of Alwar. Its main business is manufacturing tiles.
It is in the process of appointing statutory auditors for the financial year 2021 -22. Advise whether
the following persons are qualified to be appointed as statutory auditor of the Gajendra Ltd :
(i) Maninder, a qualified Chartered Accountant, holds equity shares of nominal value of ` 2,00,000 of
Narender Ltd., which is an associate company of Gajendra Ltd.
(ii) Dinesh, a qualified Chartered Accountant, whose son owes Gajendra Ltd. a sum of ` 99,000
(iii) Rajender, a qualified Chartered Accountant, who has been convicted in the year 2005 by a Court for
an offence involving fraud. (6 Marks April 22)
Answer 26
(i) As per section 141 (3)(d)(i) of the Companies Act, 2013, read with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014, a person is disqualified to be appointed as an auditor if he, or his relative or
partner holding any security of or interest in the company or its subsidiary, or of its holding or associate
company or a subsidiary of such holding company.
Hence, Maninder is disqualified to be appointed as an auditor in Gajendra Ltd. as he holds securities in
the Narender Ltd. (associate company of Gajendra Ltd.)
(ii) As per section 141(3)(d)(ii) a person is disqualified to be appointed as an auditor if he, or his relative or
partner is indebted to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, in excess of ` 5 Lacs.
Hence, Dinesh is not disqualified as the limit of indebtedness for the auditor or his relative is exceeding
Rs.5,00,000 and in this case Dinesh's son owes only ` 99,000.
(iii) As per section 141(3)(h), a person who has been convicted by a court of an offence involving fraud and
a period of 10 years has not elapsed from the date of such conviction , shall not be qualified to be
appointed as an auditor of a company. Though Rajender was convicted by a court for an offence
involving fraud but as a period of 10 years have elapsed, hence, Rajendra is qualified to be appointed as
statutory auditor of Gajendra Ltd.
Question 27
The Board of Directors of Mines Limited, a listed company appointed Mr. Guru, Chartered Accountant
as its first auditor within 30 days of the date of registration of the company to hold office from the
date of incorporation to conclusion of the first Annual General Meeting (AGM). At the first AGM, Mr.
Guru was re-appointed to hold office from the conclusion of its first AGM till the conclusion of 6th
AGM. In the light of the provisions of the Companies Act, 2013, examine the validity of appointment/
reappointment in the following cases:
(i) Appointment of Mr. Guru by the Board of Directors.
(ii) Re-appointment of Mr. Guru at the first AGM in the above situation. (5 Marks March ’22 &
March ‘23)
Answer 27
As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other than a
M 10.12
Government company, shall be appointed by the Board of Directors within thirty days from the date of
registration of the company and such auditor shall hold office till the conclusion of the first annual
general meeting. Whereas Section 139(1) of the Companies Act, 2013 states that every company shall,
at the first annual general meeting (AGM), appoint an individual or a firm as an auditor of the company
who shall hold office from the conclusion of 1st AGM till the conclusion of its 6th AGM and thereafter
till the conclusion of every sixth AGM. As per section 139(2), no listed company or a company belonging
to such class or classes of companies as may be prescribed, shall appoint or re-appoint an individual as
auditor for more than one term of five consecutive years.
As per the given provisions following are the answers:
(i) Appointment of Mr. Guru (as first auditor) by the Board of Directors is valid as per the
provisions of section 139(6).
(ii) Appointment of Mr. Guru at the first Annual General Meeting is valid due to the fact that the
appointment of the first auditor made by the Board of Directors is a separate appointment and
the period of such appointment is not to be considered, while Mr. Guru is appointed in the first
Annual General Meeting, which is for the period from the conclusion of the first Annual General
Meeting to the conclusion of the sixth Annual General Meeting.
Question 28
Maya Limited is a public company. Maharashtra Bank (a nationalized bank) is a shareholder
holding 18% of the subscribed capital of the company. Explain how the following shall be
appointed:
(i) First auditor
(ii) Subsequent auditor (6 Marks, Apr’21)
Answer 28
According to section 2(45) of the Companies Act, 2013, "Government company" means any company in
which not less than 51% of the paid-up share capital is held by the Central Government, or by any State
Government or Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government company.
In the given case, the total shareholding of the Maharashtra Bank in Maya Limited, is just 18% of the
subscribed capital of the company. Hence, Maya Limited is not a government company. Hence, the
provisions applicable to non-government companies in relation to the appointment of auditors shall
apply. The auditor shall be appointed as follows:
(i) According to section 139(6) of the Companies Act, 2013, the first auditor of a company, other than a
Government company, shall be appointed by the Board of Directors within 30 days from the date of
registration of the company and in the case of failure of the Board to appoint such auditor, it shall
inform the members of the company, who shall within 90 days at an extraordinary general meeting
appoint such auditor and such auditor shall hold office till the conclusion of the first annual general
meeting.
(ii) The company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who
shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general
meeting and thereafter till the conclusion of every sixth meeting. Before such appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate from him or firm of
auditors that the appointment, if made, shall be obtained from the auditor: Further, the company shall
inform the auditor concerned of his or its appointment, and also file a notice of such appointment with
the Registrar within 15 days of the meeting in which the auditor is appointed.
Question 29
M 10.13
Every company shall, at the first annual general meeting, appoint an individual or a firm as an
auditor who shall hold office from the conclusion of that meeting till the conclusion of its:
(a) Second annual general meeting
(b) Fourth annual general meeting
(c) Sixth annual general meeting
(d) Eight annual general meeting (1 Mark)( Sep’22)
Answer 28: (c)
Question 29
Gizmo Limited was incorporated in 1990 in the town of Alwar. Its main business is manufacturing high
quality bangles. It is in the process of appointing statutory auditors for the financial year 2021 -
22. Advise whether the following persons are qualified to be appointed as statutory auditor of the
Gizmo Limited:
(1) Priyansh, a qualified chartered accountant, is an employee of Gizmo Limited.
(2) Vinod is a practicing Chartered Accountant indebted to Gizmo Limited for rupees 2 lakh.(5
Marks)(Sep’22)
Answer 29
1. As per section 141 (3) of the Companies Act, 2013, read with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014, a person is disqualified to be appointed as an auditor if he is an officer or
employee of the company.
Hence, Priyansh is disqualified to be appointed as an auditor in Gizmo Limited.
2. As per section 141(3)(d)(ii), an auditor is disqualified to be appointed as an auditor if he or his relative
or partner is indebted to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, in excess of rupees 5 Lacs. In the instant case, Vinod will be
qualified to be appointed as an auditor of Gizmo Limited as he is indebted to Gizmo Limited for rupees 2
lacs.
Question 30
XYZ & Associates, a firm of Chartered Accountants was re-appointed as auditors at the Annual General
Meeting of ABC Ltd. held on 30-09-2021. However, the Board of Directors recommended to remove
them before expiry of their term by passing a resolution in the Board Meeting held on 31-03-2022.
Subsequently, having given consideration to the Board recommendation, XYZ & Associates were
removed at the general meeting held on 25-05-2022 by passing a special resolution. The approval of
the Central Government was not taken before passing the special resolution. Explaining the provisions
for removal of second and subsequent auditors, examine the validity of removal of XYZ & Associates
by ABC Ltd. under the provisions of the Companies Act, 2013. (5 Marks) (Oct’22)
Answer 30
Section 140 of the Companies Act, 2013 prescribes procedure for removal of auditors. Under section
140 (1) the auditor appointed under section 139 may be removed from his office before the expiry of his
term only by a special resolution of the company, after obtaining the previous approval of the Central
Government in that behalf in the prescribed manner.
From this sub section it is clear that the approval of the Central Government shall be taken first and
thereafter the special resolution of the company should be passed.
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Provided that before taking any action under this sub-section, the auditor concerned shall be given a
reasonable opportunity of being heard.
Therefore, in terms of section 140 (1) of the Companies Act, 2013 read with Rule 7 of the Companies
(Audit & Auditors) Rules, 2014, the following steps should be taken for the removal of an auditor before
the completion of his term:
The application to the Central Government for removal of auditor shall be made in Form ADT-2 and
accompanied with fees as provided for this purpose under the Companies (Registration Offices and
Fees) Rules, 2014.
The application shall be made to the Central Government within thirty days of the resolution passed by
the Board.
The company shall hold the general meeting within sixty days of receipt of approval of the Central
Government for passing the special resolution.
Hence, in the instant case, the decision of ABC Ltd. to remove XYZ & Associates, auditors of the company
at the general meeting held on 25-5-2022 subject to approval of Central Government is not valid. The
Approval of the Central Government shall be taken before passing the special resolution in the general
meeting.
Question 19
The Board of Directors of Prism Ltd. requested its Statutory Auditor to accept the assignment of
designing and implementation of suitable financial information system to strengthen the internal
control mechanism of the Company. How will you approach to this proposal, as Statutory Auditor of
Prism Ltd., taking into account the consequences, if any, of accepting this proposal? (6 Marks April
‘23)
Answer 19
According to section 144 of the Companies Act, 2013, an auditor appointed under this Act shall
provide to the company only such other services as are approved by the Board of Directors or the
audit committee, as the case may be. But such services shall not include designing and
implementation of any financial information system.
In the said instance, the Board of directors of Prism Ltd. requested its Statutory Auditor to accept the
assignment of designing and implementation of suitable financial information system to strengthen
the internal control mechanism of the company. As per the above provision , said service is strictly
prohibited.
In the light of the above provisions, it is advised that the Statutory Auditor not to take up the
above stated assignment.
In case the Statutory Auditor accepts the assignment, he will attract the penal provisions as specified in
Section 147 of the Companies Act, 2013.
M 11.1
Chapter 11
The Indian Contract Act, 1872
Question 1
Mr. Dhannaseth delivers a rough blue sapphire to a jeweller, to be cut and polished. The jeweller carries
out the job accordingly. However, now Mr. Dhannaseth refuses to make the payment and wants his blue
sapphire back. The jeweller denies the delivery of goods without payment. Examine whether the jeweler
can hold blue sapphire. Give your answer as per the provisions of the Contract Act, 1872. (Oct’19,4
Marks])
Answer 1
According to section 170 of the Indian Contract Act, 1872, where the bailee has, in accordance with the
purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the
goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he
receives due remuneration for the services he has rendered in respect of them.
Thus, in accordance with the purpose of bailment if the bailee by his skill or labour improves the goods
bailed, he is entitled for remuneration for such services. Towards such remuneration, the bailee can retain
the goods bailed if the bailor refuses to pay the remuneration. Such a right to retain the goods bailed is the
right of particular lien. He however does not have the right to isue. Where the bailee delivers the goods
without receiving his remuneration, he has a right to sue the bailor. In such a case the particular lien may be
waived. The particular lien is also lost if the bailee does not complete the work within the time agreed.
Hence, in the given situation the jeweller is entitled to retain the stone till he is paid for the services he
has rendered.
Question 2
Rahul, a transporter was entrusted with the duty of transporting tomatoes from a rural farm to a city by
Aswin. Due to heavy rains, Rahul was stranded for more than two days. Rahul sold the tomatoes below
the market rate in the nearby market where he was stranded fearing that the tomatoes may perish. Can
Aswin recover the loss from Rahul on the ground that Rahul had acted beyond his authority? (Apr’21,
Oct’19,4 Marks)
Answer 2
Agent’s authority in an emergency (Section 189 of the Indian Contract Act, 1872): An agent has authority, in
an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a
person of ordinary prudence, in his own case, under similar circumstances. In the instant case, Rahul, the
agent, was handling perishable goods like ‘tomatoes’ and can decide the time, date and place of sale, not
necessarily as per instructions of the Aswin, the principal, with the intention of protecting Aswin from
losses. Here, Rahul acts in an emergency as a man of ordinary prudence, so Aswin will not succeed against
him for recovering the loss.
Question 3
Define contract of indemnity and contract of guarantee and state the conditions when guarantee is
considered invalid ? (Nov’21, Apr’ 19, Oct’19,4 Marks)
Answer 3
Section 124 of the Indian Contract Act, 1872 says that “A contract by which one party promises to save the
other from loss caused to him by the conduct of the promisor himself, or the conduct of any person”, is
called a “contract of indemnity”.
Section 126 of the Indian Contract Act says that “A contract to perform the promise made or discharge
liability incurred by a third person in case of his default.” is called as “contract of guarantee”.
The conditions under which the guarantee is invalid or void are stated in section 142,143 and 144 of the
Indian Contract Act are :
(i) Guarantee obtained by means of misrepresentation.
Chapter 11 The Indian Contract Act, 1872
M 11.2
(ii) creditor obtained any guarantee by means of keeping silence as to material circumstances.
(iii) When contract of guarantee is entered into on the condition that the creditor shall not act upon ituntil
another person has joined in it as co-surety and that other party fails to join as such.
Question 4
Explaining the provisions of the Indian Contract Act, 1872, answer the following:
A contracts with B for a fixed price to construct a house for B within a stipulated time. B would supply the
necessary material to be used in the construction. C guarantees A’s performance of the contract. B does
not supply the material as per the agreement. Is C discharged from his liability? (May 20, 2 Marks,
March’19,4 Marks)
Answer 4
According to section 134 of the Indian Contract Act, 1872, the surety is discharged by any contract between
the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of
the creditor, the legal consequence of which is the discharge of the principal debtor. In the given case, B
does not supply the necessary material as per the agreement. Hence, C is discharged from his liability.
Question 5
A appoints M, a minor, as his agent to sell his watch for cash at a price not less than Rs. 700. M sells it to D
for Rs. 350. Is the sale valid? Explain the legal position of M and D, referring to the provisions of the Indian
Contract Act, 1872. (Nov’21, March’19,4 Marks)
Answer 5
According to the provisions of Section 184 of the Indian Contract Act, 1872, as between the principal and
a third person, any person, even a minor may become an agent. But no person who is not of the age of
majority and of sound mind can become an agent, so as to be responsible to his principal. Thus, if a person
who is not competent to contract is appointed as an agent, the principal is liable to the third party for the
acts of the agent. Thus, in the given case, D gets a good title to the watch. M is not liable to A for his
negligence in the performance of his duties.
Question 6
What is agent’s authority in case of an emergency. What are the essential conditions to be satisfied to
constitute a valid emergency. Give your answer as per the provisions of the Indian Contract Act, 1872.
Answer 6
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from
loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
To constitute a valid agency in an emergency, following conditions must be satisfied.
(i) Agent should not be a in a position or have any opportunity to communicate with his principal
within the time available.
(ii) There should have been actual and definite commercial necessity for the agent to act promptly.
(iii) The agent should have acted bonafide and for the benefit of the principal.
(iv) The agent should have adopted the most reasonable and practicable course under the
circumstances, and
(v) `The agent must have been in possession of the goods belonging to his principal and which are the
subject of contract.
Question 7
Explaining the provisions of the Indian Contract Act, 1872, answer the following:
Mr. D was in urgent need of money amounting Rs. 5,00,000. He asked Mr. K for the money. Mr. K lent the
M 11.3
money on the sureties of A, B and N without any contract between them in case of default in repaymentof
money by D to K. D makes default in payment. B refused to contribute, examine whether B can escape
liability? (Oct’21, Oct’20, April’19, 4 Marks)
Answer 7
Co-sureties liable to contribute equally (Section 146 of the Indian Contract act, 1872): Equality of burden is
the basis of Co-surety ship. This is contained in section 146 which states that “when two or more persons are
co-sureties for the same debt, or duty, either jointly, or severally and whether under the same or different
contracts and whether with or without the knowledge of each other, the co- sureties in the absence of any
contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt,
or of that part of it which remains unpaid by the principal debtor”.
Accordingly, on the default of D in payment, B cannot escape from his liability. All the three sureties A, B
and N are liable to pay equally, in absence of any contract between them.
Question 8
Mr. Ahuja of Delhi engaged Mr. Singh as his agent to buy a house in West Extension area. Mr. Singh
bought a house for Rs. 20 lakhs in the name of a nominee and then purchased it himself for Rs. 24 lakhs.
He then sold the same house to Mr. Ahuja for Rs. 26 lakhs. Mr. Ahuja later comes to know the mischief of
Mr. Singh and tries to recover the excess amount paid to Mr. Singh. Is he entitled to recover any amount
from Mr. Singh? If so, how much? Explain. (Oct’20, April’19,4
Marks)
Answer 8
The problem in this case, is based on the provisions of the Indian Contract Act, 1872 as contained in Section
215 read with Section 216. The two sections provide that where an agent without the knowledge of the
principal, deals in the business of agency on his own account, the principal may:
(1) repudiate the transaction, if the case shows, either that the agent has dishonestly concealed any
material fact from him, or that the dealings of the agent have been disadvantageous to him.
(2) claim from the agent any benefit, which may have resulted to him from the transaction.
Therefore, based on the above provisions, Mr. Ahuja is entitled to recover Rs. 6 lakhs from Mr. Singh
being the amount of profit earned by Mr. Singh out of the transaction.
Question 9
Mr. Bhalla instructs Aman, a merchant, to buy a ship for him. Aman employs a ship surveyor of good
reputation to choose a ship for Mr. Bhalla. The surveyor makes the choice negligently and the ship turns
out to be unseaworthy and is lost. Now, Mr. Bhalla holds Aman responsible for the same. Examine as per
the provisions of the Contract Act, 1872, whether Aman is responsible to Mr. Bhalla. (March’18,4 Marks)
Answer 9
According to section 194 of the Indian Contract Act, 1872, where an agent, holding an express or implied
authority to name another person to act for the principal in the business of the agency, has named another
person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the
business of the agency as is entrusted to him. Further, as per section 195, in selecting such agent for his
principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would
exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or
negligence of the agent so selected. Thus, in the present case, Aman is not, but the surveyor is,
responsible to Mr. Bhalla.
Question 10
State the rights of the indemnity-holder when sued? (March’18,5 Marks)
Answer 10
According to the Section 125 of the Indian Contract Act,1872 the indemnity holder i.e., promisee in a
M 11.4
contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor:
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the
promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit, if in bringing or defending it, he did not
contravene the orders of the promisor, and acted as it would have been prudent for him to act in the
absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit.
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the
compromise was not contrary to the orders of the promisor, and was one which it would have been
prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor
authorised him to compromise the suit.
Section 125 is by no means exhaustive, which deals only with his rights in the event of his being sued. The
indemnity holder has other rights besides those mentioned above. If he has incurred a liability and that
liability is absolute he is entitled to call upon his indemnifier to save him from that liability and to pay it off.
Question 11
Mr. Shashank, is employed as a cashier on a monthly salary of Rs. 10,000 by XYZ bank for a period of three
years. Yash gave surety for Shashank’s good conduct. After nine months, the financial position of the bank
deteriorates. Then Shashank agrees to accept a lower salary of Rs. 5,000/- per month from Bank. Two
months later, it was found that Shashank has misappropriated cash since the time of his appointment. What
is the liability of Yash? Decide your answer in reference to the provisions of the Contract Act, 1872.
Answer 11
According to section 133 of the Indian Contract Act, 1872, where there is any variance in the terms of
contract between the principal debtor and creditor without surety’s consent, it would discharge the surety in
respect of all transactions taking place subsequent to such variance.
Thus, if the creditor makes any variance (i.e. change in terms) without the consent of the surety, then surety
is discharged as to the transactions subsequent to the change. In the instant case Yash is liable as a surety for
the loss suffered by the bank due to misappropriation of cash by Shashank during the first nine months but
not for misappropriations committed after the reduction in salary.
Question 12
Mr. Navin owns a big car and has leased his car to Mrs. Susie. The lease agreement is terminable on three
month’s notice. Mr. Bhalla, not being authorised by Mr. Navin, demands on behalf of Mr. Navin, the
delivery of the car and gives a notice of termination of lease agreement to Mrs. Susie who was in
possession of the car at that time. Examine whether Mr. Navin can ratify the notice sent by Mr. Bhalla.
Give your answer as per the provisions of the Contract Act, 1872. (Aug’18,4 Marks)
Answer 12
According to section 200 of the Indian Contract Act, 1872, an act done by one person on behalf of another,
without such other person’s authority, which, if done with authority, would have the effect of subjecting a
third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be
made to have such effect. In other words, when the interest of third parties is affected, the principle of
ratification does not apply. Ratification cannot relate back to the date of contract if third party has in the
intervening time acquired rights.
Thus, in the instant case the notice cannot be ratified by Navin, so as to be binding on Susie.
Question 13
Ashley bails his jewelry with Barn on the condition to safeguard in bank’s safe locker. However, Barn kept
it in safe locker at his residence, where he usually keeps his own jewelry. After a month all jewelry was
M 11.5
lost in a religious riot. Ashley filed a suit against Barn for recovery. Referring to provisions of the Indian
Contract Act, 1872, state whether Ashely will succeed.(Aug ’18, 3 Marks)
Answer 13
According to section 151 of the Indian Contract Act, 1872, in all cases of bailment, the bailee is bound to take
as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quality and value as the goods bailed.
According to section 152 of the Indian Contract Act, 1872, the bailee, in the absence of any special contract,
is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of
care of it described in section 151.
Thus, Barn is liable to compensate Ashley for his negligence to keep jewelry at his residence. Here, Ashley
and Barn agreed to keep the jewelry at the Bank’s safe locker and not at the latter’s residence.
Question 14
Megha advances to Nisha Rs. 5,000 on the guarantee of Prem. The loan carries interest at ten percent per
annum. Subsequently, Nisha becomes financially embarrassed. On Nisha’s request, Megha reduces the
interest to six per cent per annum and does not sue Nisha for one year after the loan becomes due. Nisha
becomes insolvent. Can Megha sue Prem? Decide your answer in reference to the provisions of the
Contract Act, 1872. (Aug’18,3 Marks)
Answer 14
contract between the principal debtor and creditor without surety’s consent, it would discharge the surety in
respect of all transactions taking place subsequent to such variance.
Here, in the given situation, Megha cannot sue Prem, because a surety is discharged from liability when,
without his consent, the creditor makes any change in the terms of his contract with the principal debtor, no
matter whether the variation is beneficial to the surety or does not materially affect the position of the
surety.
Question 15
Mr. Ram was employed as financer in “Swaraj Ltd” on the surety of his good conduct, given by Mr. Janak, a
good friend of the director of the company. Mr. Ram was kept on the salary of Rs. 45,000 per month. After
3 years , the company went into losses and so company decided for the cost cutting by retrenching of
many employees and reducing the salaries of the employees.
Mr. Ram was also proposed either to quit the job or continued with the lower salary of Rs. 35,000 per
month. He accepted and continued with the job. After few months, it was reported by accounts
department of the company that Mr. Ram manipulated with the funds of the company.
As per the provisions of the Indian Contract Act, 1872, analyse the legal positions of Mr. Janak, in the given
situations:
(i) Mr. Ram has manipulated the funds of the company since the time of his appointment.
(ii) Mr. Ram has manipulated the funds of the company since from few months before when he
accepted to continue the job on lower salary. (Oct’18,4 Marks)
Answer 15
Section 133 of the Indian Contract Act, 1872 deals with the provision related to the discharge of the surety.
Provisions states that where there is any variance in the terms of contract between the principal debtor and
creditor without surety’s consent it would discharge the surety in respect of all transactions taking place
subsequent to such variance.
Following is the answer in the light of the above provision:
(i) In case where, Mr. Ram has manipulated the funds of the company since the time of his appointment.
In this case Mr. Janak is liable as a surety for the loss suffered by the Swaraj Company due to
manipulation of the funds by Mr. Ram during the three years of his service.
(ii) In case where, Mr. Ram has manipulated the funds of the company since from few months before when
M 11.6
he accepted to continue the job on lower salary. In this case, variance in the terms of the contract (i.e.,
to work on lower salary) was made without surety’s consent. F or all the transactions taking place
subsequent to such variance, shall discharge the surety for the loss suffered by the Swaraj company.
Question 16
Define ‘Contract of Indemnity’ as per the Indian Contract Act, 1872. What are the parties to a contract of
indemnity? Give an example to explain the contract of indemnity. (Aug ’18,5 Marks)
Answer 16
According to section 124 of the Indian Contract Act, 1872, a contract by which one party promises to save
the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other
person, is called a "contract of indemnity."
There are two parties in this form of contract. The party who promises to indemnify/ save the other party
from loss is known as ‘indemnifier’, where as the party who is promised to be saved against the loss is
known as ‘indemnified’ or indemnity holder.
Example: A may contract to indemnify B against the consequences of any proceedings which C may take
against B in respect of a sum of Rs. 5000/- advanced by C to B. In consequence, when B who is called
upon to pay the sum of money to C fails to do so, C would be able to recover the amount from A as
provided in Section 124.
Question 17
Comment on the following:‘ Principal is not always bound by the acts of a sub-agent’. (Oct’18, 4 Marks)
Answer 17
The statement is correct. Normally, a sub-agent is not appointed, since it is a delegation of power by an
agent given to him by his principal. The governing principle is, a delegate cannot delegate’. (Latin version of
this principle is, “delegates non potest delegare”). However, there are certain circumstances where an agent
can appoint sub-agent.
In case of proper appointment of a sub-agent, by virtue of Section 192 of the Indian Contract Act, 1872 the
principal is bound by and is held responsible for the acts of the sub-agent. Their relationship is treated to be
as if the sub-agent is appointed by the principal himself.
However, if a sub-agent is not properly appointed, the principal shall not be bound by the acts of the sub-
agent. Under the circumstances the agent appointing the sub-agent shall be bound by these acts and he
(the agent) shall be bound to the principal for the acts of the sub -agent.
Question 18
Amit lends a horse to Bimal for his own riding only. However, Bimal allows Chinku, a member of his family
to ride the horse. Chinku rides the horse with care, but the horse falls and is injured. As per the
provisions of the Indian Contract Act, 1872, analyse the liability of Bimal in the given situation. (Oct’18, 4
Marks)
Answer 18
According to section 154 of the Indian Contract Act, 1872, if the bailee makes any use of the goods bailed,
which is not according to the conditions of the bailment, he is liable to make compensation to the bailor
for any damage arising to the goods from or during such use of them. Hence, Bimal is liable to make
compensation to Amit for the injury done to the horse.
Question 19
A hires a carriage of B and agrees to pay Rs. 500 as hire charges. The carriage is unsafe, though B is
unaware of it. A is injured and claims compensation for injuries suffered by him. B refuses to pay. Decide
the liability of B in reference to the provisions of the Indian Contract Act, 1872. (Oct ,18,3 Marks)
Answer 19
According to section 150 of the Indian Contract Act, 1872, the bailor is bound to disclose to the bailee
M 11.7
faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of
them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is
responsible for damage arising to the bailee directly from such faults. If the goods are bailed for hire, the
bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in
the goods bailed.
Hence, in the given case B is responsible to compensate A for the injuries sustained even if he was not
aware of the defect in the carriage.
Question 20
A guarantee obtained by a creditor by keeping silence as to material circumstances is :
(Oct’19, 1 Mark)
(a) Valid (b) Voidable (c) Unenforceable (d) Invalid
Answer 20
The Answer is (d)
Question 21
Aman contracts to indemnify Megha against the consequences of any proceedings which Chandar may
take against Megha in respect of a sum of Rs. 15000/- advanced by Chandar to Megha. Now, Megha whois
called upon to pay the sum of money to Chandar but she fails to do so. Now, as per the provisions of the
Indian Contract Act, 1872, advise the future course of action to be taken by Chandar.
(a) Chandar can recover the amount only from Megha
(b) Chandar can recover the full amount from Aman
(c) Chandar cannot recover the amount from Aman
(d) Chandar can recover at least 10% of the total amount from Megha (March’19, 2 Marks)
Answer 21
The Answer is (b)
Question 22
Anand is a goldsmith, who makes gold jewellery as per customer’s requirement. Brijesh along with his
friend Ramesh, who was also a friend of Anand, approached Anand for making bangles for his wife. Anand
agreed to give delivery within 7 days from the day Brijesh gives him gold for making bangles. Brijesh gave
him bangles on 2nd February 2018. The bangle making charges were Rs. 5000/-, which Brijesh agreed
to pay at the time of delivery of the bangles. Anand delivered the bangles on 6th February 2018, but
Brijesh said that he will pay the making charges after some time. Anand agreed to that. In spite of
repeated reminders Brijesh did not pay his making charges. In this situation from the following what
remedy is available to Brijesh—
(a) He can sue Ramesh for his making charges because Anand was accompanied by him
(b) He can sue Anand for his overdue making charges.
(c) He can visit Anand’s place and can take away anything, which is similar in value to the bangle making
charges.
(d) He can retain the goods, as he has the right of particular lien, he however does not have the right to
sue Anand or Ramesh. (April’19, 2 Marks)
Answer 22
The Answer is (b)
Question 23
A good friend of Mr. A, Mr. D is a property dealer in Delhi and works for many renowned registered real
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estate developers. As Mr. D is doing very well in his work, Mr. A also wanted to work as a property dealer
or property agent. Mr. X, a real estate developer of Delhi, appointed Mr. D as his agent for selling flats in
his upcoming project, and asked him to name some other person to work for him, for his another project.
At this time he introduced Mr. A to Mr. X, saying that he is also in the same field for last10 years, although
Mr. A did not had any experience in this field. Going by his words, Mr. X instructed to appoint Mr. A also
for his other ventures. From the following, Mr. A will be treated as —
(a) Agent of Mr. X (b) Sub-agent of Mr. D
(c) Substituted agent of Mr. X (d) Sub- agent of Mr. X(April’19, 2
Marks)
Answer 23
The Answer is (a)
Question 24
Which of the following is not an Immovable Property?
(a) Land
(b) Building
(c) Timber
(d) Machinery permanently attached to the land (1 Mark May 20, Apr 21)
Answer 24
The Answer is (d)
Question 25
Atul contracts to indemnify Neha against the consequences of any proceedings which Chirag may take
against Neha in respect of a sum of Rs. 15000/- advanced by Chirag to Neha. Now, Neha who is called
upon to pay the sum of money to Chirag but she fails to do so. Now, as per the provisions of the Indian
Contract Act, 1872, advise the future course of action to be taken by Chirag.
(a) Chirag can recover the amount only from Neha
(b) Chirag can recover the full amount from Atul
(c) Chirag cannot recover the amount from Atul
(d) Chirag can recover at least 10% of the total amount from Neha (2 Marks May 20)
Answer 25
The Answer is (b)
Question 26
Mr. Vishal parks his car at a parking lot, locks it, and keeps the keys with himself. Which of the following statement
is correct in this regard?
(a) This is a case of bailment
(b) The parking people has possession of the car of Mr. Vishal
(c) The parking people has custody of car of Mr. Vishal
(d) This is the case of mortgage (2 Marks May 20, Nov 21)
Answer 26
The Answer is (c)
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Question 27
C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with X to give
time to B. Is A discharged from his liability? (2 Marks May 20)
Answer 27
According to Section 136 of the Indian Contract Act, 1872, where a contract to give time to the principal debtor is made by
the creditor with a third person and not with the principal debtor, the surety is not discharged. In the given question the
contract to give time to the principal debtor is made by the creditor with X who is a third person. X is not the principal
debtor. Hence, A is not discharged.
Question 28
Mrs. Shivani delivered her old silver jewellery to Mr. Y a Goldsmith, for the purpose of making anklet out
of it. Every evening she used to receive the unfinished good ( anklet) to put it into box kept at Mr. Y’s
Shop. She kept the key of that box with herself. One night, the anklet was stolen from that box. Was there
a contract of bailment? Whether the possession of the goods (actual or constructive) delivered, constitute
contract of bailment or not? Give your answer as per the provisions of the Indian Contract Act, 1872. (4
Marks March 21, May’20, Nov’21)
Answer 28
Section 148 of Indian Contract Act 1872 defines 'Bailment' as the delivery of goods by one person to another
for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the direction of the person delivering them.
According to Section 149 of the Indian Contract Act, 1872, the delivery to the bailee may be made by doing
anything which has the effect of putting the goods in the possession of the intended bailee or of any person
authorized to hold them on his behalf. Thus, delivery is necessary to constitute bailment.
Thus, the mere keeping of the box at Y’s shop, when Mrs. Shivani herself took away the key cannot amount
to delivery as per the meaning of delivery given in the provision in section 149. Therefore, in this case
there is no contract of bailment as Mrs. Shivani did not deliver the complete possession of the good by
keeping the keys with herself.
Question 29
Comment on the following ‘Principal is not always bound by the acts of a sub-agent ’. (4 Marks May 20)
Answer 29
The statement is correct. Normally, a sub-agent is not appointed, since it is a delegation of power by an
agent given to him by his principal. The governing principle is, a delegate cannot delegate’. (Latin version of
this principle is, “delegates non potestdelegare”). However, there are certain circumstances where an agent
can appoint sub-agent.
In case of proper appointment of a sub-agent, by virtue of Section 192 of the Indian Contract Act, 1872 the
principal is bound by and is held responsible for the acts of the sub-agent. Their relationship is treated to be
as if the sub-agent is appointed by the principal himself.
However, if a sub-agent is not properly appointed, the principal shall not be bound by the acts of the sub-
agent. Under the circumstances the agent appointing the sub-agent shall be bound by these acts and he (the
agent) shall be bound to the principal for the acts of the sub-agent.
Question 30
Where ‘A’ obtains housing loan from LIC Housing and if ‘B’ promises to pay LIC Housing in the event of
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‘A’ failing to repay, it is a _______ _

(a) Contract of Indemnity
(b) Contract of Guarantee.
(c) Quasi Contract
(d) Contingent Contract (1 Mark Oct 20)
Answer 30
The Answer is (b)
Question 31
A hires a carriage of B. The carriage is unsafe though B is not aware of it and A is injured
(a) B is responsible to A for the injury
(b) B is not responsible to A for the injury
(c) No one is responsible to each other
(d) None of the above (1 Mark Oct 20)
Answer 31
The Answer is (a)
Question 32
If X bails his ornaments to Y and specifically instructs Y to keep them in a bank, but Y keeps these
ornaments in his own locker at his house along with his own ornaments. After two days, all the
ornaments are lost/stolen in a riot then who will be responsible for the loss?
(a) X would be responsible for his loss
(b) Y would be responsible for the loss to X
(c) Both X and Y will share the loss equally
(d) Y will not be responsible for the loss to X (2 Marks Oct 20)
Answer 32
The Answer is (b)
Question 33
With regards to the contract of agency, which of the following statement is incorrect?
(a) A person who is a major can appoint minor as an agent.
(b) If an agent happens to be a person incapable of contracting, the principal cannot hold the agent
liable.
(c) No consideration is necessary to create an agency.
(d) The acceptance of the office by an agent is not a sufficient consideration for the appointment.
(2 Marks Oct 20)
Answer 33
The Answer is (d)
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Question 34
Amar bailed 50 kg of high quality sugar to Srijith, who owned a kirana shop, promising to give ` 200
at the time of taking back the bailed goods. Srijith's employee, unaware of this, mixed the 50 kg of
sugar belonging to Amar with the sugar in the shop and packaged it for sale when Srijith was away. This
came to light only when Amar came asking for the sugar he had bailed with Srijith, as the price of the
specific quality of sugar had trebled. What is the remedy available to Amar under the Indian Contract
Act, 1872? (4 Marks Oct 20, Mar 22)
Answer 34
According to Section 157 of the Indian Contract Act, 1872, if the bailee, without the consent of the bailor,
mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the
goods bailed from the other goods and deliver them back, the bailor is entitled to be compensated by the
bailee for the loss of the goods.
In the given question, Srijith’s employee mixed high quality sugar bailed by Amar and then packaged it for
sale. The sugar when mixed cannot be separated. As Srijith’s employee has mixed the two kinds of sugar, he
(Srijith) must compensate Amar for the loss of his sugar.
Question 35
Mr. Sharad has recently shifted from Delhi to Noida. During the shifting some of the furniture was
damaged. Mr. Sharad gave the items to Asian Arts, Greater Noida for repair, refabrication, and painting,
etc. Asian Arts deals in the sale of furniture and repair thereof. It was decided that the whole work will
be done on a lumpsum amount of Rs. 50,000. In between this period, the workshop at Asian Arts caught
fire and there was no fault of the proprietors. Goods bailed by Mr. Sharad along with another furniture
destroyed in this fire incident. Mr. Sharad has lost furniture due to fire at workshop of Asian Arts. What
is the correct statement considering there was no specific contract?
(a) Asian Arts is liable, because fire took place at his place
(b) Asian Arts is liable, because bailment is on going
(c) Asian Arts is not liable because risk of any loss during bailment is need to bear by bailor.
(d) Asian Arts is not liable because fire is not due to any negligence of their part. (2 Marks March
21)
Answer 35
The Answer is (c)
Question 36
An interest or lien created on the property or assets of a company or any of its undertakings or both as
security is known as:
(a) Debt
(b) Charge
(c) Liability
(d) Hypothecation (1 Mark March 21)
Answer 36
The Answer is (b)
Question 37
A is residing in Delhi and has a house in Mumbai. A appoints B by a power of attorney to take care of
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his house. State the nature of agency created between A and B:

(a) Implied agency
(b) Agency by ratification
(c) Agency by necessity
(d) Express agency (2 Marks March 21)
Answer 37
The Answer is (d)
Question 38
Mr. Gogia has contracted with Rajeev Ltd. on 1 st January, 2019, to manufacture certain machinery and
deliver it to Mr. Gogia by 31st May, 2019. Part of the contract price was to be paid in advance, and thus
Mr. Gogia accordingly paid Rs. 2,00,000. An earthquake on 31st March, 2019,
destroyed the area in which Rajeev Ltd. was situated which resulted in break in the operations of Rajeev
Ltd for at least 1 year. Mr. Gogia thereupon requested the return of the Rs. 2,00,000. This amount was
not returned by Rajeev Ltd. only because considerable work had already been put into construction of
the machinery. In the light of the provisions of the Indian Contract Act, 1872, please advise Mr. Gogia
whether he can regain the amount from Rajeev Ltd. (4 Marks March 21)
Answer 38
According to section 65 of the Indian Contract Act, 1872, when an agreement is discovered to be void, or
when a contract becomes void, any person who has received any advantage under such agreement or
contract is bound to restore, it, or to make compensation for it, to the person from whom he received it.
In the given case, the contract for supply of machinery by Rajeev Ltd. to Mr. Gogia by 31 st May, 2019 was
frustrated due to the occurrence of an earthquake on 31st March, 2019 which has led to the break in the
operations of Rajeev Ltd. for at least one year.
Since, Mr. Gogia obtains no benefit from the contract, and he has paid part of a sum before frustration, he
can recover the money paid in advance because it can be said there has been total failure of consideration.
Hence, Mr. Gogia can recover the amount of Rs. 2,00,000 from Rajeev Ltd.
Question 39
Mrs. Shivani delivered her old silver jewellery to Mr. Y a Goldsmith, for the purpose of making anklet
out of it. Every evening she used to receive the unfinished good ( anklet) to put it into box kept at Mr. Y’s
Shop. She kept the key of that box with herself. One night, the anklet was stolen from that box. Was
there a contract of bailment? Whether the possession of the goods (actual or constructive) delivered,
constitute contract of bailment or not? Give your answer as per the provisions of the Indian Contract
Act, 1872. (4 Marks March 21)
Answer 39
Section 148 of Indian Contract Act 1872 defines 'Bailment' as the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the direction of the person delivering them.
According to Section 149 of the Indian Contract Act, 1872, the delivery to the bailee may be made by doing
anything which has the effect of putting the goods in the possession of the intended bailee or of any
person authorised to hold them on his behalf. Thus, delivery is necessary to constitute bailment.
Thus, the mere keeping of the box at Y’s shop, when Mrs. Shivani herself took away the key cannot amount
to delivery as per the meaning of delivery given in the provision in section 149. Therefore, in this case
there is no contract of bailment as Mrs. Shivani did not deliver the complete possession of the good by
keeping the keys with herself.
M 11.13
Question 40
What is the meaning of ‘Agency by estoppel’? What are the essential conditions for creation of an
agency by estoppel? Give your answer with respect to the provisions the Indian Contract Act, 1872. (4
Marks March 21)
Answer 40
An agency by estoppel is based on the principle of estoppel. The principle of estoppel lays down that
“when one person by declaration (representation), act or omission has intentionally caused or permitted
another person to believe a thing to be true and to act upon such belief, he shall not be allowed to deny his
previous statement or he shall be stopped to deny his previous statement or conduct”.
The agency by Estoppel is provided under section 237 of the Indian Contract Act. Section 237 states: “When
an agent has without authority done acts or incurred obligations to third persons on behalf of his principal
the principal is bound by such acts or obligations if he has by his words or conduct induced such third
persons to believe that such acts and obligations were within the scope of the agent's authority”.
According to section 237 of the Contract Act, an agency by estoppel may be created when following
essentials are fulfilled:
1. the principal must have made a representation;
2. the representation may be express or implied;
3. The representation must state that the agent has an authority to do certain act although
really he has no authority;
4. The principal must have induced the third person by such representation; and
5. The third person must have believed the representation and made the contract on the
belief of such representation.
Question 41
Mr. J has appointed Ms. V as his agent to sell the garments manufactured by Mr. J. Ms. V due to her
personal issues could not work effectively. Hence, she appointed Mr. Kanth to sell on her behalf. Can
Mr. J be bound by the acts of Mr. Kanth?
(a) No, an agent without authority cannot lawfully appoint a sub -agent.
(b) Yes, Ms. V is liable for the acts of Mr. Kanth and in turn J is liable for the transaction.
(c) No, Mr. Kanth will be liable on his own account for any sales made.
(d) Yes, Kanth now becomes direct agent of Mr. J as Mr. Kanth has sold garments manufactured by
Mr. J. (2 Marks April 21)
Answer 41
The Answer is (a)
Question 42
R gives his umbrella to M during rainy season to be used for two days during Examinations. M keeps the
umbrella for a week. While going to R’s house to return the umbrella, M accidently slips and the
umbrella is badly damaged. Who shall bear the loss?
(a) R shall bear the loss
(b) M shall bear the loss
(c) Both R and M shall bear the loss in the ratio of 50:50
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(d) Neither R nor M shall bear the loss as the bailee failed to returned the umbrella within the
stipulated time (2 Marks April 21)
Answer 42
The Answer is (b)
Question 43
Megha lends a sum of Rs. 20,000 to Bhim, on the security of two shares of a Prema Limited on 1st
April 2019. On 15th June, 2019, the company issued two bonus shares. Bhim returns the loan amount of
Rs. 20,000 with interest but Megha returns only two shares which were pledged and refuses to give the
two bonus shares. Advise Bhim in the light of the provisions of the Indian Contract Act, 1872. (4 Marks
April 21)
Answer 43
Bailee’s Duties and Liabilities: The problem as asked in the question is based on the provisions of Section
163(4) of the Indian Contract Act, 1872. As per the section, “in the absence of any contract to the contrary,
the bailee is bound to deliver to the bailor, any increase or profit which may have accrued from the goods
bailed.”
In the given question, Megha received 2 bonus shares on the 2 pledged shares of Prema Limited.
Applying the provisions of the Indian Contract Act, 1872, to the given case, the bonus shares are an
increase on the shares pledged by Bhim to Megha. So, Megha is liable to return the shares along with the
bonus shares. Hence Bhim the bailor, is entitled to receive the original shares as well as bonus shares
(after he has repaid the loan amount).
Question 44
As per the Indian Contract Act, 1872, answer the following:
(i) Definition of Pledge, pawnor and pawnee
(ii) Essential characteristics of contract of pledge (4 Marks April 21)
Answer 44
(i) “Pledge”, “pawnor” and “pawnee” defined [Section 172]: The bailment of goods as security for
payment of a debt or performance of a promise is called “pledge”. The bailor is in this case
called the “pawnor”. The bailee is called the “pawnee”.
(ii) Since Pledge is a special kind of bailment, all the essential of bailment are also essentials of Pledge.
Apart from that, the characteristics of the pledge are:
(1) There shall be a bailment of security against payment or performance of the promise.
(2) The subject matter of pledge is goods.
(3) Goods pledged for shall be in existence
(4) There shall be delivery of goods from pledger to pledgee.
Question 45
Y advances Z a loan of ` 10,000 on the guarantee of X, at an interest of 10%. Subsequently, as Z was
having some financial problems, Y reduced the rate of interest to 7% and also extended time for
repayment of loan without the consent of X. Z becomes insolvent. Can Y sue X for recovery of amount?
(4 Marks Oct 21)
Answer 45
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contract between the principal debtor and creditor without surety’s consent, it would discharge the surety
in respect of all transactions taking place subsequent to such variance.
Accordingly, Y cannot sue X, because a surety (X) is discharged from liability when, without his consent, the
creditor makes any change in the terms of his contract with the principal debtor (Z), no matter whether
the variation is beneficial to the surety or does not materially affect the position of the surety.
Question 46
On the basis of reward, what are various categories of bailment? (4 Marks Oct 21)
Answer 46
On the basis of reward, bailment can be classified into two types:
(i) Gratuitous Bailment: The word gratuitous means free of charge. So, a gratuitous bailment is one
when the provider of service does it gratuitously i.e. free of charge. Such bailment would be either
for the exclusive benefits of bailor or bailee.
(ii) Non-Gratuitous Bailment: Non gratuitous bailment means where both the parties get some benefit
i.e. bailment for the benefit of both bailor & bailee
Question 47
Vinod, a transporter was transporting tomatoes of Avinash from his (Avinash’s) farm to the market.
However, due to heavy rains, Vinod was stuck for three days and thus he sold the tomatoes below the
market rate in the nearby market where he was stranded fearing that the tomatoes may perish.
Choose the correct option in the light of the provisions of the Indian Contract Act, 1872.
(a) Avinash will succeed in recovering losses of tomatoes from Vinod
(b) Avinash will not succeed in recovering losses of tomatoes from Vinod
(c) Vinod can sell the tomatoes only at a price higher than the market rate
(d) Avinash is liable to compensate Vinod as his truck was stuck for three days and hence, he
(Vinod) could not complete the deliveries of other clients and thus he (Vinod) suffered loss. (2
Marks Nov 21)
Answer 47
The Answer is (b)
Question 48
Shiva appoints Ganesh as Shiva's agent to sell Shiva's land. Ganesh, under the authority of Shiva,
appoints Gauri as agent of Ganesh. Afterwards, Shiva revokes the authority of Ganesh but not of Gauri.
What is the status of agency of Gauri? Advise whether the said agency shall be terminated as per the
provisions of the Indian Contract Act, 1872. (4 Marks March ‘22)
Answer 48
According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed by, and
acting under the control of, the original agent in the business of the agency. Section 210 provides that, the
termination of the authority of an agent causes the termination (subject to the rules regarding the
termination of an agent’s authority) of the authority of all sub- agents appointed by him. In the given
question, Ganesh is the agent of Shiva, and Gauri is the agent of Ganesh. Hence, Gauri becomes a sub-
agent. Thus, when Shiva revokes the authority of Ganesh (agent), it results in termination of authority of
sub-agent appointed by Ganesh i.e. Gauri (sub-agent).
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Question 49
Enumerate the following as per the provisions of the Indian Contract Act, 1872:
(i) Meaning of contract of guarantee
(ii) Parties to a contract of guarantee. (4 Marks March ‘22)
Answer 49
I. Contract of guarantee: As per the provisions of section 126 of the Indian Contract Act, 1872, a
contract of guarantee is a contract to perform the promise made or discharge the liability, of a third
person in case of his default.
II. Three parties are involved in a contract of guarantee:
Surety- person who gives the guarantee,
Principal debtor- person in respect of whose default the guarantee is given,
Creditor- person to whom the guarantee is given
Question 50
A Ltd. sells its products through some agents and it is not the custom in their business to sell the
products on credit. Mr. Pintu, one of the agents sold goods of A Ltd. to Parul Pvt. Ltd. (on credit) which
was insolvent at the time of such sale. A Ltd. sued Mr. Pintu for compensation towards the loss caused
due to sale of products to Parul Pvt. Ltd. Will A Ltd. succeed in its claim? (4 Marks April 22)
Answer 50
According to section 211 of the Indian Contract Act, 1872, an agent is bound to conduct the business of his
principal according to the direction given by the principal, or, in the absence of any such directions,
according to the custom which prevails in doing business of the same kind at the place where the agent
conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to
his principal, and, if any profit accrues, he must account for it. In the present case, Mr. Pintu, one of the
agents, sold goods of A Ltd. to Parul Pvt. Ltd. (on credit) which was insolvent at the time of such sale. Also,
it is not the custom in A Ltd. to sell the products on credit. Hence, Mr. Pintu must make good the loss to A
Ltd.
Question 51
Prisha acquired valuable diamond at a very low price by a voidable contract under the provisions of the
Indian Contract Act, 1872. The voidable contract was not rescinded. Prisha pledged the diamond with
Mr. Vikas. Is this a valid pledge under the Indian Contract Act, 1872? (4 Marks April 22)
Answer 51
According to section 178A of the Indian Contract Act, 1872, when the pawnor has obtained possession of
the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has
not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he
acts in good faith and without notice of the pawnor’s defect of title. Therefore, the pledge of diamond by
Prisha with Mr. Vikas is valid.
Question 52
Explain the following as per the provisions of the Indian Contract Act, 1872
(i) What is the meaning of ‘Agent’ and ‘Principal’?
(ii) Who can appoint an agent. (4 Marks April 22 & March ’23)
Answer 52
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(i) Agent: means a person employed to do any act for another or to represent another in dealing with the
third persons and
The principal: means a person for whom such act is done or who is so represented.
(ii) Who may employ an agent: According to section 183 of the Indian Contract Act, 1872, “any person who
has attained majority according to the law to which he is subject, and who is of sound mind, may
employ an agent.” Thus, a minor or a person of unsound mind cannot appoint an agent.
Question 53
A contracts to save B against the consequences of any proceedings, which C may take against B in
respect of a certain sum of 500 rupees. This is a:
(a) Contract of guarantee
(b) Quasi contract
(c) Contract of indemnity
(d) Void contract (2 Marks March 21)
Answer 53
The Answer is (a)
Question 54
Mr. Shiv, a cargo owner, chartered a vessel to carry a cargo of wheat from a foreign port to Tuticorin. The
vessel got stranded on a reef in the sea 300 miles from the destination. The ship’s managing agents signed
a salvage agreement for Mr. Shiv. The goods (wheat) being perishable, the salvors stored it at their own
expense. Salvors intimated the whole incident to the cargo owner. Mr. Shiv refuse to reimburse the
salvor, as it is the Ship-owner, being the bailee of the cargo, who was liable to reimburse the salvor until
the contract remained unterminated. Referring to the provision of The Indian Contract Act 1872, do you
acknowledge or decline the act of salvor, as an agent of necessity, for Mr. Shiv. Explain?(4 Marks)(Sep’22)
Answer 54
Section 189 of the Indian Contract Act, 1872 defines agent's authority in an emergency. An agent has
authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would
be done by a person of ordinary prudence, in his own case, under similar circumstances.
In certain circumstances, a person who has been entrusted with another’s property may have to incur
expenses to protect or preserve it. This is called an agency of necessity. Hence, in the above case the Salvor
had implied authority from the cargo owner to take care of the cargo. They acted as agents of necessity on
behalf of the cargo owner. Cargo owner were duty-bound towards salvor. Salvor is entitled to recover the
agreed sum from Mr. Shiv and not from the ship owner, as a lien on the goods.
Question 55
Shweta and Mira are very good friends. Shweta bailed her jewellery with Mira on the condition to
safeguard it in a bank’s safe locker. However, Mira kept it in safe locker at her residence, where she
usually keeps her own jewellery. After a month all jewellery was lost in a religious riot. Shweta filed a suit
against Mira for recovery. Referring to provisions of the Indian Contract Act, 1872, state whether Shweta
will succeed. (4 Marks)(Sep’22)
Answer 55
According to section 152 of the Indian Contract Act, 1872, the bailee, in the absence of any special contract,
is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken reasonable
care as required under section 151.
M 11.18
In the given question, Shweta and Mira agreed to keep Shweta’s jewellery (bailed to Mira) at the Bank’s safe
locker and not at the latter’s residence (i.e. Mira’s residence). So, Mira is liable to compensate Shweta for
her negligence to keep jewellery at her (Mira’s) residence. Thus, Shweta will succeed in her claim.
Question 56
As per the provisions of the Indian Contract Act, 1872, what is the meaning of:
1. Continuing guarantee
2. Gratuitous Bailment(4 Marks)( Sep’22)
Answer 56
1. Continuing guarantee: A guarantee which extends to a series of transaction is called a continuing guarantee.
A surety’s liability continues until the revocation of the guarantee.
The essence of continuing guarantee is that it applies not to a specific number of transactions but to any
number of transactions and makes the surety liable for the unpaid balance at the end of the guarantee.
2. Gratuitous Bailment: The word gratuitous means free of charge. So, a gratuitous bailment is one when the
provider of service does it gratuitously i.e. free of charge. Such bailment would be either for the exclusive
benefits of bailor or bailee.
Question 57
Ricky is the owner of electronics shop. Prisha reached the shop to purchase an air conditioner whose
compressor should be of copper. As Prisha wanted to purchase the air conditioner on credit, Ricky
demand a guarantor for such transaction. Mr. Shiv (a friend of Prisha) came forward and gave the
guarantee for payment of air conditioner. Ricky sold the air conditioner of a particular brand,
misrepresenting that it is made of copper while it is made of aluminium. Neither Prisha nor Mr. Shiv had
the knowledge of fact that it is made of aluminium. On being aware of the facts, Prisha denied for
payment of price. Ricky filed the suit against Mr. Shiv. Explain with reference to the Indian Contract Act
1872, whether Mr. Shiv is liable to pay the price of air conditioner?(Oct’22)
Answer 57
As per the provisions of section 142 of the Indian Contract Act 1872, where the guarantee has been
obtained by means of misrepresentation made by the creditor concerning a material part of the transaction,
the surety will be discharged. Further according to provisions of section 134, the surety is discharged by any
contract between the creditor and the principal debtor, by which the principal debtor is released, or by any
act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
In the given question, Prisha wanted to purchase air conditioner whose compressor should be of copper, on
credit from Ricky. Mr. Shiv has given the guarantee for payment of price. Ricky sold the air conditioner of a
particular brand on misrepresenting that it is made of copper while it is made of aluminium of which both
Prisha & Mr. Shiv were unaware. After being aware of the facts, Prisha denied for payment of price. Ricky
filed the suit against Mr. Shiv for payment of price.
On the basis of above provisions and facts of the case, as guarantee was obtained by Ricky by
misrepresentation of the facts, Mr. Shiv will not be liable. He will be discharged from liability.
Question 58
Explain whether the agency shall be terminated in the following cases under the provisions of the Indian
Contract Act, 1872:
(i) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from
A. Afterwards, A becomes insane.
M 11.19
(ii) A appoints B as A's agent to sell A's land. B, under the authority of A, appoints C as agent of B. Afterwards,
A revokes the authority of B but not of C. What is the status of agency of C? (4 Marks) (Oct’22)
Answer 58
(i) According to section 202 of the Indian Contract Act, 1872, where the agent has himself an interest in the property
which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be
terminated to the prejudice of such interest.
In other words, when the agent is personally interested in the subject matter of agency, the agency becomes
irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke this authority, nor it can be terminated by
his insanity.
(ii) According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed by, and acting
under the control of, the original agent in the business of the agency.
Section 210 provides that, the termination of the authority of an agent causes the termination (subject to the rules
regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.
In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a sub- agent.
Thus, when A revokes the authority of B (agent), it results in termination of authority of sub - agent appointed by
B i.e. C (sub-agent).
Question 59
Distinguish between a contract of Indemnity and a contract of Guarantee as per the Indian Contract Act,
1872. (4 Marks) (Oct’22)
Answer 59
Point of distinction Contract of Indemnity Contract of Guarantee
Number of party/ there are only two parties namely there are three parties creditor,
Parties to the contract the indemnifier [promisor] and the principal debtor and surety.
indemnified [promisee]
Nature of liability The liability of the indemnifier is The liability of the surety is
primary and unconditional. secondary and conditional as the
primary liability is that of the
principal debtor.
Time of liability The liability of the indemnifier arises The liability arises only on the non
only on the happening of a performance of an existing promise
contingency. or non-payment of an existing
debt.
Time to act The indemnifier need not act at the The surety acts at the request of
request of indemnity holder principal debtor.
Right to sue third party indemnifier cannot sue a third party surety can proceed against
for loss in his own name as there is principal debtor in his own right
no privity of contract. Such a right because he gets all the right of a
would arise only if there is an creditor after discharging the
assignment in his favour. debts.
Purpose Reimbursement of loss For the security of the creditor
Competency to All parties must be competent to In the case of a contract of
M 11.20
contract contract guarantee, where a minor is a

principal debtor, the contract is still
valid.
Question 60
A substituted agent acts on behalf of …………
(a) Principal
(b) Sub-agent
(c) Agent
(d) anyone, as decided by the agent only (1 Mark March ‘23)
Answer 60 (a)
Question 61
As per the provisions of the Indian Contract Act, 1872, the finder of lost goods:
(a) cannot sue and also cannot retain the goods so found
(b) can sue but cannot retain the goods so found
(c) cannot sue but retain the goods so found
(d) can sue and also retain the goods so found (1 Mark March ‘23)
Answer 61 (c)
Question 62
X, a shareholder of a company lost his share certificate. He applied for the duplicate. The company
agreed to issue the same on the term that X will compensate the company against the loss where any
holder produces the original certificate. This is called:
(a) Contract of indemnity
(b) Contract of Guarantee
(c) Quasi Contract
(d) Bailment (2 Marks March ‘23)
Answer 62 (a)
Question 63
Masoom owns a residential property at Kailash Colony, Delhi. Masoom has given his residential
property on rent amounting to ` 50,000 per month to Kamal. Pankaj became the surety for payment of
rent by Kamal. Subsequently, without Pankaj’s consent, Kamal agreed to pay higher rent to Masoom.
After a few months of this, Kamal defaulted in paying the rent. Evaluate the position of Pankaj in this
regard as per the provisions of the Indian Contract Act, 1872. (4 Marks March ‘23)
M 11.21
Answer 63
According to the provisions of section 133 of the Indian Contract Act, 1872, where there is any variance
in the terms of contract between the principal debtor and creditor without surety’s consent, it would
discharge the surety in respect of all transactions taking place subsequent to such variance.
In the instant case, Masoom (Creditor) cannot sue Pankaj (Surety), because Pankaj is discharged from
liability when, without his consent, Kamal (Principal debtor) has changed the terms of his contract with
Masoom (creditor).
Question 64
Examine whether the following constitute a contract of ‘Bailment’ under the provisions of the Indian
Contract Act, 1872:
(i) Golu parks his car at a parking lot, locks it, and keeps the keys with himself.
(ii) Seizure of goods by customs authorities. (4 Marks March ‘23)
Answer 64
As per Section 148 of the Act, bailment is the delivery of goods by one person to another for some
purpose, upon a contract, that the goods shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person delivering them.
For a bailment to exist the bailor must give possession of the bailed property and the bailee must accept
it. There must be a transfer in ownership of the goods.
(i) Mere custody of goods does not mean possession. In the given case, since the keys of the car are
with Golu, section 148, of the Indian Contract Act, 1872 shall not applicable. Hence, it is not
bailment.
(ii) Yes, the possession of the goods is transferred to the custom authorities. Therefore, bailment
exists and section 148 is applicable.
Question 65
Prem found a Rado watch lying on the floor of Celebration Café. Prem tried to find the owner of the
watch but all his efforts went in vain. Prem got the watch repaired from the showroom by paying ` 9,500.
Three days after Prem found the watch, he came to know about the real owner of the watch, from the
advertisement newspaper stating the loss of a watch in Celebration Café, along with the reward of `
10,000 to the finder of the watch. Prem went to the owner to return the watch. Prem demanded ` 15,000
as he had paid ` 9,500 for the repair of the watch. According to the provision of the Indian Contract Act,
1872, choose the correct statement.
(a) Prem has a right to claim only the amount spent on repairing the watch.
(b) Prem has no right to claim the prize money.
(c) Prem can retain the watch till the owner pays him at least the prize money.
(d) The owner is not liable to pay anything to Prem. Rather, he can sue Prem for stealing the
watch. (2 Marks April ‘23)
Answer 65 (a)
M 11.22
Question 66
Which among the following statements is TRUE about the contract of Bailment?
(a) Hiring of bank locker is a contract of bailment
(b) Bailee has right of general lien
(c) Money deposited in fixed deposit with a bank is a contact of bailment
(d) Seizure of goods by custom authorities is not bailment (2 Marks April ‘23)
Answer 66 (a)
Question 67
As per the provisions of the Indian Contract Act, 1872, a person employed to do any act for another or to
represent another in dealings with third person is called:
(a) Labour
(b) Servant
(c) Agent
(d) Principal (1 Mark April ‘23)
Answer 67 (c)
Question 68
Rakshit borrowed a sum of ` 50,000 from a Bank on the security of gold on 1.07.2022 under an agreement
which contains a clause that the bank shall have a right of particular lien on the gold pledged with it.
Rakshit thereafter took an unsecured loan of ` 20,000 from the same bank on 1.08.2022 for three months.
On 30.09.2022 he repaid entire secured loan of ` 50,000 and requested the bank to release the gold
pledged with it. The Bank decided to continue the lien on the gold until the unsecured loan is fully repaid
by Rakshit. Decide whether the decision of the Bank is valid within the provisions of the Indian Contract
Act, 1872? (4 Marks April ‘23)
Answer 68
General lien of bankers: According to section 171 of the Indian Contract Act, 1872, bankers, factors,
wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the
contrary, retain, as a security for a general balance of account any goods bailed to them; but no other
persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an
express contract to the effect. Section 171 empowers the banker with general right of lien in absence of
a contract whereby it is entitled to retain the goods belonging to another party, until all the dues are
discharged. Here, in the first instance, the banker under an agreement has a right of particular lien on
the gold pledged with it against the first secured loan of ` 50,000/-, which has already been fully
repaid by Rakshit. Accordingly, Bank’s decision to continue the lien on the gold until the unsecured loan of
` 20,000/- (which is the second loan) is not valid.
Question 69
Examine the validity of the following statements under the provisions of the Indian Contract Act, 1872.
(i) Creditor should proceed legal action first against the Principal Debtor and later against the surety.
M 11.23
(ii) A guarantee which extends to a single debt/ specific transaction is called continuing Guarantee. (4
Marks April ‘23)
Answer 69
(i) Creditor should proceed legal action first against the Principal Debtor and later against the surety:
Invalid
Reasoning: As per Section 128 of the Indian Contract Act, 1872, the surety’s liability is co- extensive with
that of Principal debtor. It’s not mandatory that creditor should proceed legal action in case of default,
first against the Principal debtor and later against the su rety. It is on creditor to start action first either
against the Principal debtor or the surety.
(ii) A guarantee which extends to a single debt/ specific transaction is called continuing Guarantee: Invalid
Reasoning: Continuing Guarantee [Section 129 of the Indian Contract Act, 1872] - A guarantee which
extends to a series of transaction is called a continuing guarantee. It applies not to a specific number of
transactions but to any number of transactions and makes the surety liable for the unpaid balance at the
end of the guarantee.
Question 70
Explain the following as per the provisions of the Indian Contract Act, 1872
(i) Specific Guarantee

(ii) General Guarantee. (4 Marks April ‘23)
Answer 70
Specific Guarantee- A guarantee which extends to a single debt/ specific transaction is called a specific
guarantee. The surety’s liability comes to an end when the guaranteed debt is duly discharged or the
promise is duly performed.
Continuing Guarantee- A guarantee which extends to a series of transaction is called a continuing

guarantee. A surety’s liability continues until the revocation of the guarantee.
The essence of continuing guarantee is that it applies not to a specific number of transactions but to any
number of transactions and makes the surety liable for the unpaid balance a t the end of the
guarantee.
M 12.1
Chapter 12
The Negotiable Instruments Act, 1881
Question 1
Mr. Muralidharan drew a cheque payable to Mr. Vyas or order. Mr. Vyas lost the cheque and was not
aware of the loss of the cheque. The person who found the cheque forged the signature of Mr. Vyas
and endorsed it to Mr. Parshwanath as the consideration for goods bought by him from Mr.
Parshwanath. Mr. Parshwanath encashed the cheque, on the very same day from the drawee bank.
Mr. Vyas intimated the drawee bank about the theft of the cheque after three days. Examine the
liability of the drawee bank. (Oct’19,4 Marks)
Answer 1
Cheque payable to order [Section 85 of the Negotiable Instruments Act, 1881]
(1) Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the
drawee is discharged by payment in due course.
(2) Where a cheque is originally expressed to be payable to bearer, the drawee i s discharged by
payment in due course to the bearer thereof, notwithstanding any indorsement whether in full or
in blank appearing thereon, and notwithstanding that any such indorsement purports to restrict or
exclude further negotiation.
As per the given facts, cheque is drawn payable to “Mr. Vyas or order”. It was lost and Mr. Vyas was not
aware of the same. The person found the cheque and forged and endorsed it to Mr. Parshwanath, who
encashed the cheque from the drawee bank. After few days, Mr. Vyas i ntimated about the theft of the
cheque, to the drawee bank, by which time, the drawee bank had already made the payment.
According to above stated section 85, the drawee banker is discharged when it has made a payment
against the cheque payable to order when it is purported to be endorsed by or on behalf of the payee.
Even though the signature of Mr. Vyas is forged, the banker is protected and is discharged. The true
owner, Mr. Vyas, cannot recover the money from the drawee bank in this situation.
Question 2
P draws a bill on Q for Rs. 10,000. Q accepts the bill. On maturity, the bill was dishonored by non-
payment. P files a suit against Q for payment of Rs. 10,000. Q proved that the bill was accepted for
value of Rs. 7,000 and as an accommodation to the plaintiff for the balance amount i.e. Rs. 3,000.
Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether P would succeed in
recovering the whole amount of the bill? (Apr 19, 4 Marks) (Oct 19,Oct 20 3 Marks)
Answer 2
As per Section 44 of the Negotiable Instruments Act, 1881, when the consideration for which a person
signed a promissory note, bill of exchange or cheque consisted of money, and was originally absent in part
or has subsequently failed in part, the sum which a holder standing in immediate relation with such signer
is entitled to receive from him is proportionally reduced.
Explanation—The drawer of a bill of exchange stands in immediate relation with the acceptor. The maker of
a promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the endorser
with his endorsee. Other signers may by agreement stand in immediate relation with a holder.
On the basis of above provision, P would succeed to recover Rs. 7,000 only from Q and not the whole
amount of the bill because it was accepted for value as to Rs. 7,000 only and an accommodation to P for Rs.
3,000.
Chapter 12 The Negotiable Instruments Act, 1881
M 12.2
Question 3
On a Bill of Exchange for Rs. 1 lakh, X’s acceptance to the Bill is forged. ‘A’ takes the Bill from his
customer for value and in good faith before the Bill becomes payable. State with reasons whether ‘A’
can be considered as a ‘Holder in due course’ and whether he (A) can receive the amount of the Bill
from ‘X (Mar 19, 4 Marks) (Oct 20, & March ‘23 , 3 Marks)
Answer 3
According to section 9 of the Negotiable Instruments Act, 1881 ‘holder in due course’ means any person
who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable
to bearer or the payee or endorsee thereof, if payable to order, before the amount in it became payable
and without having sufficient cause to believe that any defect existed in the title of the person from
whom he derived his title.
As ‘A’ in this case prima facie became a possessor of the bill for value and in good faith before the bill
became payable, he can be considered as a holder in due course.
But where a signature on the negotiable instrument is forged, it becomes a nullity. The holder of a forged
instrument cannot enforce payment thereon. In the event of the holder being able to obtain payment in
spite of forgery, he cannot retain the money. The true owner may sue on tort the person who had
received. This principle is universal in character, by reason where of even a holder in due course is not
exempt from it. A holder in due course is protected when there is defect in the title. But he derives no
title when there is entire absence of title as in the case of forgery. Hence ‘A’ cannot receive the amount
on the bill.
Question 4
Explain the meaning of ‘Negotiation by delivery’ with the help of an example. Give your answer as per
the provisions of the Negotiable Instruments Act, 1881. (Mar’19, 3 Marks)
Answer 4
Negotiation by delivery
According to section 47 of the Negotiable Instruments Act, 1881, subject to the provisions of section 58, a
promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.
Exception: A promissory note, bill of exchange or cheque delivered on condition that it is not to take
effect except in a certain event is not negotiable (except in the hands of a holder for value without notice
of the condition) unless such event happens.
Example: A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep for B.
The instrument has been negotiated.
Question 5
Mr. S Venkatesh drew a cheque in favour of M who was sixteen years old. M settled his rental due by
endorsing the cheque in favour of Mrs. A the owner of the house in which he stayed. The cheque was
dishonoured when Mrs. A presented it for payment on grounds of inadequacy of funds. Advise Mrs. A
how she can proceed to collect her dues.
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881. [MTP-April’19, 3
Marks]
Answer 5
Capacity to make, etc., promissory notes, etc. (Section 26 of the Negotiable Instruments Act, 1881): Every
person capable of contracting, according to the law to which he is subject, may bind himself and be bound
by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of
exchange or cheque.
However, a minor may draw, endorse, deliver and negotiate such instruments so as to bind all parties
M 12.3
except himself.
As per the facts given in the question, Mr. S Venkatesh draws a cheque in favour of M, a minor. M endorses
the same in favour of Mrs. A to settle his rental dues. The cheque was dishonoured when it was presented
by Mrs. A to the bank on the ground of inadequacy of funds. Here, in this case, M beinga minor may draw,
endorse, deliver and negotiate the instrument so as to bind all parties except himself. Therefore, M is not
liable. Mrs. A can, thus, proceed against Mr. S Venkatesh to collect her dues.
Question 6
What are the circumstances under which a bill of exchange can be dishonoured by non-acceptance? Give
your answer as per the provisions of the Negotiable Instruments Act, 1881. (Apr’22, Oct’19, April’19,3
Marks]
Answer 6
Dishonour by Non-acceptance
A bill of exchange is said to be dishonoured by non-acceptance in any one of the following ways (Section
91):
(1) When a bill is duly presented for acceptance, and the drawee, or one of several drawees not being
partners, refuse acceptance within forty- eight hours from the time of presentment, the bill is
dishonored. In other words, when the drawee makes default in acceptance upon being duly required to
accept the bill.
(2) where presentment is excused, and the bill is not accepted.
(3) Where the drawee is incompetent to contract, the bill may be treated as dishonored.
(4) Where the drawee is a fictitious person.
(5) Where the drawee could not be found even after reasonable search
(6) When a drawee gives a qualified acceptance, the holder may treat the instrument dishonored.
Question 7
Give the answer of the following as per the provisions of the Negotiable Instruments Act, 1881:
(i) A draws a cheque in favour of M, a minor. M endorses the same in favour of X. The cheque is dishonoured
by the bank on grounds of inadequate funds. Discuss the rights of X.
(ii) A promissory note was made without mentioning any time for payment. The holder added the words “on
demand” on the face of the instrument. Does this amount to material alteration?
(iii) A draws a cheque for Rs. 1000 and hands it over to B by way of gift. Is B a holder in due course? Explain
whether he has right to receive the proceeds of the cheque.
(iv) A cheque is drawn payable to “B or order”. It is stolen and the thief forges B’s endorsement and endorses it
to C. The banker pays the cheque in due course. Whether B can recover the money from the banker.
(Aug’18,8 Marks)
Answer 7
(i) As per Section 26 of the Negotiable Instruments Act, 1881, a minor may draw, endorse, deliver and
negotiate the instrument so as to bind all parties except himself. Therefore, M is not liable. X can, thus,
proceed against A.
(ii) As per the provision of the Negotiable Instruments Act,1881 this is not a material alteration as a promissory
note where no date of payment is specified will be treated as payable on demand. Hence adding the words
“on demand” does not alter the business effect of the instrument.
(iii) B is a holder but not a holder in due course as he does not get the cheque for value and consideration. His
title is good and bonafide. As a holder he is entitled to receive Rs. 1000 from the bank on whom the cheque
is drawn.
(iv) According to Section 85 of the Negotiable Instruments Act, 1881, the drawee banker is discharged when
M 12.4
he pays a cheque payable to order when it is purported to be endorsed by or on behalf of the payee. Even
though the endorsement of Mr. B is forged, the banker is protected and he is discharged. The true owner,
B, cannot recover the money from the drawee bank.
Question 8
Explain the modes of discharge from liability on instruments, as per the provisions of the Negotiable
Instruments Act, 1881. (Aug’18,5 Marks)
Answer 8
According to section 82 of the Negotiable Instruments Act, 1881, the maker, acceptor or endorser
respectively of a negotiable instrument is discharged from liability thereon-
(a) By cancellation-to a holder thereof who cancels such acceptor’s or endorser’s name with intent to
discharge him, and to all parties claiming under such holder,
(b) By release- to a holder thereof who otherwise discharges such maker, acceptor or endorser, and to
all parties deriving title under such holder after notice of such discharge;
(c) By payment-to all parties thereto, if the instrument is payable to bearer, or has been endorsed in
blank, and such maker, acceptor or endorser makes payment in due course of the amount due
thereon.
Further, as per section 83 of the Negotiable Instruments Act, 1881, if the holder of a bill of exchange allows
the drawee more than 48 hours, exclusive of public holidays, to consider whether he will accept the same,
all previous parties not consenting to such allowance are thereby discharged from liability to such holder.
Question 9
(i) ‘A’ issued a cheque for ` 5,000/- to ‘B’. ‘B’ did not present the cheque for payment within reasonable
period. The Bank fails. However, when the cheque was ought to be presented to the bank, there was
sufficient fund to make payment of the cheque. Now, ‘B’ demands payment from ‘A’. Discuss the
liability of ‘A’ under the Negotiable Instruments Act, 1881. (March ’18 4 Marks)
(ii) Discuss with reasons, whether the following persons can be called as a ‘holder’ under the Negotiable
Instruments Act, 1881:
• A who obtains a cheque drawn by B by way of gift.
• X, the payee of the cheque, who is prohibited by a court order from receiving the amount of
the cheque. (4 Marks, Mar 18)
Answer 9
(i) The problem as asked in the question is based on the provisions of the Negotiable Instruments Act,
1881 as contained in Section 84. The section provides that where a cheque is not presented by the
holder for payment within a reasonable time of its issue and the drawer suffers actual damage
through the delay because of the failure of the bank, he is discharged from liability to the extent of
such damage. In determining what is reasonable time, regard shall be had to the nature of the
instrument, the usage of trade and bankers, and the facts of the particular case.
Accordingly, in the given case, the drawer is discharged from the liability to pay the amount of
cheque to B. However, B can sue against the bank for the amount of the cheque applying the above
provisions.
(ii) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881 ‘holder’ of
a Negotiable Instrument means any person entitled in his own name to the possession of it and to
receive or recover the amount due thereon from the parties thereto.
On applying the above provision in the given cases-
(1) Yes, A can be termed as a holder because he has a right to possession and to receive the
amount due in his own name.
M 12.5
(2) No, X is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only to the
possession of the instrument but also to receive the amount mentioned therein.
Question 10
X draws a bill on Y but signs it in the fictitious name of Z. The bill is payable to the order of Z. The bill is
duly accepted by Y. M obtains the bill from X thus becoming its holder in due course. Can Y avoid
payment of the bill? Decide in the light of the provisions of the Negotiable Instruments Act, 1881.
(March 18, 3 Marks) (Oct 20 4 Marks)
Answer 10
The problem is based on the provision of Section 42 of the Negotiable Instruments Act, 1881. In case a
bill of exchange is drawn payable to the drawer’s order in a fictitious name and is endorsed by the same
hand as the drawer’s signature, it is not permissible for the acceptor to allege as against the holder in
due course that such name is fictitious. Accordingly, in the i nstant case, Y cannot avoid payment by
raising the plea that the drawer (Z) is fictitious. The only condition is that the signature of Z as drawer
and as endorser must be in the same handwriting.
Question 11
Explain the holder’s right to duplicate of lost bill, as per the provisions of the Negotiable Instruments
Act, 1881. (Mar 18, 5 Marks)
Answer 11
According to section 45A of the Negotiable Instruments Act, 1881, where a bill of exchange has been lost
before it is overdue,
 the person who was the holder of it may apply
 to the drawer to give him another bill of the same tenor,
 giving security to the drawer, if required,
 to indemnify him against all persons whatever in case the bill alleged to have been lost
shall be found again.
If the drawer on request as aforesaid refuses to give such duplicate bill, he may be compelled to do so.
Question 12
Manoj owes money to Umesh. Therefore, he makes a promissory note for the amount in favour of
Umesh, for safety of transmission he cuts the note in half and posts one half to Umesh. He then changes
his mind and calls upon Umesh to return the half of the note which he had sent. Umesh requires Manoj
to send the other half of the promissory note. Decide how rights of the parties are to be adjusted.
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881. (Mar’21 4 Marks)
(May’20, March’19,3 Marks)
Answer 12
The question arising in this problem is whether the making of promissory note is complete when one half of
the note was delivered to Umesh. Under Section 46 of the Negotiable Instruments Act, 1881, the making of
a promissory note is completed by delivery, actual or constructive. Delivery refers to the whole of the
instrument and not merely a part of it. Delivery of half instrument cannot be treated as constructive delivery
of the whole. So, the claim of Umesh to have the other half of the promissory note sent to him is not
maintainable. Manoj is justified in demanding the return of the first half sent by him. He can change his
mind and refuse to send the other half of the promissory note.
Question 13
Explain the power of court for trial of to cases summarily, as per the provisions of the Negotiable
Instruments Act, 1881. (Oct’18,5 Marks)
M 12.6
Answer 13
According to section 143 of the Negotiable Instruments Act, 1881,
(1) Trial of Offence: Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all
offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan
Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as
may be, apply to such trials:
In case of summary trial: Provided that in the case of any conviction in a summary trial under this
section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding
one year and an amount of fine exceeding five thousand rupees:
In case where no summary trial can be made: Provided further that when at the commencement of, or
in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the
case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or
that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing
the parties, record an order to that effect and thereafter recall any witness who may have been
examined and proceed to hear or rehear the case in the manner provided by the said Code.
(2) Speedy Trial: The trial of a case under this section shall, so far as practicable, consistently with the
interests of justice, be continued from day to day until its conclusion, unless the Court finds the
adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.
(3) Speedy and efficient Disposal: Every trial under this section shall be conducted as expeditiously as
possible and an endeavor shall be made to conclude the trial within six months from the date of filing
of the complaint.
Question 14
Give the answer of the following as per the provisions of the Negotiable Instruments Act, 1881:
(i) On a Bill of Exchange for Rs. 5 lakh, X's acceptance to the Bill is forged. 'A' takes the Bill from his
customer for value and in good faith before the Bill becomes payable. State with reasons whether
'A' can be considered as a 'Holder in due course' and whether he (A) can receive the amount of the
Bill from 'X'. (Oct 18, 4 Marks)
(ii) Mr. Fraud, induced Mr. Bonafide, to draw a cheque payable to Mr. Payee or order, by fraud. Mr.
Fraud obtained the cheque and forged Mr. Payee's endorsement and collected proceeds to the said
cheque through his Bankers. Mr.Bonafide, wants to recover the amount from Payee's Bankers. (Oct
18, 4 Marks)
Advise, whether Mr. Bonafide, can recover the amount of the cheque from Payee's Bankers?
Answer 14
(i) According to section 9 of the Negotiable Instruments Act, 1881 'holder in due course' means any
person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque
if payable to bearer or the payee or endorsee thereof, if payable to order, before the amount in it
became payable and without having sufficient cause to believe that any defect existed in the title of
the person from whom he derived his title.
As 'A' in this case prima facie became a possessor of the bill for value and in good faith before the bill
became payable, he can be considered as a holder in due course.
But where a signature on the negotiable instrument is forged, it becomes a nullity. The holder of a
forged instrument cannot enforce payment thereon. In the event of the holder being able to obtain
payment in spite of forgery, he cannot retain the money. The true owner may sue on tort the person
who had received. This principle is universal in character, by reason where of even a holder in due
course is not exempt from it. A holder in due course is protected when there is defect in the title. But
he derives no title when there is entire absence of title as in the case of forgery. Hence 'A' cannot
receive the amount on the bill .
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(ii) According to Section 42 of the Negotiable Instruments Act, 1881 an acceptor of a bill of exchange drawn
in a fictitious name and payable to the drawer's order is not, by reason that such name is fictitious,
relieved from liability to any holder in due course claiming under an instrument by the same hand as
the drawer's signature, and purporting to be made by the drawer.
The word "fictitious payee' means a person who is not in existence or being in existence, was never
intended by the drawer to have the payment. Where drawer intends the payee to have the payment,
then he is not a fictitious payee and the forgery of his signature will affect the validity of the cheque.
On applying the above, in this case Mr. Bonafide (drawer), can recover the amount of the cheque from
Payee's bankers because Payee's title was derived through forged endorsement.
Question 15
While drawing a bill of exchange, a person whose name is given in addition to the drawee who can be
resorted in case of need, is called
(a) Acceptor (b) Acceptor for honour
(c) Drawee in case of need (d) Drawer (March’19, 1 Mark)
Answer 15
The Answer is (d)
Question 16
Days of grace provided to the Instruments at maturity is (as per the provisions of the
Negotiable Instruments Act, 1881)—
(a) 1 day (b) 2 days (c) 3 days (d) 5 days
(March’19, 1 Mark)
Answer 16
The Answer is (c)
Question 17
The date of maturity of a bill payable hundred days after sight and which is presented for sight on 4th
May, 2017, is (as per the provisions of the Negotiable Instruments Act, 1881):
(a) 13 August, 2017 (b) 14 August, 2017
(c) 15 August, 2017 (d) 16 August, 2017 (March’19, 2 Marks)
Answer 17
The Answer is (b)
Question 18
A draws a bill on B. B accepts the bill without any consideration. The bill is transferred to C without
consideration. C transferred it to D for value. Decide as per the provisions of the Negotiable Instruments
Act, 1881-
(a) D can sue only A (b) D can sue A or B only
(c) D can sue any of the parties A, B or C (d) D cannot sue any of the parties A, B or C
(March’19, 2 Mark)
Answer 18
The Answer is (c)
Question 19
M drew a cheque amounting to Rs. 2 lakh payable to N and subsequently delivered to him. After receipt
of cheque N endorsed the same to C but kept it in his safe locker. After sometime, N died, and P found
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the cheque in N’s safe locker. State the nature of the Instrument as amounting to indorsement under
the NI Act,1881. (2 Marks, Oct 19)
(a) Yes its an endorsement, as P becomes the holder of the cheque that he found in the N’s safe
locker.
(b) No, its not an endorsement, as P does not become the holder of the cheque
(c) Yes , its an endorsement, as P was a ultimate custodian of the cheque
(d) No, its not an endorsement, as N endorsed it to C and not to the P.
Answer 19
The Answer is (b)
Question 20
Offences committed under the Negotiable Instruments Act can be — (Apr 21, Oct 19, 1 Mark)
(a) Compoundable
(b) Non- compoundable
(c) Non- compoundable and non-bailable
(d) bailable
Answer 20
The Answer is (a)
Question 21
As per the Negotiable Instruments Act, 1881, when the day on which a promissory note or bill of
exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the…….. .
(a) said public holiday (b) 5 days succeeding public holiday
(c) next succeeding business day (d) next preceding business day
(1 Mark,April’19 & April ‘23)
Answer 21
The Answer is (c)
Question 22
Validity period for the presentment of cheque in bank is—
(a) 3 months (b) 6 months (c) 1 year (d) 2 years
(1 Mark, April’19, Mar’21, Apr’21)
Answer 22
The Answer is (a)
Question 23
A draws a cheque in favour of M, a minor. M endorses the same in favour of X. The cheque is dishonouredby
the bank on grounds of inadequate funds. As per the provisions of Negotiable Instruments Act, 1881:
(a) M is liable to X (b) X can proceed against A
(c) No one is liable in this case (d) M can proceed against A
(2 Marks, April’19)
Answer 23
The Answer is (d)
Question 24
As per the Negotiable Instruments Act, 1881, when the day on which a promissory note or bill of exchange
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is at maturity is a public holiday, the instrument shall be deemed to be due on the……..

(a) said public holiday
(b) 5 days succeeding public holiday
(c) next succeeding business day
(d) next preceding business day (1 Mark May 20)
Answer 24
The Answer is (d)
Question 25
A negotiable instrument drawn in favor of a minor is
(a) Void
(b) void but enforceable
(c) Valid
(d) none of the above (1 Mark May 20, Mar 21, Oct 21, Apr 22)
Answer 25
The Answer is (b)
Question 26
M drew a cheque amounting to Rs. 2 lakh payable to N and subsequently delivered to him. After receipt of cheque N
endorsed the same to C but kept it in his safe locker. After sometime, N died, and P found the cheque in N’s safe
locker. State the nature of the Instrument as amounting to endorsement under the Negotiable Instrument Act,1881.
(a) Yes its an endorsement, as P becomes the holder of the cheque that he found in the N’s safe
locker.
(b) No, its not an endorsement, as P does not become the holder of the cheque
(c) Yes, its an endorsement, as P was a ultimate custodian of the cheque
(d) No, its not an endorsement, as N endorsed it to C and not to the P. (2 Marks May 20)
Answer 26
The Answer is (b)
Question 27
What are the circumstances under which a bill of exchange can be dishonored by non- acceptance? Also, explain the
consequences if a cheque gets dishonored for insufficiency of funds in the account. (3 Marks May 20)
Answer 27
As per section 91 of the Negotiable Instruments Act, 1881, a bill may be dishonoured either by non-acceptance or by
non-payment. Dishonour by non-acceptance may take place in any one of the following circumstances:
(i) When the drawee either does not accept the bill within forty-eight hours (exclusive of public holidays) of
presentment or refuse to accept it;
(ii) When one of several drawees, not being partners, makes default in acceptance;
(iii) When the drawee makes a qualified acceptance;
(iv) When presentment for acceptance is excused and the bill remains unaccepted; and
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(v) When the drawee is incompetent to contract.

Dishonour of Cheque for insufficiency, etc. of funds in the account: As per section 138 of the Negotiable Instruments
Act 1881, where any cheque drawn by a person on an account maintained by him with a banker for payment is
dishonoured due to insufficiency of funds, he shall be punished with imprisonment for a term which may extend to two
years or with fine which may extend to twice the amount of the cheque or with both.
Question 28
Mr. V draws a cheque of Rs. 11,000 and gives to Mr. B by way of gift. State with reason whether-
(i) Mr.B is a holder in due course as per the Negotiable Instrument Act, 1881?
(ii) Mr.B is entitled to receive the amount of Rs. 11,000 from the bank? (4 Marks May 20)
Answer 28
According to section 9 of the Negotiable Instrument Act, 1881, "Holder in due course" means-
 any person
 who for consideration
 becomes the possessor of a promissory note, bill of exchange or cheque (if payable to
bearer), or the payee or endorsee thereof,(if payable to order),
 before the amount mentioned in it became payable, and
 without having sufficient cause to believe that any defect existed in the title of the
person from whom he derived his title.
In the instant case, Mr. V draws a cheque of Rs. 11,000 and gives to Mr. B by way of gift.
(i) Mr. B is holder but not a holder in due course since he did not get the cheque for value and
consideration.
(ii) Mr. B’s title is good and bonafide. As a holder, he is entitled to receive Rs. 11,000 from the bank on
whom the cheque is drawn.
Question 29
Mr. Aylam issued a cheque amounting to INR 25,000 dated 2 nd February 2020 to Mr. Gandhi which was
deposited by Mr. Gandhi on 16th March 2020 in his bank account. The said cheque got dishonored on
17th March 2020 by the bank citing insufficient funds in the account of Mr. Aylam. Then Mr. Gandhi
demanded the payment from Mr. Aylam by issuing the notice on 31st March 2020 which was received
by Mr. Aylam on 2nd April 2020. Assuming that Mr. Aylam failed to make the payment within stipulated
time, what is the last date by which Mr. Gandhi should have made a complaint in the court?
(a) 17th May 2020
(b) 2nd May 2020
(c) 17th April 2020
(d) 30th April 2020 (2 Marks Oct 20)
Answer 29
The Answer is (a)
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Question 30
A negotiable instrument that is payable to order can be transferred by:
(a) Simple delivery
(b) Indorsement and delivery
(c) Indorsement
(d) Registered post (1 Mark March 21)
Answer 30
The Answer is (b)
Question 31
Mr. Manoj Malik, a major and Preet, a minor executed a promissory note in favour of Rimpy. Examine
with reference to the provisions of the Negotiable Instruments Act, 1881, the validity of the promissory
note and whether it is binding on Mr. Manoj Malik and Preet. (3 Marks March 21)
Answer 31
According to Section 26 of the Negotiable Instruments Act, 1881, every person competent to contract
(according to the law to which he is subject to) has capacity to bind himself and be bound by making,
drawing, accepting, endorsing delivering and negotiating an instrument. A party having such capacity may
himself put his signature or authorize some other person to do so.
A minor may draw, endorse, deliver and negotiate an instrument so as to bind all the parties except
himself. A minor may be a drawer where the instrument is drawn or endorsed by him. In that case he does
not incur any liability himself although other parties to the instrument can be made liable and the holder
can receive payment from any other party thereto.
Therefore, in the instant case, the promissory note is valid and it is binding on Mr. Manoj Malik but not on
Preet, a minor.
Question 32
What is the meaning of Not negotiable crossing as per the Negotiable Instruments Act, 1881? (3 Marks
March 21)
Answer 32
Not negotiable Crossing
This requires writing of words “not negotiable” in addition to the two parallel lines. These words may be
written inside or outside these lines. According to Section 130, a person taking a cheque crossed generally
or specially, bearing in either case the word “not negotiable” shall not have, and shall not be capable of
giving a better title to the cheque than that which the person from whom he took it. It is a statutory
crossing. A cheque with such crossing is not negotiable, but continues to be transferable as before.
Ordinarily, in a negotiable instrument, if the title of the transferor is defective, the transferee, if he is a
Holder in Due Course, will have a good title. When the words “not negotiable” are written, even a Holder
in Due Course will get the same title as that of transferor. Thus, if the title of the transferor is defective,
the title of transferee will also be so.
Hence, the addition of the words not negotiable does not restrict the further transferability of the cheque,
but it entirely takes away the main feature of negotiability, which is that a holder with a defective title can
give a good title to the subsequent holder in due course.
Question 33
Which of the following is not a correct statement with respect to characteristics of a Promissory Note:
(a) An oral promise to pay is sufficient
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(b) It should be in writing

(c) There must be an express promise to pay
(d) The promise to pay should be definite and unconditional (1 Mark April 21)
Answer 33
The Answer is (a)
Question 34
A draws a bill on B. B accepts the bill without any consideration. The bill is transferred to C without
consideration. C transferred it to D for value. Decide-.
(i) Whether D can sue the prior parties of the bill, and
(ii) Whether the prior parties other than D have any right of action inter se?
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881. (3 Marks April 21)
Answer 34
Problem on Negotiable Instrument made without consideration: Section 43 of the Negotiable
Instruments Act, 1881 provides that a negotiable instrument made, drawn, accepted, indorsed or
transferred without consideration, or for a consideration which fails, creates no obligation of payment
between the parties to the transaction. But if any such party has transferred the instrument with or
without endorsement to a holder for consideration, such holder, and every subsequent holder deriving
title from him, may recover the amount due on such instrument from the transferor for consideration or
any prior party thereto.
(i) In the problem, as asked in the question, A has drawn a bill on B and B accepted the bill without
consideration and transferred it to C without consideration. Later on, in the next transfer by C to D
is for value. According to provisions of the aforesaid section 43, the bill ultimately has been
transferred to D with consideration. Therefore, D can sue any of the parties i.e. A, B or C, as D
arrived a good title on it being taken with consideration.
(ii) As regards to the second part of the problem, the prior parties before D i.e., A, B, and C have no
right of action inter se because first part of Section 43 clearly lays down that a negotiable
instrument, made, drawn, accepted, indorsed or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties to the transaction
prior to the parties who receive it on consideration.
Question 35
As per the Negotiable Instruments Act, 1881, what are the parties who may cross a cheque? (3 Marks
April 21)
Answer 35
A cheque may be crossed by the following parties:
(1) By Drawer: A drawer may cross it generally or specially.
(2) By Holder: A holder may cross an uncrossed cheque generally or specially. If the cheque is crossed
generally, the holder may cross specially. If cheque crossed generally or specially, he may add words
“not negotiable”.
(3) By Banker: A banker may cross an uncrossed cheque, or if a cheque is crossed generally he may cross it
specially to himself. Where a cheque is crossed specially, the banker to whom it is crossed may again
cross it specially to another banker, his agent, for collection.
M 12.13
Question 36
Give the answer of the following:
(i) A promissory note was made without mentioning any time for payment. The holder added the words
“on demand” on the face of the instrument. Does this amount to material alteration?
(ii) Amit draws a cheque for Rs. 1000 and hands it over to Beena by way of gift. Is Beena a holder in due
course? (4 Marks April 21)
Answer 36
(i) An alteration is material which in any way alters the operation of the instrument and affects the
liability of parties thereto. Any alteration is material which alters the business effect of the
instrument if used for any business purpose. In the given case, a promissory note was made without
mentioning any time for payment. The holder added the words “on demand” on the face of the
instrument. As per the provision of the Negotiable Instruments Act, 1881 this is not a material
alteration as a promissory note where no date of payment is specified will be treated as payable on
demand. Hence , adding the words “on demand” does not alter the business effect of the
instrument.
(ii) The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own
name to the possession thereof, and to receive or recover the amount due thereon from the parties
thereto.
“Holder in due course” means any person who for consideration became the possessor of a
promissory note, bill of exchange or cheque (if payable to bearer), or the payee or indorsee thereof, (if
payable to order), before the amount mentioned in it became payable, and without having sufficient
cause to believe that any defect existed in the title of the person from whom he derived his title.
In the given question, Beena is a holder but not a holder in due course as she does not get the
cheque for value and consideration. Her title is good and bonafide. As a holder she is entitled to
receive Rs. 1000 from the bank on whom the cheque is drawn.
Question 37
The date of maturity of a bill payable hundred days after sight and which is presented for sight on
4th May, 2021, is:
(a) 13 August, 2021
(b) 14 August, 2021
(c) 15 August, 2021
(d) 16 August, 2021 (2 Marks Oct 21)
Answer 37
The Answer is (b)
Question 38
Rama executes a promissory note in the following form, 'I promise to pay a sum of `10,000 after three
months'. Decide whether the promissory note is a valid promissory note. (3 Marks Oct 21)
Answer 38
The promissory note is an unconditional promise in writing. In the above question the amount is certain
but the date and name of payee is missing, thus making it a bearer instrument. As per Reserve Bank of
India Act, 1934, a promissory note cannot be made payable to bearer - whether on demand or after
certain days. Hence, the instrument is illegal as per Reserve Bank of India Act, 1934 and cannot be legally
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enforced.
Question 39
What are the essential characteristics of Negotiable Instruments. (3 Marks Oct 21, Mar 22)
Answer 39
Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional promise or order to pay
money. The promise or order to pay must consist of money only.
7. The sum payable, the time of payment, the payee, must be certain.
8. The instrument should be delivered. Mere drawing of instrument does not create liability.
Question 40
Discuss with reasons, in the following given conditions, whether ‘M’ can be called as a “holder”
under the Negotiable Instruments Act, 1881:
(1) ‘M’ the payee of the cheque, who is prohibited by a court order from receiving the
amount of the cheque.
(2) ‘M’ the agent of ‘Q’ is entrusted with an instrument without endorsement by ‘Q’ who is
the payee. (4 Marks Oct 21)
Answer 40
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881, ‘holder’ of a Negotiable
Instrument means any person entitled in his own name to the possession of it and to receive or recover
the amount due thereon from the parties thereto.
(1) ‘M’ is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only to the possession
of the instrument but also to receive the amount mentioned therein.
(2) No, ‘M’ is not a holder. While the agent may receive payment of the amount mentioned in the
cheque, yet he cannot be called the holder thereof because he has no right to sue on the
instrument in his own name.
Question 41
A bill of exchange is due on 2nd January, 2021. How many days of grace shall be provided to this
bill of exchange due at maturity:
(a) 1 day
(b) 2 days
(c) 3 days
(d) 5 days (1 Mark Nov 21)
Answer 41
The Answer is (c)
Question 42
Mr. Amna draws a cheque of Rs. 11,000 and gives to Mr. Babita by way of gift. State with reason
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whether -
(1) Mr. Babita is a holder in due course as per the Negotiable Instrument Act, 1881?
(2) Mr. Babita is entitled to receive the amount of Rs. 11,000 from the bank? (3 Marks Nov 21)
Answer 42
 any person
 becomes the possessor of a promissory note, bill of exchange or cheque (if payable to
bearer), or the payee or indorsee thereof, (if payable to order),
 without having sufficient cause to believe that any defect existed in the title of the
person from whom he derived his title.
In the instant case, Mr. Amna draws a cheque of Rs. 11,000 and gives to Mr. Babita by way of gift.
Hence,
(1) Mr. Babita is holder but not a holder in due course since he did not get the cheque for
value and consideration.
(2) Mr. Babita’s title is good and bonafide. As a holder he is entitled to receive Rs. 11,000
from the bank on whom the cheque is drawn
Question 43
What are the parties to a bill of exchange. (3 Marks Nov 21)
Answer 43
The parties to a bill of exchange are:
1. Drawer: The maker of a bill of exchange.
2. Drawee: The person directed by the drawer to pay is called the 'drawee'. He is the person on whom
the bill is drawn. On acceptance of the bill, he is called an acceptor and is liable for the payment of
the bill. His liability is primary and unconditional.
3. Payee: The person named in the instrument, to whom or to whose order the money is, by the
instrument, directed to be paid.
Question 44
Discuss with reasons, whether the following persons can be called as a ‘holder’ under the Negotiable
(1) Megha, who finds a cheque payable to bearer, on the road and retains it.
(2) Bob, who steals a blank cheque of Alpa and forges Alpa’s signature. (4 Marks Nov 21)
Answer 44
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881, ‘holder’ of a
Negotiable Instrument means any person entitled in his own name to the possession of it and to receive
or recover the amount due thereon from the parties thereto.
(1) No, Megha is not a holder of the Instrument though she is in possession of the cheque, so
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is not entitled to the possession of it in his own name.

(2) No, Bob is not a holder because he is in wrongful possession of the instrument.
Question 45
The date of maturity of a bill payable hundred days after sight and which is presented for sight on 4th
May, 2021, is:
(a) 13 August, 2021
(b) 14 August, 2021
(c) 15 August, 2021
(d) 16 August, 2021 (2 Marks March ‘22)
Answer 45
The Answer is (b)
Question 46
(i) Madan was going to office through metro rail. He found a cheque payable to bearer, on the
floor of coach number 6 and retains it.
(ii) Preeti, the agent of Mr. Rajesh, is entrusted with an instrument without indorsement by Mr.
Rajesh, who is the payee. (3 Marks March ‘22)
Answer 46
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881 , ‘holder’ of a
or recover the amount due thereon from the parties thereto.
On applying the above provision in the given cases—
(i) In the given question, though Madan is in possession of the cheque but is not entitled to the
possession of it in his own name (he got the cheque on the floor of metro coach). Hence, Madan is
not a holder of the Instrument.
(ii) In the given question though the agent (i.e. Preeti) may receive payment of the amount
mentioned in the cheque, yet she cannot be called the holder thereof because she has no right to
sue on the instrument in her own name. Hence, Preeti is not a holder.
Question 47
A bill of exchange is drawn by ‘A’ in Berkley where the rate of interest is 15% and accepted by ‘B’
payable in Washington where the rate of interest is 6%. The bill is indorsed in India and is
dishonoured. An action on the bill is brought against ‘B’ in India. Advise as per the provisions of the
Negotiable Instruments Act, 1881, what rate of interest ‘B’ is liable to pay? (4 Marks March ‘22)
Answer 47
According to section 134 of the Negotiable Instruments Act, 1881, in the absence of a contract to the
country, the liability of the maker or drawer of a foreign promissory note or bill of exchange or cheque is
regulated in all essential matters by the law of the place where he made the instrument, and the
respective liabilities of the acceptor and indorser by the law of the place where the instrument is made
payable.
In the given case, since action on the bill is brought against B in India, he is liable to pay interest at the
rate of 6% only.
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Question 48
Which of the following is an essential characteristic of a promissory note:
(a) There must be an order to pay certain sum
(b) It must be payable to bearer
(c) It must be signed by the Payee
(d) It must contain an unconditional undertaking (1 Mark April 22)
Answer 48 : (a)
Question 49
Mr. A issued a cheque amounting to ` 25,000 dated 2nd February 2020 to Mr. G which was deposited by
Mr. G on 16th March 2020 in his bank account. The said cheque was returned unpaid on 17th March
2020 by the bank of Mr. A citing insufficient funds in the account of Mr. A. Mr. G demanded the
payment from Mr. A by issuing the notice on 31 st March 2020 which was received by Mr. A on 2nd
April 2020. Assuming that Mr. A failed to make the payment within stipulated time, what is the last
date by which Mr. G should have made a complaint in the court?
(a) 17th May 2020
(b) 2nd May 2020
(c) 17th April 2020
(d) 30th April 2020 (2 Marks April 22)
Answer 49 : (a)
Question 50
(i) Babita, stole a blank cheque of Aman and forged Aman’s signature.
(ii) Arvind, the payee of the cheque, who is prohibited by a court order from receiving the
amount of the cheque. (3 Marks April 22)
Answer 50
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881 ‘holder’ of a
or recover the amount due thereon from the parties thereto. On applying the above provision in the
given cases—
(i) Babita is not a holder because she is in wrongful possession of the instrument (as she
stole and forged Aman’s signature).
(ii) Arvind is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only to
the possession of the instrument but also to receive the amount mentioned therein.
Question 51
Mr. Mudit is the employee in Senior Research Analyst Private Limited. He went to a Super Mall, a
departmental store, where he purchased some goods for his personal use on credit. Mr. Mudit gave a
cheque drawn on the Senior Research Analyst Private Limited's account to Super Mall towards the full
payment of the dues. The cheque was dishonoured by the company's bank. Mr. Mudit was neither a
director nor a person in-charge of the company. Explain under the provisions of the Negotiable
Instruments Act, 1881, whether Mr. Mudit has committed an offence under section 138. (4 Marks April
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22)
Answer 51
According to section 138 of the Negotiable Instruments Act, 1881, where any cheque drawn by a person
on an account maintained by him with a banker for payment of any amount of money to another person
from/out of that account for discharging any debt or liability, and if it is dishonoured by banker on
sufficient grounds, such person shall be deemed to have committed an offence and shall be liable.
According to section 141, if the person committing an offence under section 138 is a company, every
person who, at the time the offence was committed was in charge of, and was responsible to the
company for the conduct of the business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly.
However, in this case, Mudit is neither a director nor a person-in-charge of the company and is not
connected with the day-to-day affairs of the company and had neither opened nor is operating the bank
account of the company. Further, the cheque, which was dishonoured, was also not drawn on an account
maintained by him but was drawn on an account maintained by the company. Therefore, Mudit has not
committed an offence under section 138.
Question 52
Any instrument is at maturity on the ……. day after the day on which it is expressed to be payable.
(a) first
(b) second
(c) third
(d) fourth (1 Mark)( Sep’22)
Answer 18: (c)
Question 53
An instrument which is vague and cannot be clearly identified either as a bill of exchange, or as a
promissory note, is called as:
(a) Bearer instrument
(b) Ambiguous instrument
(c) Order instrument
(d) Inland instrument (1 Mark)( Sep’22 & March ‘23)
Answer 53: (b)
Question 54
A promissory note dated 31st August, 2022, is made payable three months after date. What will the
maturity date for this instrument?
(a) 30th October, 2022
(b) 31st October, 2022
(c) 2nd December, 2022
(d) 3rd December, 2022 (2 Marks)( Sep’22)
Answer 54: (d)
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Question 55
(i) Babita finds a cheque payable to bearer, on the road and retains it.
(ii) Biswas, the
agent of Chandan, is entrusted with an instrument without indorsement by Chandan, who is the payee.(3
Marks)(Sep’22)
Answer 55
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881 , ‘holder’ of a
Negotiable Instrument means any person entitled in his own name to the possession of it and to receive or
recover the amount due thereon from the parties thereto. On applying the above provision in the given
cases—
(i) Babita is not a holder of the Instrument though she is in possession of the cheque. She is not entitled to the
possession of it in her own name.
(ii) No, Biswas is not a holder. While the agent may receive payment of the amount mentioned in the cheque,
yet he cannot be called the holder thereof because he has no right to sue on the instrument in his own
name.
Question 56
What is the meaning of ‘Acceptor for honour’ and ‘payment for honour’? Give your answer in terms of the
Negotiable Instruments Act, 1881. (3 Marks)( Sep’22)
Answer 56
When a bill of exchange has been dishonoured by non-acceptance and any person accepts it for honour of
the drawer or of any indorsers, such person is called ‘an Acceptor for honour’.
The payment which he makes is known as ‘payment for honour.’
Question 57
Mr. Krishna draws a cheque of ₹ 20,000 and gives to Mr. Balram by way of gift. State with reason whether
(1) Mr. Balram is a holder in due course as per the Negotiable Instrument Act, 1881?
(2) Mr. Balram is entitled to receive the amount of ₹ 20,000 from the bank?(4 Marks)(Sep’22)
Answer 57
 any person
 becomes the possessor of a promissory note, bill of exchange or cheque (if payable to bearer), or the
payee or indorsee thereof, (if payable to order),
 without having sufficient cause to believe that any defect existed in the title of the person from whom
he derived his title.
In the instant case, Mr. Krishna draws a cheque of ₹ 20,000 and gives to Mr. Balram by way of gift.
Hence,
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(1) Mr. Balram is holder but not a holder in due course since he did not get the cheque for value and
consideration.
(2) Mr. Balram’s title is good and bonafide. As a holder he is entitled to receive ₹ 20,000 from the bank on
whom the cheque is drawn.
Question 58
Mr. Sridhar has issued a promissory note of ₹1000 to Mr. Mohan on 17th May 2022 payable 3 months after
date. After that, a sudden holiday was declared on 20th August 2022 due to Moharram. As per the provisions of
the General Clauses Act 1897, what should be the date of presentment of promissory note for payment?
Whether it should be 19th August 2022 or 21st August 2022?(4 Marks)( Sep’22)
Answer 58
Section10 of the General Clauses Act, 1897 provides where by any legislation or regulation, any act or proceeding
is directed or allowed to be done or taken in any court or office on a certain day or within a prescribed period then,
if the Court or office is closed on that day or last day of the prescribed period, the act or proceeding shall be
considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or
office is open.
A promissory note of ₹1000 was issued by Mr. Sridhar to Mr. Mohan on 17th May 2022 which was payable 3
months after date. After that, a sudden holiday was declared on 20 th August 2022 due to Moharram.
In the given case, the period of 3 months ends on 17th August 2022. Three days of grace are to be added. It falls
due on 20th August 2022 which declared to be a public holiday after the issue of Promissory Note. In the light of
provisions of section 10 of the General Clauses Act 1897, the due date will be on next day when office is open
i.e. 21st August 2022.
Question 59
Order Instrument is an instrument which is payable to a person or payable to a person or his order or
payable to order of a person or where the last indorsement is in full, such instrument can be negotiated
by ………………….
(a) Simple delivery
(b) Indorsement and delivery
(c) Indorsement
(d) Registered post (2 Mark) (Oct’22)
Answer 59:(b )
Question 60
A bill of exchange is due on 2nd January, 2022. How many days of grace shall be provided to this bill of
exchange due at maturity:
(a) 1 day
(b) 2 days
(c) 3 days
(d) 5 days (1 Mark) (Oct’22)
Answer 60 :(c )
Question 61
Shama' made a promissory note for ₹ 4,500 payable to ‘Vihari’, and delivered the same to ‘Vihari’ on the
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condition that he (‘Vihari’) will demand payment only on the death of ‘Kayah’. Before the death of
‘Kayah’, ‘Vihari’ indorsed and delivered the promissory note to ‘Deepak’, who receive the promissory note
in good faith. On the date of maturity, ‘Deepak’ presented the promissory note for payment but ‘Shama’
denied for payment by stating that he issued this promissory note on the condition that it can be paid
only on the death of ‘ Kayah’. Can ‘Deepak’ recover the amount due on the promissory note from ‘Shama’
under the provisions of the Negotiable Instrument Act 1881? ?(Oct’22)
Answer 61
By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any person who for consideration
became the possessor of a negotiable instrument in good faith and without having sufficient cause to
believe that any defect existed in the title of the person from whom he derived his title. Exception to section
47 provides if a negotiable instrument is delivered to a person, upon condition, i.e. it will be effective on the
happening of a certain event, such negotiable instrument cannot be further negotiated unless such event
happens. However, if it is transferred t o a holder in due course, his rights will not be affected by such
condition.
‘Shama’ issued a promissory note to ‘Vihari’ on the condition that he (‘Vihari’) will demand payment only on
the death of ‘Kayah’. Before the death of ‘Kayah’, ‘Vihari’ indorsed and delivered the promissory note to
‘Deepak’, who receive the promissory note in good faith. On due date, ‘Deepak’ presented the promissory
note for payment but ‘Shama’ denied for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has received the promissory
note in good faith, he is a holder in due course and his rights will not be affected by any condition attached
to the instrument by any prior party. Therefore, ‘Deepak’ can recover the amount due on the promissory
note from ‘Shama’.
Question 62
A signs his name on a blank cheque with ‘not negotiable crossing’ which he gives to B with an authority to
fill up a sum of ₹ 3,000 only. But B fills it for ₹ 5,000. B then endorsed it to C for a consideration of ₹ 5,000
who takes it in good faith. Examine whether C is entitled to recover the full amount of the instrument
from B or A as per the provisions of the Negotiable Instruments Act, 1881.(3 Marks) (Oct’22)
Answer 62
As per section 130 of the Negotiable Instruments Act, 1881, a cheque marked “not negotiable” is a
transferable instrument. The inclusion of the words ‘not negotiable’ however makes a
significant difference in the transferability of the cheques i.e., they cannot be negotiated. The holderof such
a cheque cannot acquire title better than that of the transferor.
In the given question, A gave to B the blank cheque with ‘not negotiable crossing’. B had an authority to fill
only a sum of Rs. 3,000 but he filled it up Rs. 5,000. This makes B’s title defective. B then endorsed it to C for
consideration of Rs. 5,000.
In the light of above stated facts and provision, C is not entitled to recover the full amount from A or B as C
cannot acquire a title better than that of the transferor (B).
Question 63
Examine the following cases with respect to their validity. State your answer with reasons.
(i) A bill of exchange is drawn, mentioning expressly as 'payable on demand'. The bill will be at maturity for
payment on 04-01-2022, if presented on 01-01-2022.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The drawer claims that he
is discharged from his liability as the holder fails to give notice of dishonour of the bill to all the parties
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thereto. (4 Marks) (Oct’22)

Answer 63
(i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The bill will be at maturity for
payment on 04-1-2022, if presented on 01-01-2022:
This statement is not valid as no days of grace are allowed in the case of bill payable on demand.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The drawer claims that he is
discharged form his liability as the holder fails to give notice of dishonour of the bill to all the parties
thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must be given by the holder to
all parties other than the maker or the acceptor or the drawee whom the holder seeks to make liable.
Accordingly, notice of dishonour to the acceptor of a bill is not necessary. Therefore, claim of drawer that he
is discharged from his liability on account of holder’s failure to give notice to all the parties thereto, is
invalid.
Question 64
Which among the following will not be considered as a “Foreign Instrument” under the provisions of
the Negotiable Instruments Act, 1881?
(a) A bill drawn on a person residing outside India but payable in India or outside India
(b) A bill drawn on a person resident outside India but payable outside India
(c) A bill drawn on a person residing outside India but payable in India
(d) A bill drawn on a person resident in India but payable outside India (2 Marks March ‘23)
Answer 64 (b)
Question 65
What are the parties to promissory note and a bill of exchange. (3 Marks March ‘23)
Answer 65
1. In a promissory note, there are only 2 parties namely:
i. the maker and

ii. the payee
2. In a bill of exchange, there are 3 parties which are as under:
i. the drawer
ii. the drawee
iii. the payee
Question 66
A promissory note was made without mentioning any time for payment. The holder added the words
‘on demand’ on the face of the instrument. Whether this may be treated as material alteration in the
instrument? Give answer referring to the provisions of the Negotiable Instruments Act, 1881. (4 Marks
March ‘23)
M 12.23
Answer 66
Material alteration: An alteration is material which in any way alters the operation of the instrument
and affects the liability of parties thereto.
Any alteration is material:

(a) which alters the business effect of the instrument if used for any business purpose;
(b) which causes it to speak a different language in legal effect form that which it
originally spoke or which changes the legal identity or character of the instrument.
The following alteration are specifically declared to be material: any al teration of (i) the date, (ii) the
sum payable, (iii) the time of payment, (iv) the place of payment, or the addition of a place of payment.
A promissory note was made without mentioning any time for payment. The holder added the words
“on demand” on the face of the instrument. As per the above provision of the Negotiable Instruments
Act, 1881 this is not a material alteration as a promissory note where no date of payment is specified
will be treated as payable on demand. Hence, adding the words “on demand” does not alter the
business effect of the instrument.
Question 67
The Negotiable Instruments Act, 1881, extends to:
(a) Only to capital cities of States of India
(b) The whole of India except Union territories
(c) The whole of India except to the state of Jammu and Kashmir
(d) The whole of India (1 Mark April ‘23)
Answer 67 (d)
Question 68
When a promissory note or bill of exchange are payable, in which no time for payment is specified:
(a) They are payable within 3 months
(b) They are payable within 6 months
(c) They are payable on demand
(d) They are payable within a reasonable time (1 Mark April ‘23)
Answer 68 (c)
Question 69
Calculate the date of maturity of bill of exchange drawn on 1.6. 2022, payable 120 days after considering
the relevant provisions of the Negotiable Instruments Act, 1881. (3 Marks April ‘23)
Answer 69
Date of maturity of the bill of exchange: In this case the day of presentment for sight is to be excluded i.e.
1st June, 2022. The period of 120 days ends on 29th September, 2022 (June 29 days + July 31 days +
August 31 Days + September 29 days = 120 days). Three days of grace are to be added. It falls due on
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2nd October, 2022, which happens to be a public holiday. As such it will fall due on 1st October, 2022
i.e., the next preceding Business Day.
Question 70
Give three example when the alterations to an instrument do not effect the liabilities of parties thereto.
(3 Marks April ‘23)
Answer 70
The following alterations do not affect the liability of parties thereto:
(1) If the alteration is unintentional and due to pure accident (e.g. accidental disfigurement of
document).
(2) Alteration made by a stranger without the consent of holder and without any fraud and negligence
on his part.
(3) An alteration made to correct a clerical error or a mistake, thus, if instead of 1823, the date entered
was 1832, the agent of drawer held entitled to correct mistake [Brutt v pikard (1824) Ry & M 37].
Such correction is deemed to be giving effect to the original intention of the parties.
(4) Alteration made to carry out common intention of original parties is permitted by Section 87. For
example, where the words “or order” after the name of payee, inserted subsequently [Byrom v
Thomson (1839) 11 A&E 31].
(5) Alteration with the consent of the parties liable thereto.
(6) An alteration made before the completion or the issue of negotiable Instrument.
(7) A material alteration doesn’t affect the liability of those parties who become liable after the
alteration is made. Section 88 provides that the acceptor or indorser is bound by his acceptance or
indorsement notwithstanding any previous alteration of the instrument.
(8) An alteration which is not material e.g. when a bill payable to bearer is converted to bill
payable to order/or an incomplete name of a person converted into the complete name of same
person.
Question 71
'A' draws a cheque for ` 5,000 in favour of 'B'. 'A' had sufficient funds in his bank account to meet it,
when the cheque ought to be presented in the bank. The bank fails before the cheque is presented. 'B'
wants to claim it from 'A'. Decide, whether 'A' is liable as per the Negotiable Instruments Act, 1881. (4
Marks April ‘23)
Answer 71
According to section 84 of the Negotiable Instruments Act, 1881, if a holder does not present a cheque
within reasonable time after its issue, and the bank fails causing damage to the drawer, the drawer is
discharged as against the holder to the extent of the actual damage suffered by him.
In the given situation, when the cheque ought to be presented, ‘A’ had sufficient funds at the bank to
meet it. The bank failed before the cheque was presented. Thus, the drawer (‘A’) is discharged, but the
holder (‘B’) can prove against the bank for the amount of the cheque.
M 13.1
Chapter 13
The General Clauses Act, 1897
Question 1
Mr. Mike has lent his house property to Mr. Wise at a monthly rent of Rs. 15,0000 per month. The
yearly rent agreement was due to expire in near future. However, Mr. Mike does not intend to
continue this agreement and he has sent a notice to Mr. Wise for the termination of the agreement.
Mr. Wise on the other hand does not want to vacate the property and hence has returned the notice
with an endorsement of refusal. Now, Mr. Wise has contended that the no notice was served to him
and hence there is no need for him to vacate the property. As per the provisions of the General Clauses
Act, 1897, discuss whether a notice was served to Mr. Wise. ( Aug ’18, 4 Marks)
Answer 1
As per section 27 of the General Clause Act, 1897, where any legislation or regulation requires any document to be
served by post, then unless a different intention appears, the service shall be deemed to be effected by:
(i) properly addressing
(ii) pre-paying, and
(iii) posting by registered post.
A letter containing the document to have been effected at the time at which the letter would be delivered in
the ordinary course of post.
Thus, where a notice is sent by the landlord by registered post and the same is returned by the tenant with
an endorsement of refusal, it will be presumed that the notice has been served.
Hence, in the given situation, a notice was rightfully served to Mr. Wise.
Question 2
As per a Rule of an Educational Institution, every student may come on weekends for extra classes but
every student shall appear on a weekly test conducted in the institute, which can be analysed in terms
of General Clause Act, as: (Oct ’19, 2 Marks)
I. Attending weekend classes is optional but appearing in weekly test is compulsory
II. Attending weekend classes is compulsory but appearing in weekly test is optional
III. Attending weekend classes and appearing in weekly test, both are compulsory for students
IV. Attending weekend classes and appearing in weekly test both are optional for students.
Answer 2
The Answer is (a)
Question 3
X owned a land with fifty tamarind trees. He sold his land to (obtained after cutting the fifty trees) to
Y. X wants to know whether the sale of timber tantamounts to sale of immovable property. Advise him
with reference to provisions of "General Clauses Act, 1897”. ( Mar’21, April ’19, Oct ’19, 4 Marks)
Answer 3
“Immovable Property” [Section 3(26) of the General Clauses Act, 1897]: ‘Immovable Property’ shall
include:
I. Land,
II. Benefits to arise out of land, and
III. Things attached to the earth, or
DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897
M 13.2
IV. Permanently fastened to anything attached to the earth.

It is an inclusive definition. It contains four elements: land, benefits to arise out of land, things attached to
the earth and things permanently fastened to anything attached to the earth. Where, in any enactment,
the definition of immovable property is in the negative and not exhaustive, the definition as given in the
General Clauses Act will apply to the expression given in that enactment. In the instant case, X sold Land
along with timber (obtained after cutting trees) of fifty tamarind trees of his land. According to the
above definition, Land is immovable property; however, timber cannot be immovable property since the
same are not attached to the earth.
Question 4
‘Repeal’ of provision is different from ‘deletion’ of provision. Explain as per the General Clauses
Act, 1897. ( Oct 20, Oct ,19 3 Marks)
Answer 4
In Navrangpura Gam Dharmada Milkat Trust Vs. Rmtuji Ramaji, AIR 1994 Guj 75 case, it was decided
that ‘Repeal’ of provision is in distinction from ‘deletion’ of provision. ‘Repeal’ ordinarily brings about
complete obliteration (abolition) of the provision as if it never existed, thereby affecting all incoherent
rights and all causes of action related to the ‘repealed’ provision while ‘deletion’ ordinarily takes effect
from the date of legislature affecting the said deletion, never to effect total effecting or wiping out of
the provision as if it never existed.
Question 5
Mr. A died at the age of 72 leaving behind some movable and immovable properties to be distributed
between his two sons C& D, as per his registered will. His Will clearly mentioned that all the immovable
property should go to C and all the movable property should go to D. Both the brothers divided the
property as per will except below mentioned properties, because they could not establish which property
should go to whom. Kindly help them by ticking the property/ies which should go to D (as per the
provisions of the general Clause Act, 1897):
(a) Standing crop in the fields (b) Cut crop, ready to sell
(c) Tube well in the agriculture land (d) Sandal wood tree
(April’19, 2 Marks)
Answer 5
The Answer is (b)
Question 6
What is the meaning of service by post as per provisions of The General Clauses Act, 1897?(May 20, Nov
21, 3 Marks )(April ’19 ,4 Marks)
Answer 6
“Meaning of Service by post” [Section 27 of the General Clauses Act, 1897]: Where any legislation or
regulation requires any document to be served by post, then unless a different intention appears, the
service shall be deemed to be effected by:
A letter containing the document to have been effected at the time at which the letter would be
delivered in the ordinary course of post.

M 13.3
Question 7
Which of the following is not an Immovable Property (as per the provisions of the General Clauses Act,
1897):
(a) Land
(b) Building
(c) Timber
(d) Machinery permanently attached to the land (March ’19, 1 Mark)
Answer 7
The Answer is (c)
Question 8
A notice was served on Mr. P for appearing in the court. However, the notice could not be served on
account of the fact that the house of the Mr. P was found locked. Thus, Mr. P. did not appear in the
court at the said date. Examine the situation as per the provisions of the General Clauses Act, 1897 and
determine whether Mr. P. will be liable in the given situation. (March ’19, 4 Marks)
Answer 8
According to section 27 of the General Clauses Act, 1897, where any legislation or regulation requires any
document to be served by post, then unless a different intention appears, the service shall be deemed to be
effected by:
A letter containing the document to have been effected at the time at which the letter would be delivered in
the ordinary course of post. Hence, where the where the notice could not be served on account of the fact
that the house of Mr P was found locked, it will be deemed that the notice was properly served as per the
provisions of Section 27 of the General Clauses Act, and it would be for Mr. P to prove that it was not
really served and that he was not responsible for such non- service.
Question 9
What do you understand by the term ‘Good Faith’. Explain as per the provisions of the General
Clauses Act, 1897. (March 19 & Aug 18 4 Marks)
Answer 9
“Good Faith” [Section 3(22) of the General Clauses Act, 1897]: A thing shall be deemed to be done in
“good faith” where it is in fact done honestly, whether it is done negligently or not;
The question of good faith under the General Clauses Act is one of fact. It is to determine with reference to
the circumstances of each case. The term “Good faith” has been defined differently in different
enactments. This definition of the good faith does not apply to that enactment which contains a special
definition of the term “good faith” and there the definition given in that particular enactment has to be
followed. This definition may be applied only if there is nothing repugnant in subject or context, and if that
is so, the definition is not applicable.
Question 10 Includes concepts of Chap 8- Declaration of Dividend

Excel Ltd. declared dividend for its shareholder in its Annual General Meeting held on 30/09/2017.
Under the provisions of the Companies Act, 2013, company is required to pay declared dividend within
30 days from the date of declaration. As per the provisions of the General Clauses Act, 1897, discuss
M 13.4
what will be the commencement and termination time for posting of declared dividend.
(Oct’18,March’18,4 Marks)
Answer 10
As per the provisions of Section 9 of the General Clauses Act, 1897, in any legislation or regulation, it shall be
sufficient, for the purpose of excluding the first in a series of days or any other period of time to use the
word “from” and for the purpose of including the last in a series of days or any other periodof time, to use
the word “to”.
Section127 of the Companies Act, 2013 uses the words, ‘thirty days from’. Thus, in the given situation Excel
Ltd. is required to pay declared dividend within 30 days from the date of declaration i.e. from 01/ 10/2016
to 30/10/2016. In this series of 30 days, 30/09/2016 will be excluded and last 30th day i.e. 30/10/2016 will be
included.
Question 11
What is the effect on the implementation of the Rules that are issued between passing and
commencement of enactment? Explain as per the provisions of the General Clauses Act, 1897.
(Oct’18,4 Marks)
Answer 11
“Making of rules or bye-laws and issuing of orders between passing and commencement of enactment”
[Section 22]: Where, by any Central Act or Regulation which is not to come into force immediately, on the
passing thereof, a power is conferred to make rules or bye-laws, or to issue orders with respect to the
application of the Act or Regulation or with respect to the establishment of any Court or the appointment of
any Judge or officer thereunder, or with respect to the person by whom, or the time when, or the place
where, or the manner in which, or the fees for which, anything is to be done under the Act or Regulation,
then that power may be exercised at any time after passing of the Act or Regulation; but rules, bye-laws or
orders so made or issued shall not take effect till the commencement of the Act or Regulation.
Question 12
SEBI (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2015 was issued
by SEBI vide Notification dated 14th August, 2015 with effect from 1 January, 2016. Referring to the
provisions of the General Clauses Act, 1897, examine the date of enforcement of these Regulations?
(Oct’21 3 Marks, Oct’18,2 Marks)
Answer 12
According to section 5 of the General Clauses Act, 1897, where any Central Act has not specifically
mentioned a particular date to come into force, it shall be implemented on the day on which it receives
the assent of the Governor General in case of a Central Acts made before the commencement of the
Indian Constitution and/or, of the President in case of an Act of Parliament. Hence, in the given question,
SEBI (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2015 shall come into
enforcement on 1st January, 2016 rather than the date of its notification in the gazette.
Question 13
Where an act or omission constitutes an offence under two or more enactments, then the offender
shall be liable to be prosecuted and punished under
(a) Under either or any of those enactments
(b) Twice for the same offence
(c) Either a. or b. as per the discretion of the court
(d) none of these (1 Mark Oct 20)
Answer 13
The Answer is (a)

M 13.5
Question 14
What among the following could be considered in the term ‘Immovable Property’ as defined under
section 3(26) of the General Clauses Act, 1897?
(i) The soil for making bricks
(ii) Right to catch fish
(iii) Right to drain water
(iv) Doors and Windows of the house
(a) Only (i) and (iv)
(b) Only (i), (ii) and (iv)
(c) Only (i) and (ii)
(d) Only (ii), (iii) and (iv) (2 Marks Oct 20)
Answer 14
The Answer is (b)
Question 15
As per the provisions of the Companies Act, 2013, a whole time Key Managerial Personnel (KMP) shall
not hold office in more than one company except its subsidiary company at the same time. Referring to
the Section 13 of the General Clauses Act, 1897, examine whether a whole time KMP can be appointed
in more than one subsidiary company? (4 Marks Oct 20)(2 Marks Aug 18)
Answer 15
Section 203(3) of the Companies Act, 2013 provides that whole time key managerial personnel shall not
hold office in more than one company except in its subsidiary company at the same time. With respect to
the issue that whether a whole time KMP of holding company be appointed in more than one subsidiary
companies or can be appointed in only one subsidiary company. It can be noted that Section 13 of General
Clauses Act, 1897 provides that the word ‘singular’ shall include the ‘plural’, unless there is anything
repugnant to the subject or the context. Thus, a whole time key managerial personnel may hold office in
more than one subsidiary company as per the present law.
Question 16
Where an act of parliament does not expressly specify any particular day as to the day of coming into
operation of such Act, then it shall come into operation on the day on which
(a) It receives the assent of the President
(b) It receives the assent of the Governor General
(c) It is notified in the official gazette
(d) It receives assent of both the houses of Parliament (1 Mark March 21)
Answer 16
The Answer is(a)
Question 17
Mr. R, an advocate, fraudulently deceived his client Mr. Chandan who was taking his expert advise on
taxation matters. Now, Mr. R is liable to a fine for his fraudulent act both under the Advocates Act and
the Income Tax Act, 1961. State the provision as to whether his offence is punishable under both Acts.
M 13.6
Give your answer as per the provisions of the General Clauses Act, 1897. (4 Marks April 21)
Answer 17
"Provision as to offence punishable under two or more enactments" (Section 26 of the General Clauses
Act, 1897) Where an act or omission constitutes an offence under two or more enactments, then the
offender shall be liable to be prosecuted and punished under either or any of those enactments, but
shall not be liable to be punished twice for the same offence.
Thus, Mr. R shall be liable to be punished either under the Advocates Act, 1961 or under the Income Tax
Act, 1961, but shall not be punished twice for the same offence. He can be punished under any of the
enactments if his offence is established.
Question 18
Elucidate the term “Commencement” as per the General Clauses Act, 1897 . (3 Marks April 21)
Answer 18
Section 3(13) of the General Clauses Act, 1897, defines the term "Commencement".
"Commencement" used with reference to an Act or Regulation, shall mean the day on which the Act or
Regulation comes into force. Coming into force or entry into force (also called commencement) refers to
the process by which legislation; regulations, treaties and other legal instruments come to have a legal force
and effect. A law cannot be said to be in force unless it is brought into operation by legislative enactment,
or by the exercise of authority by a delegate empowered to bring it into operation. The theory of a
statute being "in operation in a constitutional sense" though it is not in fact in operation has no validity.
(State of Orissa Vs. Chandrasekhar Singh Bhai — AIR1970 sc 398).
Question 19
As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an
offence under two or more enactments, then the offender shall be liable to be prosecuted and
punished u nder:
(c) Either (a) or (b) as per the discretion of the court
(d) Under the cumulative effect of both the enactments (1 Mark Oct 21)
Answer 19
The Answer is (a)
Question 20
operation of such Act, then it shall come into operation on the day on which:
(c) It receives assent of both the houses of Parliament
(d) It receives assent of the Prime Minister (1 Mark Oct 21)
Answer 20
The Answer is (a)
Question 21
Explain the meaning of ‘calculation of duty to be taken on pro rata basis’ as per the provisions of
M 13.7
the General Clauses Act, 1897. Give an example. (3 Marks Oct 21)
Answer 21
“Duty to be taken pro rata in enactments”: According to section 12 of the General Clauses Act, 1897,
where, by any enactment now in force or hereafter to be in force, any duty of customs or excise or in the
nature thereof, is leviable on any given quantity, by weight, measure or value of any goods or
merchandise, then a like duty is leviable according to the same rate on any greater or less quantity. Pro
rata is a Latin term used to describe a proportionate allocation.
Example: Where several debtors are liable for the whole debt and each is liable for his own share or
proportion only, they are said to be bound pro rata.
Question 22
(d) Only (ii), (iii) and (iv) (2 Marks Nov 21)
Answer 22
The Answer is (b)
Question 23
The Companies Act, 2013 provides that the amount of dividend remained unpaid/unclaimed on expiry
of 30 days from the date of declaration of dividend shall be transferred to unpaid dividend account
within 7 days from the date of expiry of such period of 30 days. If the expiry date of such 30 days is
30.10.2021, decide the last date on or before which the unpaid/unclaimed dividend amount shall be
required to be transferred to a separate bank account in the light of the relevant provisions of the
General Clauses Act, 1897? (3 Marks Nov 21)
Answer 23
Section 9 of the General Clauses Act, 1897 provides that, for computation of time, in any legislation or
regulation, it shall be sufficient, for the purpose of excluding the first in a series of days or any other
period of time to use the word “from” and for the purpose of including the last in a series of days or any
other period of time, to use the word “to”.
As per the facts of the question the company shall transfer the unpaid/unclaimed dividend to unpaid
dividend account within the period of 7 days. 30th October 2021 will be excluded and 6th November 2021
shall be included, i.e. 31st October, 2021 to 6th November, 2021 (both days inclusive).
Question 24
When does an enactment is said to have come into operation if the Act has not specified any particular
date of its enforcement. Explain with the help of an example as per the provisions of the General
Clauses Act, 1897. (March’18,4 Marks)

M 13.8
Answer 24
According to section 3(21) of the General Clauses Act, 1897, financial year shall mean the year
commencing on the first day of April.
The term Year has been defined under Section 3(66) as a year reckoned according to the British calendar.
Thus as per General Clauses Act, Year means calendar year which starts from January to December.
Thus, we can see Financial year starts from first day of April but Calendar Year starts from first day of
January.
Hence, Financial year and Calendar year are not same.
Question 25
State what do you understand by the term ‘Document’ as per the General Clauses Clauses Act, 1897?
Discuss which of the following will be treated as document?
(i) Power-of-attorney.
(ii) Cheque ( March ’18 , 2 Marks)
Answer 25
According to section 3(18) of the General Clauses Act, 1897, ‘Document’ shall include any matter written,
expressed or described upon any substance by means of letters, figures or marks or by more than one of
those means which is intended to be used or which may be used, for the purpose or recording that matter.
Thus,
(i) Yes, power-of-attorney is a document.
(ii) Yes, cheque upon a banker is a document
Question 26
As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an offence
under two or more enactments, then the offender shall be liable to be prosecuted and punished under:
(d) Under the cumulative effect of both the enactments (1 Mark March ‘22)
Answer 26
The Answer is (a)
Question 27
(c) It receives assent of both the houses of Parliament
(d) It receives assent of the Prime Minister (1 Mark March ‘22)
Answer 27
The Answer is (a)
Question 28
M 13.9
Examine the validity of the following statements with reference to the General Clauses Act, 1897:
(i) ‘Things attached to the earth’ have been held to be immovable property.
(ii) The word "bullocks" could be interpreted to include "cows". (4 Marks March ‘22)
Answer 28
(i) ‘Things attached to the earth’ have been held to be immovable property: This statement is valid.
As per section 3(26) of the General Clauses Act, 1897, ‘Immovable Property’ shall include:
(1) Land,
(2) Benefits to arise out of land, and
(3) Things attached to the earth, or
(4) Permanently fastened to anything attached to the earth.
It is an inclusive definition. The four elements to the definition includes ‘things permanently
fastened to anything attached to the earth’. Hence, the given statement is correct.
(ii) The word ‘bullocks’ could be interpreted to include ‘cows’: This statement is not valid.
Where a word connoting a common gender is available but the word used conveys a specific
gender, there is a presumption that the provisions of General Clauses Act, 1897 do not apply.
Thus, the word ‘bullocks’ could not be interpreted to include ‘cows’.
Question 29
"The act done negligently shall be deemed to be done in good faith." Comment with the help of the
provisions of the General Clauses Act, 1897. (3 Marks March ‘22)
Answer 29
Good Faith
In general, anything done with due care and attention, which is not malafide is presumed to have been
done in good faith. But, according to section 3(22) of the General Clauses Act, 1897, a thing shall be
deemed to be done in “good faith” where it is in fact done honestly, whether it is done negligently or not.
The question of good faith under the General Clauses Act is one of fact. It is to determine with reference
to the circumstances of each case. It is therefore understood that the General Clauses Act, 1897 considers
the honesty in doing the Act as a primary test to constitute the thing done in good faith and therefore the
act done honestly but with negligence may also be termed as done in good faith as per the General
Clauses Act, 1897.
Question 30
Board of Directors of Sabarwal Construction Private Limited authorised by passing resolution in board
meeting Mr. Munim to appoint five employees for accounts department of company. Mr. Munim
appointed five employees including Mr. Rupal who was relative of one of the director of company.
After one month, Mr. Munim observed that Mr. Rupal was not performing his duties honestly. Mr.
Munim issued the order of dismissal of Mr. Rupal with proper reasons. Mr. Rupal filed a petition in
the court that his dismissal order is not valid as Board of Directors had authorised Mr. Munim only for
appointment of employees not for dismissal. Whether is Mr. Rupal correct with his words? (4 Marks
April 22)
Answer 30
As per the provisions of section 16 of the General Clauses Act, 1897, the authority having for the time
being power to make the appointment shall also have power to suspend or dismiss any person appointed
M 13.10
whether by itself or any other authority in exercise of that power.

Mr. Munim was appointed in board meeting of Sabarwal Construction Private Limited to appoint five
employees for accounts department of company. Mr. Munim appointed five employees. After one month,
he issued the order of dismissal to one of those five employees. That employee filed an application in the
court challenging the validity of dismissal order with the words that Mr. Munim was authorised only for
appointment of employees not for dismissal.
On the basis of above provisions and facts of the case, Mr. Rupal was not correct with his words because
as per the General Clauses Act, 1897, power to appoint includes power to suspend or dismiss. Hence, Mr.
Munim has power to dismiss Mr. Rupal.
Question 31
What is the meaning of the following as per provisions of the General Clauses Act, 1897?
(i) Movable Property
(ii) Person (3 Marks April 22)
Answer 31
(i) Movable Property: According to section 3(36) of the General Clauses Act, 1897, ‘Movable
Property’ shall mean property of every description, except immovable property.
Thus, any property which is not immovable property is movable property. Debts, share,
electricity are moveable property.
(ii) Person: According to section 3(42) of the General Clauses Act, 1897, ‘Person’ shall include any
company or association or body of individuals, whether incorporated or not.
Question 32
As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an offence
under two or more enactments, then the offender shall be liable to be prosecuted and punished under:
(d) Under the cumulative effect of both the enactments (1 Mark)( Sep’22)
Answer 32: (a)
Question 33
What is the meaning of service by post as per provisions of the General Clauses Act, 1897?(3 Marks)(
Sep’22)
Answer 33
Meaning of Service by post”: As per section 27 of the General Clauses Act, 1897, where any legislation or
regulation requires any document to be served by post, then unless a different intention appears, the
service shall be deemed to be effected by:
M 13.11
A letter containing the document to have been effected at the time at which the letter would be delivered
inthe ordinary course of post.
Question 34
(d) Only (ii), (iii) and (iv)(2 Marks) (Oct’22)
Answer 34:(b )
Question 35
A confusion, regarding the meaning of ‘financial year’ arose among the financial executive and accountant
of a company. Both were having different arguments regarding the meaning of financial year & calendar
year. What is the correct meaning of financial year under the provision of the General Clauses Act, 1897?
How it is different from calendar year? (4 Marks) (Oct’22)
Answer 35
Financial Year: According to Section 3(21) of the General Clauses Act, 1897, f inancial year shall mean the
year commencing on the first day of April.
The term Year has been defined under section 3(66) as a year reckoned according to the British calendar.
Thus, as per the General Clauses Act, 1897, year means calendar year which starts from January to
December.
Difference between Financial Year and Calendar Year: Financial year starts from first day of April but
Calendar Year starts from first day of January.
Question 36
A clause that begins with the words ‘Notwithstanding anything contained’ is called:
(a) An obstacle clause

(b) A non- obstante clause
(c) An objectionable clause
(d) A superior clause (1 Mark March ‘23)
Answer 36 (b)

M 13.12
Question 37
In all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words
importing the masculine gender shall be taken:
(a) To exclude females

(b) To exclude girl child
(c) To include females
(d) To exclude boy child (1 Mark March ‘23)
Answer 37 (c)
Question 38
Yellow and Pink had a long dispute regarding the ownership of a land for which a legal suit was pending
in the court. The court fixed the date of hearing on 29.04.2022, which was announced to be a holiday
subsequently by the Government. What will be the computation of time of the hearing in this case
under the General Clauses Act, 1897? (4 Marks March ‘23)
Answer 38
According to section 10 of the General Clauses Act, 1897, where by any legislation or regulation, any act
or proceeding is directed or allowed to be done or taken in any court or office on a certain day or within
a prescribed period then, if the Court or office is closed on that day or last day of the prescribed
period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on
the next day afterwards on which the Court or office is open.
In the given question, the court fixed the date of hearing of dispute between Yellow and Pink, on
29.04.2022, which was subsequently announced to be a holiday.
Applying the above provisions we can conclude that the hearing date of 29.04.2022, shall be extended to
the next working day.
Question 39
The Income Tax Act, 1961 provides that the gratuity paid by the government to its employees is fully
exempt from tax. You are required to explain the scope of the term 'government' and clarify whether
the exemption from gratuity income will be available to the State Government Employees? Give your
answer in accordance with the provisions of the General Clauses Act, 1897. (3 Marks March ‘23)
Answer 39
According to section 3(23) of the General Clauses Act, 1897, ‘Government’ or ‘the Government’ shall
include both the Central Government and State Government.
Hence, wherever, the word ‘Government’ is used, it will include Central Government and State
Government both.
Thus, when the Income Tax Act, 1961, provides that gratuity paid by the government to its employees is
fully exempt from tax, the exemption from gratuity income will be available to the State Government
employees also.

M 13.13
Question 40
Calendar year starts from:
(a) January
(b) April
(c) June
(d) September (1 Mark April ‘23)
Answer 40 (a)
Question 41
(i) Insurance Policies covering immovable property have been held to be immovable property.
(ii) The word "bullocks" could be interpreted to include "cows". (3 Marks April ‘23)
Answer 41
i. Insurance Policies covering immovable property have been held to be immovable property:
This statement is not valid.
Insurance policy is a written document containing an agreement between the insurer and insured. It
includes a matter intended to be used or may be used for the purpose or recording of the matter.
Hence, the insurance policies covering immovable property is not covered under the definition of
immovable property.
ii. The word ‘bullocks’ could be interpreted to include ‘cows’: This statement is not valid. Where a word
connoting a common gender is available but the word used conveys a specific gender, there is a
presumption that the provisions of General Clauses Act, 1897 do not apply. Thus, the word ‘bullocks’
could not be interpreted to include ‘cows’.

M 14.1
Chapter 14
Interpretation of Statutes
Question 1
Explain how ‘Dictionary Definitions’ can be of great help in interpreting / constructing an Act when the
statute is ambiguous. (Apr’19, Oct’21,Oct’19, 3 Marks & Oct ’18 4 Marks)
Answer 1
Dictionary Definitions: First we refer the Act in question to find out if any particular word or expression
is defined in it. Where we find that a word is not defined in the Act itself, we may refer to dictionaries
to find out the general sense in which that word is commonly understood. However, in selecting one out
of the several meanings of a word, we must always take into consideration the context in which it is
used in the Act. It is the fundamental rule that the meanings of words and expressions used in an Act
must take their colour from the context in which they appear. Further, judicial decisions laying down the
meaning of words in construing statutes in ‘pari materia’ will have greater weight than the meaning
furnished by dictionaries. However, for technical terms, reference may be made to technical dictionaries.
Question 2
Explain ‘Mischieve Rule’ for interpretation of statute. Also, give four matters it considers in construing
an Act. (Oct’20,Oct’19,3 Mark)
Answer 2
Mischieve Rule: Where the language used in a statute is capable of more than one interpretation, principle
laid down in the Heydon’s case is followed. This is known as ‘purposive construction’ or ‘mischieve rule’.
The rule then directs that the courts must adopt that construction which ‘shall suppress the mischief and
advance the remedy’.
It has been emphasized by the Supreme Court that the rule in Heydon’s case is applicable only whenthe
words used are ambiguous and are reasonably capable of more than one meaning.
It enables consideration of four matters in construing an Act:
(1) what was the law before the making of the Act;
(2) what was the mischief or defect for which the law did not provide;
(3) what is the remedy that the Act has provided; and
(4) what is the reason for the remedy.
Question 3
How far is ‘preamble’ in an enactment helpful in interpreting any of the parts of an enactment?
Answer 3
Preamble: It expresses the scope and object of the Act more comprehensively than the long title. The
preamble may recite the ground and the cause for making a statute and or the evil which is sought to the
remedied by it.
The preamble like the Long title can legitimately be used for construing it. However, the preamble cannot
override the provisions of the Act. Only if the wording of the Act gives rise to doubts as to its proper
construction (e.g., where the words or a phrase has more than the one meaning and doubts arise as to
which of the two meanings is intended in the Act) the preamble can and ought to be referred to arrive at
the proper construction.
Question 4
Explain the principles of “Grammatical Interpretation” and “Logical Interpretation” of a Statute.
(March’19 & March ’21 ,3 Marks)
Chapter 14 Interpretation of Statutes
M 14.2
Answer 4
Principles of Grammatical Interpretation and Logical Interpretation: In order to ascertain the meaning of
any law/ statute the principles of Grammatical and Logical Interpretation is applied to conclude the real
meaning of the law and the intention of the legislature behind enacting it.
Grammatical interpretation concerns itself exclusively with the verbal expression of law. It does not go
beyond the letter of the law, whereas Logical interpretation on the other hand, seeks more satisfactory
evidence of the true intention of the legislature.
Question 5
Explain the rule of ‘beneficial construction’ while interpreting the statutes quoting an example.
(April’19 3 Marks)
Answer 5
Where the language used in a statute is capable of more than one interpretation, the most firmly
established rule for construction is the principle laid down in the Heydon’s case. This rule enables,
consideration of four matters in constituting an act :
(1) what was the law before making of the Act,
(2) what was the mischief or defect for which the law did not provide,
(3) what is the remedy that the Act has provided, and
The rule then directs that the courts must adopt that construction which ‘shall suppress the mischief and
advance the remedy’. Therefore even in a case where the usual meaning of the language used falls short of
the whole object of the legislature, a more extended meaning may be attributed to the words, provided
they are fairly susceptible of it. If the object of any enactment is public safety, then its working must be
interpreted widely to give effect to that object. Thus in the case of Workmen’s Compensation Act, 1923 the
main object being provision of compensation to workmen, it was held that the Act ought to be so
construed, as far as possible, so as to give effect to its primary provisions.
However, it has been emphasized by the Supreme Court that the rule in Heydon’s case is applicable
only when the words used are ambiguous and are reasonably capable of more than one meaning [CIT v.
Sodra Devi (1957) 32 ITR 615 (SC)].
Question 6
Explain how does ‘natural and grammatical meaning’ helps in the interpretation of a statute? (March
’19, 6 Marks)
Answer 6
Natural and grammatical meaning: Statute are to be first understood in their natural, ordinary, or
popular sense and must be construed according to their plain, literal and grammatical meaning. If there
is an inconsistency with any express intention or declared purpose of the statute, or it inlvolves any
absurdity, repugnanacy, inconsistancy, the grammatial sense must then be modified, extended or
abridgd only to avoid such an inconvenience, but no further. [(State of HP v. Pawan Kumar(2005)]
Example: In a question before the court whether the sale of betel leaves was subject to sales tax. In this
matter the Supreme Court held that betel leaves could not be given the dictionary, technical or
botanical meaning when the ordinary and natural meaning is clear and unambiguous. Being the word of
everyday use it must be understood in its popular sense by which people are conversant with it as also
the meaning which the statute dealing with the matter would attribute to it. Therefore, the sale of betel
leaves was liable to sale tax. ( Ramavtar V. Assistant Sales Tax Officer, AIR 1961 SC 1325).
Question 7
Briefly explain the meaning and application of the rule of "Harmonious Construction" in the
interpretation of statutes? (Aug ’18 6 Marks)
M 14.3
Answer 7
Meaning of rule Harmonious Construction: When there is doubt about the meaning of the words of a statute, these
should be understood in the sense in which they harmonise with the subject of the enactment and the object which
the legislature had in view. Where there are in an enactment two or more provisions which cannot be reconciled
with each other, they should be so interpreted, wherever possible, as to give effect to all of them. This is what is
known as the Rule of Harmonious Construction.
It must always be borne in mind that a statute is passed as a whole and not in sections and it may well be
assumed to be animated by one general purpose and intent. The Court’s duty is to give effect to all the
parts of a statute, if possible. But this general principle is meant to guide the courts in furthering the
intent of the legislature, not overriding it.
Application of the Rule: The Rule of Harmonious Construction is applicable only when there is a real and
not merely apparent conflict between the provisions of an Act, and one of them has not been made
subject to the other. When after having construed their context the words are capable of only a single
meaning, the rule of harmonious construction disappears and is replaced by the rule of literal
construction.
Question 8
How far are ‘marginal notes’ in an enactment helpful in interpreting any of the parts of an
enactment? (Oct ’18 , 6 Marks)
Answer 8
Marginal Notes: Although there is difference of opinion regarding resort to Marginal Notes for construing an
enactment, the generally held view is that the Marginal Notes appended to a Section can not be used for construing
the Section. In C.I.T. vs. Ahmedbhai Umarbhai & Co. (AIR 1950 SC 134 at 141), Patanjali Shastri, J., had declared:
“Marginal notes in an Indian statute, as in an Act, of Parliament cannot be referred to for the purpose of
construing the statute”, and the same view has been taken in many other cases. Many cases show that reference to
marginal notes may be permissible in exceptional cases for construing a section in a statute. [ Deewan Singh v.
Rajendra Pd. Ardevi, (2007)10 SCC , Sarabjit Rick Singh v. Union of India, (2008) 2 SCC]
However, marginal notes appended to Articles of the Constitution have been held to be part of the
Constitution as passed by the Constituent Assembly and therefore have been made use of in construing the
Articles.
Example: Article 286 of the constitution furnishing “prima facie”, some clue as to the meaning and
purpose of the Article [Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC]
Question 9
How far are (i) title and (ii) preamble in an enactment helpful in interpreting any of the parts of an
enactment? (Aug’18,4 Marks)
Answer 9
(i) Title: An enactment would have what is known as ‘Short Title’ and also a ‘Long Title’. The short
title merely identifies the enactment and is chosen merely for convenience. The ‘Long title’
describes the enactment and does not merely identify it.
The Long title is a part of the Act and, therefore, can be referred to for ascertaining the object and
scopeof the Act.
(ii) Preamble: It expresses the scope and object of the Act more comprehensively than the long title.
The preamble may recite the ground and the cause for making a statute and or the evil which is
sought to the remedied by it.
The preamble like the Long title can legitimately be used for construing it. However, the preamble
cannot over ride the provisions of the Act. Only if the wording of the Act gives rise to doubts as to
its proper construction (e.g., where the words or a phrase has more than the one meaning and
doubts arise as to which of the two meanings is intended in the Act) the preamble can and ought
to be referred to arrive at the proper construction.
M 14.4
Question 10
Which of the following given Statement/s is/are correct: (1 Mark Oct ‘19)
(1) In all Central Acts and Regulations, any words which denote the masculine gender shall
also betaken to include females, and vice versa.
(2) In all Central Acts and Regulations, words in the singular shall include the plural, but
not viceversa.
(a) Only statement (1) is correct (b) Only statement (2) is correct
(c) Both the statements are correct (d) None of the statement is correct
Answer 10
The Answer is (d)
Question 11
As per the best way to interpret a statute or document is to read it as it would have been read when
it was enacted or made. (1 Mark Oct ‘19)
(a) Optima legume interpres est consuetude
(b) Expressio unius Est Exclusio Alterius
(c) Ut res magis valeat quam pereat
(d) Contemporanea Expositio Est Optima Et Fortissima in Lege
Answer 11
The Answer is (d)
Question 12
If the used in a statute make it clear that a sense is intended, the rule of Ejusdem Generis shall not
apply. (1 Mark Oct ‘19)
(a) Specific words, narrow (b) Specific words, wider
(c) General words, narrow (d) General words, wider

Answer 12
The Answer is (b)
Question 13
The act by which the operation of a previous Act comes to an end, is called as ___________
(a) The Repealing Act

(b) The Consolidating Act
(c) The Amending Act
(d) Analogous Act (1 Mark Oct ‘19)
Answer 13
The Answer is (a)
Question 14
When there is a conflict between two or more statute or two or more parts of a statute and both of
them need to be honoured, then which rule of interpretation is to be applied
(a) Rule of Harmonious construction (b) Rule of Literal construction
(c) Rule of Beneficial construction (d) Rule of exceptional construction

M 14.5
(1 Mark,March’19)
Answer 14
The Answer is (a)
Question 15
An aid that expresses the scope, object and purpose of the Act—
(a) Title of the Act (b) Heading of the Chapter
(c) Preamble (d) Definitional sections (1 Mark, April’19)
Answer 15
The Answer is ( C)
Question 16
An internal aid that may be added to include something within the section or to exclude something
from it, is—
(a) Proviso (b) Explanation (c) Schedule (d) Illustrations
(1 Mark, April’19)
Answer 16
The Answer is ( b)
Question 17
Rule of Beneficial construction is also known as—
(a) Purposive construction
(b) Mischieve Rule
(c) Heydons’s Rule
(d) All of the Above (1 Mark May 20)
Answer 17
The Answer is (d)
Question 18
Formal legal document which creates or confirms a right or record a fact is a—
(a) Document
(b) Deed
(c) Statute
(d) Instrument (1 Mark May 20)
Answer 18
The Answer is (c)
Question 19
The preamble is most important in any legislation, it:
(a) Provides definitions in the Act.
(b) Expresses scope, object and purpose of the Act.
(c) Provides summary of the entire Act.
M 14.6
(d) None ofthe above. (1 Mark May 20)

Answer 19
The Answer is (b)
Question 20
'The meaning of a word is to be judged by the company it keeps'. Explain the concept of 'Noscitur A Sociis'.(3
Marks May 20)
Answer 20
Associated Words to be Understood in Common Sense Manner: When two words or expressions are coupled
together one of which generally excludes the other, obviously the more general term is used in a meaning excluding the
specific one. On the other hand, there is the concept of 'Noscitur A Sociis' ('it is known by its associates'), that is to
say 'the meaning of a word is to be judged by the company it keeps'. When two or more words which are capable of
analogous (similar or parallel) meaning are coupled together, they are to be understood in their cognate sense (i.e. akin
in origin, nature or quality). They take, as it were, their colour from each other, i.e., the more general is restricted to a
sense analogous to the less general. It is a rule wider than the rule of ejusdem generis, rather ejusdem generis is only
an application of the noscitur a sociis. It must be borne in mind that nocitur a sociis, is merely a rule of construction
and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the
scope of the defined word correspondingly wider.
For example, in the expression 'commercial establishment means an establishment which carries on any business, trade or
profession', the term 'profession' was construed with the associated words 'business' and 'trade' and it was held that
a private dispensary was not within the definition. (Devendra M. Surti (Dr.) vs. State of Gujrat, AIR 1969 SC 63 at 67).
Question 21
How will you interpret the definitions in a statute, if the following words are used in a statute?
(i) Means, (ii) Includes
Give one illustration for each of the above from statutes you are familiar with. (3 Marks May 20)
Answer 21
Interpretation of the words “Means” and “Includes” in the definitions- The definition of a word or expression in the
definition section may either be restricting of its ordinary meaning or may be extensive of the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive and exhaustive, we must
restrict the meaning of the word to that given in the definition section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’ extensive, here the word defined is
not restricted to the meaning assigned to it but has extensive meaning which also includes the meaning assigned to it
in the definition section.
Example—
Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a director appointed to the board of a
company. The word “means” suggests exhaustive definition.
Definition of Whole time director [Section 2(94) of the Companies Act, 2013]—Whole time director includes a director
in the whole time employment of the company. The word “includes” suggests extensive definition. Other directors may
be included in the category of the whole time director.
Question 22
____ __ __ _ _ _____is the cardinal rule of construction that words, sentences and
M 14.7
phrases of a statute should be read in their ordinary, natural and grammatical meaning so that
they may have effect in their widest amplitude
(a) Rule of Literal Construction
(b) Rule of Harmonious Construction
(c) Rule of Beneficial Construction
(d) Rule of Exceptional Construction (1 Mark Oct 20, Nov 21)
Answer 22
The Answer is (a)
Question 23
At the time of interpreting a statutes what will be the effect of 'Usage' or 'Practice'? (3 Marks Oct 20)
Answer 23
Effect of usage: Usage or practice developed under the statute is indicative of the meaning recognized
to its words by contemporary opinion. A uniform notorious practice continued under an old statute and
inaction of the Legislature to amend the same are important factors to show that the practice so
followed was based on correct understanding of the law. When the usage or practice receives judicial or
legislative approval it gains additional weight.
In this connection, we have to bear in mind two Latin maxims:
(i) 'Optima Legum interpresest consuetude' (the custom is the best interpreter of the law);
and
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret a
document is to read it as it would have been read when made).
Therefore, the best interpretation/construction of a statute or any other document is that which has been
made by the contemporary authority. Simply stated, old statutes and documents should be interpreted as
they would have been at the time when they were enacted/written.
Contemporary official statements throwing light on the construction of a statute and statutory
instruments made under it have been used as contemporanea exposition to interpret not only ancient but
even recent statutes in India.
Question 24
The Rule in Heydon’s case is also known as—
(a) Purposive construction
(b) Mischief Rule
(c) Golden Rule
(d) None of the Above (1 Mark March 21, March 22)
Answer 24
The Answer is (b)
Question 25
Pick the odd one out of the following aids to interpretation—
(a) Preamble
(b) Marginal Notes
M 14.8
(c) Proviso
(d) Usage (1 Mark March 21, March 22,March ‘23)
Answer 25
The Answer is (d)
Question 26
Explain the rule in ‘Heydon’s Case’ while interpreting the statutes quoting an example. (4 Marks
March 21, Nov’21)
Answer 26
Where the language used in a statute is capable of more than one interpretation, the most firmly
established rule for construction is the principle laid down in the Heydon’s case. This rule enables,
consideration of four matters in constituting an act:
(1) what was the law before making of the Act,
(2) what was the mischief or defect for which the law did not provide,
(3) what is the remedy that the Act has provided, and
The rule then directs that the courts must adopt that construction which ‘shall suppress the mischief
and advance the remedy’. Therefore, even in a case where the usual meaning of the language used falls
short of the whole object of the legislature, a more extended meaning may be attributed to the words,
provided they are fairly susceptible of it. If the object of any enactment is public safety, then its
working must be interpreted widely to give effect to that object. Thus in the case of Workmen’s
Compensation Act, 1923 the main object being provision of compensation to workmen, it was held that
the Act ought to be so construed, as far as possible, so as to give effect to its primary provisions.
However, it has been emphasized by the Supreme Court that the rule in Heydon’s case is applicable
only when the words used are ambiguous and are reasonably capable of more than one meaning [CIT v.
Sodra Devi (1957) 32 ITR 615 (SC)].
Question 27
Differentiate between interpretation and construction. (4 Marks March 21, March 18)
Answer 27
‘Construction’ as applied to a written statute or document means to determine from its known
elements its true meaning or the intention of its framers. Construction involves drawing conclusions
beyond the actual expressions used in the text. This is done by referring to other parts of the enactment
and the context in which the law was made. Thus, when you construe a statute you are attempting to
ascertain the intention of the legislature.
Difference between Interpretation and Construction:
It would also be worthwhile to note, at this stage itself, the difference between the terms ‘Interpretation’
and Construction. While more often the two terms are used interchangeably to denote a process adopted
by the courts to ascertain the meaning of the legislature from the words with which it is expressed, these
two terms have different connotations.
Interpretation is the art of ascertaining the meaning of words and the true sense in which the author
intended that they should be understood.
It is the drawing of conclusions from a statute that lie beyond the direct expression of the words used
therein. [Bhagwati Prasad Kedia v. C.I.T,(2001)]
M 14.9
It is the duty of the courts to give effect to the meaning of an Act when the meaning can be equitably
gathered from the words used. Words of legal import occurring in a statute which have acquired a
definite and precise sense, must be understood in that sense. (State of Madras v. Gannon Dunkerly Co.
AIR 1958)
Thus, where the Court adheres to the plain meaning of the language used by the legislature, it would be
‘interpretation’ of the words, but where the meaning is not plain, the court has to decide whether the
wording was meant to cover the situation before the court. Here, the court would be resorting to
‘construction’. Conclusions drawn by means of construction are within the spirit though not necessarily
within the letter of the law.
In practice construction includes interpretation and the terms are frequently used synonymously.
Question 28
Formal legal document which creates or confirms a right or record a fact is a—
(a) Document
(b) Deed
(c) Statute
(d) Instrument (1 Mark April 21)
Answer 28
The Answer is (d)
Question 29
An aid that expresses the scope, object and purpose of the Act—
(a) Title of the Act
(b) Heading of the Chapter
(c) Preamble
(d) Definitional sections (1 Mark April 21)
Answer 29
The Answer is (c)
Question 30
Differentiate Mandatory Provision from a Directory Provision. What factors decide whether a
provision is directory or mandatory? (3 Marks April 21)
Answer 30
Practically speaking, the distinction between a provision which is ‘mandatory’ and one which is
‘directory’ is that when it is mandatory, it must be strictly observed; when it is ‘directory’ it would be
sufficient that it is substantially complied with. However, we have to look to the substance and not
merely the form, an enactment in mandatory form might substantially be director y and, conversely, a
statute indirectory form may in substance be mandatory. Hence, it is the substance that counts and
must take precedence over mere form. If a provision gives a power coupled with a duty, it is mandatory:
whether it is or is not so would depend on such consideration as:
 the nature of the thing empowered to be done,
 the object for which it is done, and
 the person for whose benefit the power is to be exercised
M 14.10
Question 31
According to the rule, the words of the statute are to be given their plain and ordinary meaning. —
(a) Literal rule
(b) Golden rule
(c) Natural rule
(d) Mischief rule (1 Mark Oct 21)
Answer 31
The Answer is (a)
Question 32
When there is a conflict between two or more statues or two or more parts of a statute then which
rule is applicable:
(a) Welfare construction
(b) Strict construction
(c) Harmonious construction
(d) Mischief Rule (1 Mark Oct 21)
Answer 32
The Answer is (c)
Question 33
Explain how 'Dictionary Definitions' can be of great help in interpreting/ constructing an Act when
the statute is ambiguous. (3 Marks Oct 21)
Answer 33
Dictionary Definitions: First we refer the Act in question to find out if any particular word or expression
is defined in it. Where we find that a word is not defined in the Act itself, we may refer to dictionaries
to find out the general sense in which that word is commonly understood. However, in selecting one
out of the several meanings of a word, we must always take into consideration the context in which it is
used in the Act. It is the fundamental rule that the meanings of words and expressions used in an Act
must take their colour from the context in which they appear. Further, judicial decisions laying down
the meaning of words in construing statutes in pari materia will have greater weight than the meaning
furnished by dictionaries. However, for technical terms, reference may be made to technical
dictionaries.
Question 34
Define Grammatical Interpretation. What are the exceptions to grammatical interpretation? (4 Marks
Oct 21)
Answer 34
Grammatical Interpretation and its exceptions: ‘Grammatical interpretation’ concerns itself exclusively with
the verbal expression of the law, it does not go beyond the letter of the law. In all ordinary cases,
‘grammatical interpretation’ is the sole form allowable. The Court cannot take from or add to modify the letter
of the law.
This rule, however, is subject to some exceptions:
(i) Where the letter of the law is logically defective on account of ambiguity, inconsistency or
M 14.11
incompleteness. As regard the defect to ambiguity, the Court is under a duty to travel beyond the
letter of the law so as to determine from the other sources the true intention of the legislature. In
the case of the statutory expression being defective on account of inconsistency, the court must
ascertain the spirit of the law.
(ii) If the text leads to a result which is so unreasonable that it is self -evident that the legislature
could not mean what it says, the court may resolve such impasse by inferring logically the
intention of the legislature.
Question 35
Does an explanation added to a section widen the ambit of a section? (3 Marks Nov 21)
Answer 35
Sometimes an explanation is added to a section of an Act for the purpose of explaining the main
provisions contained in that section. If there is some ambiguity in the provisions of the main section,
the explanation is inserted to harmonise and clear up and ambiguity in the main section. Something
may added be to or something may be excluded from the main provision by insertion of an
explanation. But the explanation should not be construed to widen the ambit of the section.
Question 36
According to the , the words of the statute are to be given their plain and ordinary meaning. —
(a) Literal rule
(b) golden rule
(c) natural rule
(d) mischief rule (1 Mark March ‘22)
Answer 36
The Answer is (a)
Question 37
When there is a conflict between two or more statues or two or more parts of a statute then which
rule is applicable:
(d) Mischief Rule (1 Mark March ‘22)
Answer 37
The Answer is (c)
Question 38
Write short note on:
(i) Proviso
(ii) Explanation,
with reference to interpretation of Statutes, Deeds and Documents. (3 Marks March ‘22)
Answer 38
(i) Proviso: The normal function of a proviso is to except something out of the enactment or
M 14.12
to qualify something stated in the enactment which would be within its purview if the
proviso were not there. The effect of the proviso is to qualify the preceding enactment
which is expressed in terms which are too general. As a general rule, a proviso is added to
an enactment to qualify or create an exception to what is in the enactment. Ordinarily a
proviso is not interpreted as stating a general rule.
It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only
embraces the field which is covered by the main provision.
(ii) Explanation: An Explanation is at times appended to a section to explain the meaning of
the text of the section. An Explanation may be added to include something within the
section or to exclude something from it. An Explanation should normally be so read as to
harmonise with and clear up any ambiguity in the main section. It should not be so
construed as to widen the ambit of the section.
The meaning to be given to an explanation will really depend upon its terms and not on any
theory of its purpose.
Question 39
“Associate words to be understood in common sense manner.” Explain this statement with
reference to rules of interpretation of statutes. (3 Marks March ‘22)
Answer 39
Associated Words to be Understood in Common Sense Manner: When two words or expressions are
coupled together one of which generally excludes the other, obviously the more general term is used
in a meaning excluding the specific one. On the other hand, there is the concept of ‘Noscitur A Sociis’
(‘it is known by its associates’), that is to say ‘the meaning of a word is to be judged by the company it
keeps’. When two or more words which are capable of analogous (similar or parallel) meaning are
coupled together, they are to be understood in their cognate sense (i.e. akin in origin, nature or
quality). They take, as it were, their colour from each other, i.e., the more general is restricted to a
sense analogous to the less general. It is a rule wider than the rule of ejusdem generis, rather ejusdem
generis is only an application of the noscitur a sociis. It must be borne in mind that nocitur a sociis, is
merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have
been deliberately used in order to make the scope of the defined word correspondingly wider.
Question 40
When the law is clear and unambiguous the court shall construe the meaning of a provision based on
strict …………
(a) grammatical meaning
(b) logical meaning
(c) alternative interpretation
(d) hypothetical meaning (1 Mark April 22)
Answer 40 : (a)
Question 41
According to ________ rule of interpretation, meaning of words should be known from its
accompanying or associated words.
(a) Mischief rule
(b) Primary Rule
(c) Noscitur a Sociis
M 14.13
(d) Golden Rule (1 Mark April 22)

Answer 41 : (c)
Question 42
Write short notes on the following in understanding definitions while interpreting statutes:
(i) Ambiguous definitions
(ii) Definitions subject to a contrary context (3 Marks April 22 & March ‘23)
Answer 42
(i) Ambiguous definitions: Sometime, we may find that the definition section may itself be ambiguous,
and so it may have to be interpreted in the light of the other provisions of the Act and having
regard to the ordinary meaning of the word defined. Such type of definition is not to be read in
isolation. It must be read in the context of the phrase which it defines, realising that the function of
a definition is to give accuracy and certainty to a word or phrase which would otherwise be vague
and uncertain but not to contradict it or depose it altogether.
(ii) Definitions subject to a contrary context: When a word is defined to bear a number of inclusive
meanings, the sense in which the word is used in a particular provision must be ascertained from
the context of the scheme of the Act, the language of the provision and the object intended to be
served thereby.
Question 43
Radha Limited has entered into a contract with Gopal Limited. You are invited to read and interpret
the document of contract. What rules of interpretation of deeds and documents would you apply
while doing so? (3 Marks April 22)
Answer 43
The rules regarding interpretation of deeds and documents are as follows:
First and the foremost point that has to be borne in mind is that one has to find out what reasonable
man, who has taken care to inform himself of the surrounding circumstances of a deed or a document,
and of its scope and intendments, would understand by the words used in that deed or document. It is
inexpedient to construe the terms of one deed by reference to the terms of another. Further, it is well
established that the same word cannot have two different meanings in the same documents, unless the
context compels the adoption of such a rule.
The Golden Rule is to ascertain the intention of the parties of the instrument after considering all the
words in the documents/deed concerned in their ordinary, natural sense. For this purpose, the relevant
portions of the document have to be considered as a whole. The circumstances in which the particular
words have been used have also to be taken into account. Very often, the status and training of the
parties using the words have also to be taken into account as the same words maybe used by an
ordinary person in one sense and by a trained person or a specialist in quite another sense and a special
sense. It has also to be considered that very many words are used in more than one sense. It may
happen that the same word understood in one sense will give effect to all the clauses in the deed while
taken in another sense might render one or more of the clauses ineffective. In such a case the word
should be understood in the former and not in the latter sense.
It may also happen that there is a conflict between two or more clauses of the same documents. An
effect must be made to resolve the conflict by interpreting the clauses so that all the clauses are given
effect. If, however, it is not possible to give effect of all of them, then it is the earlier clause that will
override the latter one.
M 14.14
Question 44
(i) What is the effect of proviso? Does it qualify the main provisions of an Enactment? (3 Marks April
21)
(ii) Does an explanation added to a section widen the ambit of a section? (3 Marks April 21)
Answer 44
(i) Normally a Proviso is added to a section of an Act to except something or qualify something stated
in that particular section to which it is added. A proviso should not be, ordinarily, interpreted as a
general rule. A proviso to a particular section carves out an exception to the main provision to
which it has been enacted as a Proviso and to no other provision. [Ram Narian Sons Ltd. Vs.
Commissioner of Sales Tax AIR (1955) S.C. 765]
(ii) Sometimes an explanation is added to a section of an Act for the purpose of explaining the main
provisions contained in that section. If there is some ambiguity in the provisions of the main
section, the explanation is inserted to harmonise and clear up and ambiguity in the main section.
Something may added be to or something may be excluded from the main provision by insertion of
an explanation. But the explanation should not be construed to widen the ambit of the section.
Question 45
An internal aid that may be added to include something within the section or to exclude something
from it, is—
(a) Proviso
(b) Explanation
(c) Schedule
(d) Illustrations (1 Mark April 22)
Answer 45 : (b)
Question 46
The preamble is most important in any legislation, it:
(a) Provides definitions in the Act.
(b) Expresses scope, object and purpose of the Act.
(c) Provides summary of the entire Act.
(d) provides side notes often found at the side of a section. (1 Mark April 22)
Answer 46 : (b)
Question 47
(c) It is notified in the official gazette
(d) It receives assent of both the houses of Parliament (1 Mark)( Sep’22)
Answer 47 (c)
Question 48
M 14.15
When there is a conflict between two or more statues or two or more parts of a statute then which rule
is applicable:
(d) Mischief Rule (1 Mark)( Sep’22)
Answer 48: (c)
Question 49
………. is the cardinal rule of construction that words, sentences and phrases of a statute should be
read in their ordinary, natural and grammatical meaning so that they may have effect in their
widest amplitude.
(d) Rule of Exceptional Construction (1 Mark)( Sep’22)
Answer 49: (a)
Question 50
Explain the principles of “Grammatical Interpretation” and “Logical Interpretation” of a Statute.(3
Marks)(Sep’22)
Answer 50
Principles of Grammatical Interpretation and Logical Interpretation: In order to ascertain the meaning of
any law/ statute the principles of Grammatical and Logical Interpretation is applied to conclude the real
meaning of the law and the intention of the legislature behind enacting it.
Grammatical interpretation concerns itself exclusively with the verbal expression of law. It does not go
beyond the letter of the law, whereas Logical interpretation on the other hand, seeks more satisfactory
evidence of the true intention of the legislature.
Question 51
Enumerate when does the rule of Ejusdem Generis apply. (3 Marks)( Sep’22)
Answer 51
The rule of Ejusdem Generis applies when:
1. The statute contains an enumeration of specific words
2. The subject of enumeration constitutes a class or category
3. That class or category is not exhausted by the enumeration
4. General terms follow the enumeration; and
5. There is no indication of a different legislative intent.
M 14.16
Question 52
Pick the odd one out of the following aids to interpretation:
(a) Preamble
(b) Marginal Notes
(c) Proviso
(d) Usage (1 Mark) (Oct’22)
Answer 52 :(d )
Question 53
________________________ is the cardinal rule of construction that words, sentences and phrases of
a statute should be read in their ordinary, natural and grammatical meaning so that they may have
effect in their widest amplitude.
(d) Rule of Exceptional Construction(1 Mark) (Oct’22)
Answer 53 :(a )
Question 54
means that when two or more words that are susceptible of analogous meaning, are coupled together
they are understood to be used in their cognate sense.
(a) Noscitur a Sociis
(b) Contemporanea Expositio
(c) prima facie
(d) absoluta sententia expositore non indigent (1 Mark) (Oct’22 & April ‘23)
Answer 54 :(a )
Question 55
Explain the impact of the two words "means" and "includes" in a definition, while interpreting such
definition.(3 Marks)(Oct’22)
Answer 55
Impact of the words “Means” and “Includes” in the definitions- The definition of a word or expression in the
definition section may either be restricting of its ordinary meaning or may be extensive of the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive and exhaustive, we
must restrict the meaning of the word to that given in the definition section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’ extensive, here the word
defined is not restricted to the meaning assigned to it but has extensive meaning which also includes the meaning
assigned to it in the definition section.
Example:
Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a director appointed to the
board of a company. The word “means” suggests exhaustive definition.
M 14.17
Definition of Whole time director [Section 2(94) of the Companies Act, 2013]—Whole time director includes a
director in the whole time employment of the company. The word “includes” suggests extensive definition. Other
directors may be included in the category of the whole time director.
Question 56
In what way are the following terms considered as external aid in the interpretation of statutes:
(i) Historical Setting
(ii) Use of Foreign Decisions (3 Marks) (Oct’22)
Answer 56
(i) Historical Setting: The history of the external circumstances which led to the enactment in question is of
much significance in construing any enactment. We have, for this purpose, to take help from all those
external or historical facts which are necessary in the understanding and comprehension of the subject
matter and the scope and object of the enactment. History in general and Parliamentary History in
particular, ancient statutes, contemporary or other authentic works and writings all are relevant in
interpreting and construing an Act.
(ii) Use of Foreign Decisions: Foreign decisions of countries following the same system of jurisprudence as
ours and given on laws similar to ours can be legitimately used for construing our own Acts. However,
prime importance is always to be given to the language of the Indian statute. Further, where guidance can
be obtained from Indian decisions, reference to foreign decisions may become unnecessary.
Question 57
“Associate words to be understood in common sense manner.” Explain this statement with reference to
rules of interpretation of statutes. (3 Marks) (Oct’22)
Answer 57
Associated Words to be Understood in Common Sense Manner: When two words or expressions are
coupled together one of which generally excludes the other, obviously the more general term is used in a
meaning excluding the specific one. On the other hand, there is the concept of ‘Noscitur A Sociis’ (‘it is
known by its associates’), that is to say ‘the meaning of a word is to be judged by the company it keeps’.
When two or more words which are capable of analogous (similar or parallel) meaning are coupled
together, they are to be understood in their cognate sense (i.e. akin in origin, nature or quality). They take,
as it were, their colour from each other, i.e., the more general is restricted to a sense analogous to the less
general. It is a rule wider than the rule of ejusdem generis, rather ejusdem generis is only an application of
the noscitur a sociis. It must be borne in mind that nocitur a sociis, is merely a rule of construction and it
cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make
the scope of the defined word correspondingly wider.
Question 58
As per Rule of Literal Construction, Technical words are to understood in:
(a) Normal sense

(b) Ordinary sense
(c) Technical sense
(d) Legal sense (1 Mark March ‘23)
Answer 58 (c)
M 14.18
Question 59
Viraj, a director of the company, not being personally concerned or interested, financially or
otherwise, in a matter of a proposed motion placed before the Board Meeting, did not disclose his
interest although he has knowledge that his sister is interested in that proposal. He res trains from
making any disclosure of his interest on the presumption that he is not required by law to disclose any
interest as he is not personally interested or concerned in the proposal. He made his presumption
relying on the 'Rule of Literal Construction'. Explaining the scope of interpretation under this rule in
the given situation, decide whether the decision of Viraj is correct? (3 Marks March ‘23)
Answer 59
Rule of Literal Construction
Normally, where the words of a statute are in themselves clear and unambiguous, then these
words should be construed in their natural and ordinary sense and it is not open to the court to
adopt any other hypothetical construction. This is called the rule of literal construction .
This principle is contained in the Latin maxim “absoluta sententia expositore non indeget” which
literally means “an absolute sentence or preposition needs not an expositor”. In other words, plain
words require no explanation.
Sometimes, occasions may arise when a choice has to be made between two interpretations –
one narrower and the other wider or bolder. In such a situation, if the narrower interpretation
would fail to achieve the manifest purpose of the legislation, one should rather adopt the wider one.
When we talk of disclosure of ‘the nature of concern or interest, financial or otherwise’ of a director
or the manager of a company in the subject-matter of a proposed motion (as referred to in section
102 of the Companies Act, 2013), we have to interpret in its broader sense of referring to any concern
or interest containing any information and facts that may enable members to understand the meaning,
scope and implications of the items of business and to take decisions thereon. What is required is a full
and frank disclosure without reservation or suppression, as, for instance where a son or daughter or
father or mother or brother or sister is concerned in any contract or matter, the shareholders ought
fairly to be informed of it and the material facts disclosed to them. Here a restricted narrow
interpretation would defeat the very purpose of the disclosure.
In the given question, Viraj (a director) did not disclose his interest in a matter placed before the Board
Meeting (in which his sister has interest), as he is not personally interested or concerned in the
proposal.
Here, he ought to have considered broader meaning of the provision of law; and therefore, even though
he was personally not interested or concerned in the proposal, he should have disclosed the interest.
Question 60
Which among the following is an External Aid to interpretation:
(a) Illustrations
(b) Dictionary
(c) Proviso clause
(d) Title (1 Mark April ‘23)
M 14.19
Answer 60 (b)
Question 61
Doctrine of Mischief Rule was given under:
(a) Foss vs. Harbottle
(b) Thomson vs. Clan Morris
(c) Foster vs. DiphwysCasson
(d) Heydon’s Case (1 Mark April ‘23)
Answer 61 (d)
Question 62
When can the Preamble be used as an aid to interpretation of a statute? (3 Marks April ‘23)
Answer 62
Preamble: The Preamble expresses the scope, object and purpose of the Act more comprehensively.
The Preamble of a Statute is a part of the enactment and can legitimately be used as an internal aid for
construing it. However, the Preamble does not over-ride the plain provision of the Act. But if the
wording of the statute gives rise to doubts as to its proper construction, for example, where the words
or phrase has more than one meaning and a doubt arises as to which of the two meanings is intended in
the Act, the Preamble can and ought to be referred to in order to arrive at the proper construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but can only be brought
in as an aid to construction if the language of the statute is not clear. However, it cannot override the
provisions of the enactment.
Example: Use of the word ‘may’ in section 5 of the Hindu Marriage Act, 1955 provides that “a marriage
may be solemnized between two Hindus…..” has been construed to be mandatory in the sense that
both parties to the marriage must be Hindus as defined in section 2 of the Act. It was held that a
marriage between a Christian male and a Hindu female solemnized under the Hindu Marriage Act was
void. This result was reached also having regard to the preamble of the Act which reads: ‘An Act to
amend and codify the law relating to marriage among Hindus” [GullipoliSowria Raj v. BandaruPavani,
(2009)1 SCC714].
M 15.1
Chapter 15
Case Scenarios
Case Scenario 1 (Oct 21)
Ramola Textiles is a listed public company with the share capital of ten crores. The share value of
the share is ₹ 100/share. The company has maintained the following registers:
(a) Register of Members indicating separately for each class of equity and preference shares held
by each member residing in or outside India
(b) Register of Debenture-holder
The company has a registered office in Ahemdabad (Gujarat) and its Corporate office is situated in
Mumbai. Around 17% of members who are equity share holders and 10% of the members who are
preferential shareholders resides in Jaipur (Rajasthan). So out of these members 9% equity share
holders and 5% preferential share holder made an application addressed to the company to shift its
register of members to its liaison office in Jaipur. The company refused the request of the members
by quoting that the register can only be maintained at registered office of the company. Mr.
Raheem, a shareholder of the company, wants to sell all his shares in the company and wants to
settle abroad. Mr. Raheem sold his equity shares to Mr. Ram on 7 th May 2021. After completing all
the formalities of transfer of shares Mr. Raheem left India on 10 th May 2021. After three days span
Mr. Ram figured out that his name was still not registered in company Register of Members (ROM).
The Annual General Meeting was scheduled to be held on 25th May 2021. So, Mr. Ram wrote an e-
mail to the company regarding addition of his name in ROM. But finally, after no response from the
company, Mr. Ram approached the Tribunal to get his name registered in ROM. The Tribunal passed
the order on 20th May 2021 to enter Mr. Ram’s name in register of members of the company.
In the Annual General Meeting (AGM) the company declared to pay 10% dividend to all its
shareholders out of the profits which it earned in previous financial year. Mr. Krish, a member of the
company is holding 1000 equity shares in the company. Two years back Mr. Krish jointly bought fully
paid 1000 equity shares of the company, with Mr. Azim, who is also a member of the company
holding 1000 equity shares. Mr Krish needs to pay final call of ₹ 20 per share.
After the Annual General Meeting a report on the meeting including the confirmation to the effect
that the meeting was convened, held and conducted as per the provisions of the Act and the rules
made thereunder is required to be filed. A copy of the report was filed with the Registrar in Form
No. MGT-15 with prescribed fees.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks Oct 21] (Chapter 7
Management & Administration)
(i) The Tribunal passed an order dated 20.05.2021. Latest by what date should the entry of Mr.
Ram’s name be made in the register of members?
(a) 25.05.2021
(b) 27.05.2021
(c) 30.05.2021
(d) 31.05.2021
Answer : (c)
(ii) Suppose the Chairman of the company after two days of AGM went abroad for next 31 days.
Due to the unavailability of the Chairman, within time period prescribed for submission of copy
of report of AGM with the registrar, the report as required was signed by two Directors of the
company, of which one was additional Director of the company. Comment on the signing of
this report of AGM.
Case Scenarios
M 15.2
Chairman.
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors should sign
the report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall
be signed by any two directors of the company, one of whom shall be the Managing
director, if there is one and company secretary of the company.
Answer : (d)
(iii) According to the provision of Companies Act, 2013, till what date the company should submit
report of AGM to the registrar?
(a) 04.06.2021
(b) 09.06.2021
(c) 24.06.2021
(d) 25.06.2021
Answer : (c)

Atul want to wear a new coat for his seminar which is to be held (after 15 days). He bought cloth
material from the market to make a new coat. Atul gives material to Babu, a tailor, to make the coat.
Babu promised Atul to deliver the coat within the stipulated time of one week. Atul paid 10%
advance so that he stitches his coat on priority basis. After one week when Atul went to the tailor
he was shocked to see that the coat is still unstitched. The tailor demanded two more days time from
Atul to stitch the coat, but Atul refused and asked the tailor to return his piece of cloth. Tailor
retained the cloth and asked Atul to pay the price, as he already did the cutting of the cloth. Yash,
Atul's friend left his car at the company’s authorised showroom for servicing. As Yash house is
located in the remote area of the city, so he instructed the manager of the showroom to park the
vehicle at Atul’s residence. So as per Yash’s instructions the car was sent to Atul house after
servicing. The worker of the showroom parked the car outside Atul’s residence and handed over the
key to Atul's servant. Next day when Yash went to pick up his car he found that somebody has hit
the car while it was parked there.
Yash found a mobile phone and a branded pen lying on the road outside Atul’s residence. Yash tried
to enquire about the real owner. He took the phone and pen with him and kept it in the drawer of
his study table. Next day, Yash’s wife came to the room searching for a pen, she saw the pen and
took the pen and went out. Unfortunately, Yash’s wife lost the pen. After two days the real owner,
approached him (Yash), Yash humbly delivered his phone and apologized for the loss of pen.
Multiple Choice Questions [2 MCQs of 2 Marks each: Total 4 Marks Oct 21](Chapter 11 The Indian
Contracts Act, 1872)
(i) According to the provisions of the Indian Contract Act, 1872, do you think the tailor has a right
of lien over the cloth?
(a) Yes, he is entitled to retain the coat until he is paid.
(b) No, he has not completed the work within the agreed time
(c) Yes, in case of particular lien he can retain the cloth.
(d) No, but he is not required to return the advance amount
Case Scenarios
M 15.3
Answer : (b)
(ii) Referring to the provision of the Indian Contract Act, 1872, what are the repercussions, when
Yash found goods belonging to another and takes them into his custody? Choose the correct
statement.
(a) He becomes subjected to the same responsibility as of a bailee.
(b) merely possession of the goods does not make him a bailee
(c) No act is done by owner for placing the goods in the possession of Yash, so he cannot be
treated as bailee.
(d) In the absence of any express or implied contract, absolves Yash’s liabilities as bailee
Answer : (a)
Case Scenario 3 (Nov 21)

Mr. Hari Dutta is an Operation head of North India region of Hilton Ltd. He was a full- time employee
of the company. Mr. Hari draws a monthly salary of Rs. 1,00,000. On 14th May 2020, Mr. Hari applied
for a loan of Rs. 10,00,000, to buy 1000 fully paid-up equity shares of Rs. 1000 each in Mohan
Limited (holding company of Hilton Ltd). The company refused to grant loan to Mr. Hari saying he
is not eligible for the loan for the said amount of Rs. 10,00,000.
Hilton Ltd. is a listed company, authorized by its articles to purchase its own securities. According
to the balance sheet and Annual statements of the company for the year 2020-21:
 Issued, subscribed and paid-up Share Capital (20,00,000 equity shares of Rs. 100 each, fully paid-
up)
 Free Reserves Rs. 30,00,00,000
 The security premium account Rs. 20,00,00,000
 The secured and unsecured Debt Rs. 50,00,00,000
 Accumulated losses Rs. 50,00,000
The company issued a circular as it wanted to buy back shares worth Rs. 10,00,00,000 from the
funds it has in its free reserve and security premium account. The board of directors passed a
resolution for the same on 28th April, 2021.
The company has filed with the Registrar of Companies a Letter of Offer in e-form SH-8 on 1st May
2021. The company had also filed with the Registrar of Companies, along with the letter of offer, a
declaration of solvency.
The Letter of Offer was dispatched to all the shareholders on 3rd May, 2021. The company
announced to avail the buy back offer latest by 10th May, 2021. Many shareholders who approached
the company after the due date were not considered applicable for this buy back scheme. The
shareholders raised strong objection on giving just 7 days time to avail the offer by the company.
A special resolution has been passed at a general meeting of the company authorizing the buy-back
of shares, which was accompanied by an explanatory statement containing the particulars required to
be mentioned as per the provisions of the Companies Act, 2013.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks Nov 21] (Chapter 4 Share Capital
& Debentures)
(i) The company has planned to buy back shares worth rupees 10,00,00,000. What is the maximum
amount of equity shares that the company is allowed to buy back based on the total amount of
equity shares?
Case Scenarios
M 15.4
(a) Rs. 2,00,00,000

(b) Rs. 5,00,00,000
(c) Rs. 7,00,00,000
(e) Rs. 8,00,00 000
Answer : (b)
(ii) Suppose the company intends to buy back some partly paid equity shares. Which of the
following statement is correct?
(a) The company is allowed to buy back partly paid equity shares
(b) The company is allowed to buy back partly paid equity shares if the total amount of such
partly paid equity shares does not exceed 2% of the total buy back.
(c) The company is allowed to buy back partly paid equity shares but it cannot buy back partly
paid other specified securities.
(d) All the shares or other specified securities for buy back must be fully paid up.
Answer : (d)
(iii) Some shareholders and officers of the company are of the opinion that it was not necessary
for the company to pass a special resolution in general meeting with respect to buy back.
Choose the correct reasoning:
(a) It was not necessary to pass the special resolution as the approval of Board had already
been granted for such buy back of shares
(b) It was necessary to pass special resolution as the amount of buy back exceeds ten percent
of the total paid up equity share capital and free reserves
(c) It was not necessary to pass the special resolution as the buy back was authorized by the
articles of the company
(d) It was necessary to pass special resolution as the amount of buy back exceeds fifteen
percent of the total paid up equity share capital and free reserves
Answer : (b)
Case Scenario 4 (Nov 21)

Kirtee Agarwal and Kishan Shaw are two friends studying in the Mumbai City College. They both are
pursuing Bachelor of Commerce (Hons) and are in their Semester V. Kirtee Agarwal is also pursing
Chartered Accountancy Course. She has completed her Foundation Level and is presently preparing
for the Intermediate Level. On the other hand, Kishan Shaw is interested in Fashion Designing and
is preparing to become a fashion designer after completing B.COM (Hons). One fine morning over a
cup of tea both Kirtee and Kishan heard two persons promising to financially help each other. One
person named Mr. P promised the other Mr. Q, that he will pay him a certain sum of money on the
76th Independence Day of India. To this Mr. Q asked Mr. P to pay this sum to Mr. R (friend of Mr. Q).
After a moment’s thought Mr. P changed his mind and promised to pay a reduced sum of money
to Mr. R along with an I-Pad.
Over hearing this conversation both Kirtee and Kishan started discussing over Promissory Notes.
Since Kirtee is a CA Student she shared her knowledge about Promissory notes and explained Kishan
about Section 4 of the Negotiable Instrument Act, 1881.
Having heard the details Kishan was curious in his mind regarding Promissory Notes. He had the
Case Scenarios
M 15.5
following questions for which he needed answers. Considering the above data and assuming you are
Kirtee, answer the following questions of Kishan:
Multiple Choice Questions [2 MCQs of 2 Marks each: Total 4 Marks Nov 21] (Chapter 12- The
Negotiable Instruments Act, 1881)
(i) Kishan asks, ‘If Mr. P promises Mr. Q that he will pay Rs. 4,00,000. However, he will pay the sum
to Mr. Q on the 76th Independence day of India’. Will this promise constitute a valid Promissory
Note?
(a) No. This is not a valid promissory note as it is conditional and promissory note should be
unconditional.
(b) No. This is not a valid promissory note as there is no express of promise. It is a mere
statement.
(c) Yes. This is a valid promissory note as the event stated in the promise is bound to happen.
(d) Yes. This is a valid promissory note as there is a promise to pay irrespective of the promise
being conditional or unconditional.
Answer : (c)
(ii) Kishan asked, ‘when Mr. P promises to pay a friend of Mr. Q, Rs 2,00,000 along with an I-Pad,
on his birthday’. Will that be a valid Promissory Note?
(a) No. It is not a valid Promissory note as the order to pay must consist of money only.
(b) No. It is not a valid promissory note as there is no clarity on which birthday the payment
will be made. It is a promise for an indefinite period.
(c) Yes. It is a valid promissory note as the maker and payee are certain, definite and different
person.
(d) Yes. It is a valid promissory note as there is an express promise to pay Rs 2,00,000 along
with I Pad on friend’s birthday.
Answer : (a)
Case Scenario 5 (April 21)
Mr. Anay, a business graduate from a leading B-School, has been running a chain of restaurants as
a sole proprietor concern. The business is based in Chennai. Mr. Anay, in order to develop the
business; decided to corporatize his business but he is concerned with dilution of his control over
business decisions.
Mr. Anay, during a journey met Mr. Dsouza; one of his old school friends. Mr. Dsouza is presently
working in one of leading corporate advisory firms. Mr. Anay seeks advice from Mr. Dsouza, regarding
conversion of sole proprietorship concern to company and also explain his intention to keep the ent
ire control in his hand. Mr. Dsouza informed Mr. Anay, about a new type of company, called One
Person Company (OPC), which can be formed under Companies Act, 2013. Mr. Dsouza quoted section
2(62), which defines 'one person company' as a company which has only one person as a member.
Mr. Anay felt OPC is correct form of business for him, hence he promoted an OPC ‘Casa Hangout
Private Limited’ (One Person Company) on 14th September 2019, to which he sold his sole
proprietory business and became the sole member. Mr. Anay, appointed his younger son Mr. Amar,
who was 21 year old then, as Nominee to OPC. Mr. Anand who is a famous food blogger and old
friend of Mr. Anay was appointed as director of OPC, Mr. Anay himself also become director of
company.
Case Scenarios
M 15.6
Mr. Amar is a professional photographer, and went abroad for a certification course on 23 rd
October 2019. He came back on 1st of March 2020. He established a photo-studio as an OPC called
‘Best Click Private Limited’ (one Person Company) on 20th March 2020, in which Mr. Anay is nominee
and he became sole member. In the mean time, Mr. Amar also gave his consent as nominee to
another OPC in which his elder brother Mr. Shankar is sole member.
Mr. Anay met with an accident on 25th March 2020, in which he lost his life. Nomination clausewas
invoked, as a result Mr. Amar has to take charge over ‘Casa Hangout Private Limited’ (One Person
Company) as member with immediate effect. On 30th March 2020 Mr. Shankar was appointed as a
new nominee to ‘Casa Hangout Private Limited’ (One Person Company), who gave written consent
on31st March 2020. Mr. Shankar who is an investment banker by profession, is of the opinion that
‘Casa Hangout Private Limited’ (One Person Company) needs to amend its object clause and add ‘carry
out investment in securities of body corporate’ as one of the objects.
The Financial year closed on 31st March 2020. Financial statements of ‘Casa Hangout Private
Limited’ (One Person Company), which is not containing cash flow statements were signed by Mr.
Anand who left as only director after death of Mr. Anay. Multiple Choice Questions [3MCQs of 2
Marks each: Total 6 Marks April 21] (Chapter 2 Incorporation of Company & Matters Incidental There
to)
(i) With reference to appointment of Mr. Amar and Mr. Shankar as nominee to ‘Casa Hangout
Private Limited’ (One Person Company)’, out of followings, who is eligible to be nominee of
OPC?
(a) Any natural person excluding minor
(b) Any legal person excluding minor
(c) Any natural person, who is resident of India; but excluding minor
(d) Any natural person, who is resident as well as citizen of India; but excluding minor
Answer (i) : (d)
(ii) Mr. Shankar if he wishes to withdraw his consent as nominee, can do so by giving written notice
to
(a) Director of OPC and to sole member of company
(b) Director of OPC and to Registrar of companies
(c) Sole member of company and to OPC
(d) Sole member of company and to Registrar of companies
Answer (ii) : (c)
(iii) With reference to legal position of Mr. Amar as member/s and nominee/s to various OPCs,
which of the following statement is correct with reference to ceiling limit in relation to
membership and being nominee to OPC? A person, other than minor; at specific point of time;
(a) Can be member in any number of OPCs but nominee in one OPC
(b) Can be member in one OPC and nominee in any number of OPCs
(c) Can be member in one OPC and nominee in another one OPC
(d) Can be member and nominee both in any number of OPCs
Answer (iii) : (c)
Case Scenario 6 (Apr 21)

Case Scenarios
M 15.7
Sehzad Color Limited (SCL) was incorporated on 12th August 2018 with its registered office situated
in Dehradun and branch offices at Delhi and Jaipur. The company was engaged in the business of
manufacturing herbal products used as cosmetics. The company had prepared its “books of
accounts” and other relevant books and records and financial statements for the year ending 31 st
March 2019.
The company maintains its books of accounts on a double entry system of accounting on an accrual
basis and keeps the books of account and other relevant books and papers and financial statements
in the city of Jaipur in Rajasthan, which happens to be its major branch office.
Gradually, the activities of the company grew and it opened its first branch office outside India in
Colombo, Sri Lanka. The business started developing well and necessary records and documents
including the books of account of the branch were maintained. One of the Directors, Mr. Mac, felt it
necessary to inspect the books of account and other relevant documents maintained at Colombo
branch. However, due to his busy schedule, he could not personally inspect the records and
accordingly sought necessary financial information through his attorney holder.
The board of directors of the company had entrusted Ms. Anjali, the General Manager of the
Company to fulfil all the duty with regard to the complying with the provisions of the company law
in relation to maintaining the books of account, place of keeping the books of account, time period
for preservation of books and all relevant papers and such things as prescribed under the
Companies Act, 2013 in this regard.
In view of the aforesaid scenario relating to “books of account” of SCL, answer the following
questions:(Chapter 9 Accounts of Companies)
Multiple Choice Questions [3MCQs of 2 Marks each: Total 6 Marks April 21]
(i) As observed in the case scenario above, Mr. Mac (a director) has sought financial information
maintained outside the country (i.e. financial information relating to books of account
maintained in Colombo). Can a director do so under the provisions of the Companies Act,
2013?
(a) A director can inspect and seek information from any Branch of the Company located
within the country only.
(b) The director can seek the information through his attorney holder with respect to
financial information maintained outside the country also.
(c) The director can seek the information only individually and not through his attorney
holder with respect to financial information maintained outside the country.
(d) The director can seek the information through his representative with respect to financial
information maintained outside the country.
Answer (i) (c)
(ii) With regard to preservation of the books of SCL, the books of accounts for the FY 2018-19 needs
to be kept in good order until at least which of the following years?
(a) FY 2025-26
(b) FY 2026-27
(c) FY 2027-28
(d) FY 2028-29
Answer (ii) (b)
Case Scenarios
M 15.8
(iii) The board of directors of the company had entrusted Ms. Anjali, the General Manager of the
Company to fulfil all the duty with regard to complying with the provisions of the company law
in relation to maintaining the books of account. Which of the statement is correct with respect
to entrusting Ms. Anjali for maintaining the books?
(a) Only the Managing Director can be entrusted to take all reasonable steps to secure
compliance by the company with the requirement of maintenance of books of account
etc.
(b) Only the Managing Director or any Whole time director can be entrusted to take all
reasonable steps to secure compliance by the company with the requirement of
maintenance of books of account etc.
(c) Only Whole time director (in charge of finance) or Chief Financial Officer can be entrusted
to take all reasonable steps to secure compliance by the company with the requirement of
maintenance of books of account etc.
(d) Only the Managing Director or the Whole time director (in charge of finance) or Chief
Financial Officer or any other person of a company charged by the Board with the duty can
be entrusted to take all reasonable steps to secure compliance by the company with the
requirement of maintenance of books of account etc.
Answer (ii) (d)
Case Scenario 7 (Mar 21)

Kaisha Packers and Movers Limited, a reliable and well-established company, was incorporated on
20th September, 2014 with an aim to provide convenient and innovative ways of moving customers’
household items, re-location of businesses and offices, shifting of vehicles, etc. in the northern
region. Their services have been professionally designed to ensure maximum customers satisfaction.
The company had been formed by the directors Kashi Sharma, Pranav Chaturvedi, Abhinav Mehra,
Anoop Bhargava and Vikash Kumar whose friendship had developed during their college days. Due
to hard work and their business acumen, the promoters had successfully created a niche for
themselves amid cut-throat competition.
The company has a fleet of over 500 vehicles, 55 branches, professionals and technical and non -
technical employees. Over a period of time, Kaisha Packers and Movers has become a trusted brand
and prospective customers prefer to engage it whenever they want to re-locate their offices or
homes since services are provided in a convenient and cost-effective manner.
The authorised capital of the company is Rs. 150.00 lacs divided into 15,00,000 equity shares of Rs. 10
each. At the time of incorporation, its paid-up capital was Rs. 1,00,00,000 and there were 50
shareholders. The registered office of the company is situated in Hyden Park, Bangalore.
With a view to provide world-class relocation and moving solutions throughout the country, the
directors decided to enlarge the capital base of the company. During the mid of the current financial
year, it offered remaining 5,00,000 shares to another 120 persons at a premium of Rs. 10 per share
on private placement basis. Among others, Ruchi, a freelance software consultant and her younger
sister Rumi, a management consultant in Info Solutions Limited which is well-known company for its
high export turnover, were also identified as the prospective subscribers. However, they requested
the company to offer them only the minimum number of shares. Similar requests were also received
from another twelve persons. Their requests were given due consideration by the directors. All the
identified persons who were offered shares paid the required amount (including premium) as per
the terms of the offer. The allotment of the shares was made much before the statutory period.
Immediately after the aforesaid allotment of shares, the company rolled out its expansion plan as
envisaged earlier and utilised the funds so obtained for the requisite purpose. However, the
company is desirous of tapping more prospective investors by offering them equity shares on private
placement basis during the remaining part of the current financial year. For this purpose, it is
proposed to increase the authorised capital from the present Rs. 150.00 lacs to Rs. 300.00 lacs. In
addition to the further allotment of shares on private placement basis, the company is also
Case Scenarios
M 15.9
contemplating to raise deposits from the members. However, Kashi Sharma and Anoop Bhargava
are of the opinion that the company should consider raising of deposits only in the next financial
year since the funds already raised need to be properly utilized.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks March 21]
(i) According to the case scenario, the company is desirous of raising deposits from its members
to augment the funding requirements. In case, the company also contemplates to raise
deposits from public in addition to its members, which of the following option is applicable:
(a) In order to raise deposits from public besides members, the company should have net
worth of minimum Rs. 100 crores and a turnover of minimum Rs. 500 crores.
(b) In order to raise deposits from public besides members, the company should have net
worth of minimum Rs. 150 crores and a turnover of minimum Rs. 250 crores.
(c) In order to raise deposits from public besides members, the company should have net
worth of minimum Rs. 150 crores or a turnover of minimum Rs. 750 crores.
(d) In order to raise deposits from public besides members, the company should have net
worth of minimum Rs. 100 crores or a turnover of minimum Rs. 500 crores.(Chapter 5
Acceptance of Deposits by Companies)
Answer (i) (d)
(ii) According to the case scenario, during the mid of the current financial year, the company
offered 5,00,000 shares to 120 persons at a premium of Rs. 10 per share on private placement
basis. During the remaining part of the current financial year, the company is desirous of
tapping more prospective investors by offering them equity shares on private placement basis.
How many more such prospective shareholders can be invited by the company for investment
in the capital of the company.
(a) The company can offer equity shares maximum up to the 30 prospective shareholders in
the remaining part of the current financial year.
(b) The company can offer equity shares maximum up to the 55 prospective shareholders in
(c) The company can offer equity shares maximum up to the 80 prospective shareholders in
(d) The company can offer equity shares maximum up to the 130 prospective shareholders in
the remaining part of the current financial year.(chapter 4 Share Capital & Debentures)
Answer (ii) (c)
(iii) In the given case scenario, suppose the company has failed to allot the shares within the
statutorily allowed period. In such a case, the only remedy available with the company is to
refund the application money. State the time period within which the company is required to
refund the application money to the subscribers if it has failed to allot the shares within the
statutorily allowed period.
(a) The application money must be refunded within sixty days from the expiry of statutorily
period allowed within which the allotment of shares ought to have been made.
(b) The application money must be refunded within forty-five days from the expiry of
statutorily period allowed within which the allotment of shares ought to have been
made.
(c) The application money must be refunded within thirty days from the expiry of statutorily
period allowed within which the allotment of shares ought to have been made.
(d) The application money must be refunded within fifteen days from the expiry of
Case Scenarios
M 15.10
statutorily allowed period within which the allotment of shares ought to have been
made. .(chapter 4 Share Capital & Debentures)
Answer (iii) (d)

Krishnakant Limited was incorporated on 24th September, 2010 under the jurisdiction of Registrar of
Companies, Rajasthan with its registered office located in Jaipur and its manufacturing units spread
out in Mumbai, Kanpur, Delhi and Ludhiana. Under the dynamic leadership of Hans Rajpal, the
Chairman and Managing Director (CMD) of the company, the company had reached new heights of
success. The directors of the company numbered eight including CMD out of which two were the
independent directors.
The turnover of the company for the Financial Year 2019-2020 was Rs. 750.00 crores – a whopping
rise of more than 20% from the previous year and the net profit stood at an impressive figure of Rs.
6.60 crores – an increase of Rs. 1.80 crores as compared to the net profit of the previous year. The
company had a net worth of Rs. 250.00 crores; and it was noticed that the net worth had also
registered a northern-
western trend by more than 15%. The authorised and paid-up share capital of the company
was Rs. 8.00 crores. Keeping in view the applicability of forming a CSR Committee for the current
financial year 2020-21, a CSR Committee was formed with four directors as members of which one
was an independent director. The Committee was, among other objectives, given the responsibility
of formulating and recommending to the Board, a Corporate Social Responsibility Policy which
would indicate the activities to be undertaken by the company within the framework specified in
Schedule VII.
As the company has huge profits it has proposed a dividend @ 10% for the year 2019-20 out of the
profits of current year.
The company plans to diversify its business by adding another segment to manufacture steel utensils
and therefore, is desirous of shifting its registered office to Mumbai from Jaipur which will help the
company in carrying on the new business for effectively. Another strategically important segment
which the company tapped earlier and now wishes to engage itself in on a large scale relates to
manufacturing of stationery items.
During the current Financial Year 2020-21, the company provided ample support for improvement
of infrastructure in schools established at Mumbai, Kanpur, Delhi and Ludhiana as part of its CSR
activities. In addition, the company contributed towards establishment of Digital Smart Classroom,
Libraries and computer labs in these cities. The company also deployed mobile medical units
equipped with medical facilities and qualified doctors. In addition to this a large number of public
health and sanitation activities had been initiated under Swachh Bharat Abhiyan. The total amount
spent on these activities was, till date, almost equal to the minimum amount prescribed and it is
hoped that as the current Financial Year 2020-21 approaches its end, the total spending on CSR
activities will certainly exceed the budgeted figure.(Chapter 9 Accounts of Companies)
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks March 21]
(i) Which of the following factors would have prompted Krishnakant Limited to mandatorily form
a Corporate Social Responsibility (CSR) Committee for the current financial year? (Chapter 9
Accounts of Companies)
(a) The net profit had increased to Rs. 6.60 crores and it was more by Rs. 1.80 crores in
comparison to previous year’s net profit.
(b) The turnover was Rs. 750.00 crores which was an increase of more than 20% as
compared to the previous year.
(c) The net worth was Rs. 250.00 crores which when compared to the previous year had
registered an increase by more than 15%.
(d) The paid-up share capital was Rs. 8.00 crores.
Case Scenarios
M 15.11
Answer (i) (a)
(ii) What is the minimum amount (in percentage) that Krishnakant Limited is required to spend
during the Financial Year 2020-21 on the CSR activities? (Chapter 9 Accounts of Companies)
(a) 2% of the average net profits made during the two immediately preceding financial
years.
(b) 2% of the average net profits made during the three immediately preceding financial
years.
(c) 2.5% of the average net profits made during the two immediately preceding financial
years.
(d) 2.5% of the average net profits made during the three immediately preceding financial
years.
Answer (ii) (b)
(iii) In the given case scenario, Krishnakant Limited decided to undertake CSR activities on its own.
In case, it had decided to engage an external Section 8 company for undertaking its CSR activities
and such charitable company is not established by Krishnakant Limited nor it is established by
the Central/State Government or by any entity established under an Act of Parliament or a State
Legislature, then what should be the established track which this Section 8 company should
have in undertaking similar programs or projects which Krishnakant Limited wants it to
accomplish? (Chapter 9 Accounts of Companies)
(a) Track record of minimum one year
(b) Track record of minimum two years
(c) Track record of minimum three years
(d) Track record of minimum four years
Answer (iii) (c)

Mr. Abhinav Gyan is a tech expert and one among the promoter of Doon Technology Limited (DTL).
He did his engineering from one of the prestigious IIT in CSE and then perused masters in
management from IIM. He started DTL fifteen years back. DTL is famous for advance technologies
such as artificial intelligence, block-chain solutions and many others. The company went public a
decade ago but not listed. Since DTL is expanding its operations in wake of opportunities arises out
of industrial revolution, hence willing to retain the profit for growth of the company, but
shareholders are seeking dividend; because for shareholders larger the bottom line means larger
the dividend. The outbreak of COVID-19 is another reason which forced the directors to retain the
earnings. After the closure of books of account for year 2019-20, directors proposed the dividend of
10% against the expectation of 20% by shareholders. But considering the extended lock-down which
causes a delay in delivering the projects (results in deferment of revenue and additional cost),
directors are of the opinion to revoke the dividend. Shareholders seeks appointment of internal
auditor for audit on a concurrent basis, whereas management of DTL states it does not require to
appoint an internal auditor under the law and it will cause an unnecessary financial burden on the
company. The excerpts from financial statements of the preceding financial year 2019-20 are as
under:
Particulars Amount in Crores
Paid-up share capital 45
Turnover 495
Outstanding loans or borrowings* 105
Outstanding deposits 22#
*Includes inter-corporate loan of INRs 25 crores
Case Scenarios
M 15.12
# up-till 31st January, 2020 the outstanding deposit was INRs 30 crores
Mr. Gyan, one of the shareholder of DTL, out of his savings bought 40,000 shares of another
company Time Consultancy Services (TCS) of face value 10 each. On such shares, the final call of 2 is
due but unpaid by Mr. Gyan. In the meantime, TCS declared the dividend at a rate of 15%. Out of
total dividend of INRs 8.4 crores declared on 31st August 2020, INRs 0.42 crores remain unpaid as
on 30th September 2020 at the end of TCS. Out of such INRs 0.42 crores, INRs 12 lakhs are on
account of the operation of law and INRs 3 lakhs on account of legal disputes of right. The unpaid
dividend was finally paid on 12th December, 2020 in full.
Mr. Gyan came from humble background, hence as part of ethical commitment to uplift the society
by promoting education to children of the economically weak section, he decided to form a section 8
company around 2 years back with the support of fellow professional, who later become a member of
such a company. Receipts are excess of expenditure hence it was decided that Gyan foundation will
declare some dividend to its members.
On the basis of above facts, answer the following MCQs [4 MCQs of 2 Marks each: Total 8 Marks Oct
20]:
(i) Regarding un-paid call money by Mr. Gyan, in light of dividend due to him from TCS, state which
of following statements hold truth?
(a) Dividend can’t be adjusted against the unpaid call money
(b) The dividend of INRs 48,000 can be adjusted against unpaid call money
(c) The dividend of INRs 48,000 can be adjusted against unpaid call money, if consent is
given by Mr. Gyan
(d) The dividend of INRs 64,000 can be adjusted against unpaid call money, if consent is
given by Mr. Gyan (Chapter 8 Declaration & Payment of Dividend)
Answer (i) (b)
(ii) Does DTL is required to appoint Internal Auditor under section 138 of Companies Act, 2013?
(a) No, because DTL is unlisted company
(b) No, because paid-up share capital is less than INRs 50 crores
(c) Yes, because turnover is more than INRs 200 crores
(d) Yes, because outstanding loan is above INRs 100 crores (Chapter 9Accounts of
Companies)
Answer (ii) (c)
(iii) With reference to the declaration of dividend by Gyan Foundation, state which of following
statements hold truth?
(a) Gyan Foundation can declare dividend out of the capital as well.
(b) Gyan Foundation can declare dividend either out of current years or previous year s’
profit, but need to transfer a certain % to reserve.
(c) Gyan Foundation can’t declare the dividend because three years has not been elapsed
since its incorporation.
(d) Gyan Foundation can’t declare the dividend in any case. (Chapter 8 Declaration &
Payment of Dividend)
Answer (iii) (d)
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(iv) What will be the amount of penalty which TCS needs to pay under section 127 of the Companies
Act, 2013?
(a) Up-to INRs 1000 per day till the default continues
(b) INRs 64,800
(c) INRs 97,200
(d) INRs 1,08,000 (Chapter 8 Declaration & Payment of Dividend)
Answer (iv) (c)

Mr. Mohit Aggarwal is the director of Superior Carbonates and Chemicals Limited (SCCL). SCCL was
incorporated by Mr. S. K. Aggarwal (father of Mr. Mohit) on 05 th July 1995 as a public company.
SCCL accepts a loan from Mr. Mohit of INRs 1.5 crores for short term purpose and expected to repay
after 24 months. SCCL in its book of accounts, records such receipt as loan and borrowing under
non-current liabilities. At the time of advancing loan, Mr. Mohit affirms in writing that such amount
is not being given out of funds acquired by him by borrowing or accepting loans or deposits from
others and complete details of such loan transactions are furnished in the board report.
SCCL has its registered office in Paonta-sahib (Himachal Pradesh) and corporate office is situated in
Dehradun (Uttarakhand) but around 15% of members whose name is entered in members’ register
are residents of Nainital (Uttarakhand). At Nainital, SCCL has Liaison Office. Management of the
company is willing to place, register of members at Nainital Liaison Office.
SCCL convene its 7th AGM on 10th September, 2020 at the registered office of the company. Notice
for same was served on 21st August, 2020. More than 78% of members gave consent to convening
AGM at shorter notice due to ambiguity and possibility of another lockdown starting fr om 11th
September 2020 on account of the second wave of COVID-19.
On the basis of above facts, answer the following MCQs (3 MCQ of 2 Marks each: Total 6 Marks Oct
20)
(i) With reference to the loan advanced by Mr. Mohit to SCCL, apprise whether same is classified
as deposit or not?
(a) Deposit, because any sum advanced by the director whether loan or otherwise is always
classified as a deposit
(b) Deposit, because the length of the loan is for a period; more than six months.
(c) Not a deposit, because such amount is recorded as loan in books of account of SCCL
(d) Not a deposit, because the written declaration is provided by Mr. Mohit that said sum of
loan is not being given out of funds acquired by him by borrowing or accepting loans or
deposits from others. (Chapter 5 Acceptance of Deposits by Companies)
Answer (i) (d)
(ii) Pick the right statement regarding SCCL’s willingness to keep and maintain the register of
members at the Nainital liaison office.
(a) Register of members shall be kept at either registered office or within the same city that
too after passing the resolution, hence SCCL can’t place it at Nainital liaison office
(b) Register of members can’t be kept at any other place by SCCL, without passing an ordinary
resolution
(c) Register of members can be kept at Nainital liaison office, after passing a special
resolution, because more than 1/10th of the total members entered in the register of
members reside there
Case Scenarios
M 15.14
(d) Register of members can’t be kept at Nainital liaison office, even after passing a special
resolution, because less than 1/5th of the total members entered in the register of
members reside there. (Chapter 7 Management & Administration)
Answer (ii) (c)
(iii) Considering the provision dealt with length of Notice of AGM, pick the right option depicting
the validity of notice served by SCCL.
(a) Notice served by SCCL is not valid, because shorter length needs to be consented by all
the members entitled to vote at AGM.
(b) Notice served by SCCL is not valid, because shorter length needs to be consented by at-
least 95% of members entitled to vote thereat.
(c) Notice served by SCCL is valid because the shorter length is consented by 75% of
members entitled to vote thereat.
(a) Notice served by SCCL is not valid, because shorter length need to be c onsented by at-least
50% of the members entitled to vote at AGM that too in writing. (Chapter 7 Management
& Administration)
Answer (iii) (b)
Case Scenario 11 (May 20)

Vishal Crockery Limited was incorporated on 24th September, 2010 under the jurisdiction of
Registrar of Companies, Rajasthan with its registered office located in Jaipur and its manufacturing
units spread out in Mumbai, Kanpur, Delhi and Ludhiana. Under the dynamic leadership of Hans
Rajpal, the Chairman and Managing Director (CMD) of the company, it could easily be ascertained
that the company had reached the new heights of success. The directors of the company numbered
eight including CMD of which two were the independent directors.
The turnover of the company for the Financial Year 2018-2019 was Rs. 750.00crores – a whopping
rise of more than 20% from the previous year and net profit stood at a prestigious figure of Rs.
6.60crores – also increased by Rs. 1.80 croresas compared to the net profit of previous year. The
company had a net worth of Rs. 250.00 crores; and it was noticed that the net worth had also
registered a northern trend by more than 15%. The authorised and paid-up share capital of the
company was Rs. 8.00 crores. Keeping in view the applicability of forming a CSR Committee for the
current financial year 2019-20, a CSR Committee was formed with four directors as members of
which one was the independent member. The Committee was, among others, given the
responsibility to formulate and recommend to the Board, a Corporate Social Responsibility Policy
which shall indicate the activities to be undertaken by the company as specified in Schedule VII.
The company plans to diversify its business by adding another segment to manufacturesteel
utensils and therefore, is desirous to shift its registered office to Mumbai from the present one at
Jaipur which will help the company in easing out the new business. Another strategically important
segment which the company tapped earlier and now wishes to engage itself on a large scale relates
to manufacturing of stationery items.
The company hopes that with the shifting of registered office to Mumbai, it shall be able to target
international markets to export its quality products. As on date, the export turnover of the
company is not that much significant. The directors, Janardan Mittal (Finance) and Ratish Jain
(Marketing), however, have in-depth knowledge of export markets, particularly those existing in
UK and Singapore, where they can place their products successfully and achieve laurels for the
company in terms of wealth maximisation.
During the current Financial Year 2019-20, the company under the CSR activities provided ample
support for improvement of infrastructure in schools established at Mumbai, Kanpur, Delhi and
Case Scenarios
M 15.15
Ludhiana. Not only this, the company contributed towards establishment of Digital Smart
Classroom, Libraries and computer labs in these cities. The company also deployed mobile medical
units equipped with medical facilities and qualified doctors. In addition to this, a large number of
public health and sanitation activities had been initiated under Swachh Bharat Abhiyan. The total
amount spent on these activities was, till date, almost equal to the minimum spendable amount
and it is hoped that as the current Financial Year 2019-20 approaches its end, the total spending
on CSR activities will certainly exceed the budgeted figure.(Chapter 9 Accounts of Companies)
Multiple Choice Questions (2 Marks each * 3= Total 6 Marks)
(A) Which of the following criterion prompted Vishal Crockery Limited to mandatorily form a
Corporate Social Responsibility (CSR) Committee for the current financial year?
(i) The net profit had increased to Rs. 6.60crores and it was more by Rs. 1.80 crores in
comparison to previous year’s net profit.
(ii) The turnover was Rs. 750.00 crores which was increased by more than 20% as compared
to the previous year.
(iii) The net worth was Rs. 250.00 crores which when compared to the previous year had
registered an increase by more than 15%.
(iv) The paid-up share capital was Rs. 8.00 crores.
Answer (A) (i)
(B) What is the minimum amount (in percentage form) that Vishal Crockery Limited is required to
spend during the Financial Year 2019-20 on the CSR activities after it formed a Corporate Social
Responsibility Committee.
(i) Minimum 2% of the average net profits made during the two immediately preceding
financial years.
(ii) Minimum 2% of the average net profits made during the three immediately preceding
financial years.
(iii) Minimum 2.5% of the average net profits made during the two immediately preceding
financial years.
(iv) Minimum 2.5% of the average net profits made during the three immediately preceding
financial years.
Answer (B) (ii)
(C) In the given case scenario, Vishal Crockery Limited decided to undertake CSR activities at its
own. In case, it had decided to engage an external Section 8 company for undertaking its CSR
activities and such charitable company is not established by Vishal nor it is established by the
Central/State Government or by any entity established under an Act of Parliament or a State
Legislature, then what should be the established track which this Section 8 company should
have in undertaking similar programs or projects which Vishal Crockery Limited wants it to
accomplish?
(i) Track record of minimum one year
(ii) Track record of minimum two years
(iii) Track record of minimum three years
(iv) None of the above
Answer (C) (iii)
Case Scenario 12 (May 20)

Case Scenarios
M 15.16
Vivek Shah is the Chief Finance Officer (CFO) and Sachin Bhatt is the Company Secretary of Jitendra
Iron Works Private Ltd (JIWPL), in Manipal, Karnataka. JIWPL is an integrated set up of foundries
and machine shops that add value by machining more than 75% of the castings manufactured to
fully finished condition. JIWPL is one of the largest jobbing foundries producing grey iron castings
required for automobile, farm equipment sector and diesel engines industry. JIWPL serves
customers globally. The turnover of JIWPL is about Rs. 600 Crores, including export turnover of
about Rs. 250 Crores.
During the year 2019, JIWPL planned expansion to enhance its production capacity to meet the
increasing demand from its customers, by importing fully automatic plant and equipment from
Germany for the unit at Manipal. The means of finance of the expansion project:-
(a) JIWPL received an amount of Rs 25 Crores from Malini Shetty, wife of one of the promoter director
of JIWPL, Mahesh Shetty. Mahesh Shetty wanted to know from Sachin Bhatt any compliance
needed from the perspective of acceptance of Deposits.
(b) The Board and the CFO also approached the main banker of the company viz., Bank of Baroda. The
Bank after proper credit analysis, sanctioned an amount of Rs. 50 Crores for meeting the working
capital needs of the expansion project, which included interchangeable limits of cash credit,
foreign and inland bills for negotiation and acceptance. The security cover was floating charge on
the book debts, inventory and other current assets of the expansion project in Manipal of JIWPL.
The CFO and the CS together coordinated with the legal department of the Bank on procedures
relating to creation of security and registration of charges.
The registered office of JIWPL is located in Manipal. Out of the company’s 180 members, 20
members, who are entered in the Register of Members reside in Mangaluru, a nearby city,
requested the company for some reasons to maintain the Register of Members in the company’s
liaison office in Mangaluru, instead of Manipal henceforth.
Multiple Choice Questions (2 Marks each*3= Total 6 Marks)
(A) JIWPL received an amount of Rs 25 Crores from Malini Shetty, wife of one of the promoter
directors Mahesh Shetty of JIWPL. Mahesh Shetty wanted to know from Sachin Bhatt any
compliance needed from the perspective of acceptance of deposits. The CS has to ensure -:
(i) That the particulars of amount received are immediately entered in the register of deposits
maintained in such manner and in such format as prescribed;
(ii) To issue immediately a circular to the members of the company with a statement of
deposits accepted as on date with the names of each depositor, amount(s) received as on
date, the due date(s) and the liability(ies) on the due date(s) in respect of each depositor
(iii) That a declaration is to be obtained to the effect that the amount given is not sourced from
borrowed funds or accepting loans or deposits from others and disclose the details in the
Board’s Report;
(iv) To file the particulars of deposits received within 30 days from the date of its receipt with
the Registrar. (Chapter 5 Acceptance of Deposits by Companies)
Answer (A) (iii)

(B) JIWPL was also sanctioned an additional amount of Rs. 50 Crores for meeting the working capital
needs of the expansion project., which included interchangeable limits of cash credit, foreign
and Inland bills for negotiation and acceptance. The security cover was floating charge on the
book debts, Inventory and other current assets of the expansion project of JIWPL. A floating
Charge, in general is created by way of :
(i) Passing a board resolution
(ii) Signing and acknowledging the Credit Sanction letter
(iii) Mortgage
Case Scenarios
M 15.17
(iv) Hypothecation or lien. (Chapter 6 Registration of Charges)

Answer (B) (iv)
(C) The registered office of JIWPL is located in Manipal. Out of the company’s 180 Members, 20
members, who are entered in the register of members (ROM) reside in Mangaluru, a nearby
city. These members requested the company for some reasons to maintain the Register of
members (ROM) in the company’s liaison office in Mangaluru, instead of Manipal henceforth.
(i) The ROM shall be maintained only at the registered office in Manipal and maintaining in a
place other than the registered office is not permitted under the Companies Act 2013 and
the relevant Rules there under.
(ii) By passing a Special Resolution in a General Meeting, the ROM can be maintained in
Mangaluru.
(iii) The Board of Directors by passing a Board Resolution in one of its meetings, may direct the
Company Secretary to maintain the ROM in Mangaluru.
(iv) If more than 1/3rd of the members, whose names are entered in the ROM request for the
change, then only the ROM can be maintained at Mangaluru after passing a Special
Resolution in a General Meeting.(chapter 7 Management & Administration)
Answer (C) (ii)

Sourabh Publishers Ltd., a listed entity, passed a resolution in its Board meeting for appointment
of Jain & Jain, a Chartered Accountants firm, as Statutory Auditor of the company. The company
obtained t he consent in writing from Jain & Jain and also placed this recommendation before the
general meeting of the shareholder and got it approved.
The company thereafter informed the CA Firm about their appointment and also filed a notice of
appointment with the Registrar of Companies within the prescribed time.
Jain & Jain, Chartered Accountants firm is having 3 partners namely, Mridula Jain, Shyamla Jain,
Parul Jain. In this firm Mayank Jain and Shashank Jain were associates and were being paid on case-
to-case basis and not on fixed salary.
Prior to the appointment of Jain & Jain, the previous auditor was Agrawal Jain & Associates. In this
CA firm there were 6 partners namely, Prashant Agrawal, Vikas Agrawal, Vishal Agrawal, Vyom
Agrawal, Mayank Jain and Shashank Jain.
Mayank Jain and Shashank Jain were common persons in both the firms.
While working with Sourabh Publishers Ltd., Jain & Jain started facing a lot of issues with the
management of the company. After sometime, due to these disputes with the management, Jain
& Jain resigned from the company.
Multiple Choice Questions (Chapter 10 Audit & Auditors)
1. The newly appointed CA Firm (Jain & Jain) and retiring CA Firm (Agrawal Jain & Associates)
have common persons i.e., Mayank Jain and Shashank Jain. Whether the appointment of Jain
& Jain in Sourabh Publishers Ltd. is valid as per the provisions of the Companies Act, 2013:
(a) It not valid since both the CA Firms (New and Old) have common persons
(b) Mayank Jain and Shashank Jain are the associates in Jain & Jain and not the partners,
hence appointment of Jain & Jain, is valid
(c) Jain & Jain should expel Mayank Jain and Shashank Jain in order to retain its appointment
(d) Agrawal Jain & Associates should expel Mayank Jain and Shashank Jain (2 Marks
March’22)
Case Scenarios
M 15.18
2. What would have been the position if, Mayank Jain and Shashank Jain are partners in Jain &
Jain:
(a) The position will remain same as MCQ 1 above
(b) There shall be no change and the Jain & Jain may continue as audit firm
(c) The appointment of Jain & Jain would not have been in terms of the provisions of the
Companies Act, 2013
(d) The company may obtain permission from the shareholders in the general meeting by
way of Special Resolution for continuation of appointment of Jain & Jain (2 Marks
March’22)
3. In the given case, Jain & Jain due to some dispute with the management on some issues
resigned from the company. Choose the correct option in respect to filling of this vacancy:
(a) Jain & Jain cannot resign and has to hold the office till the conclusion of the next annual
general meeting
(b) The resignation is tendered by the auditor, the Board of Directors shall appoint new
auditor within 30 days and such appointment shall also be approved by the
shareholders in the general meeting within 3 months of the recommendation of the
Board
(c) This vacancy of auditor can be filled by the shareholders in consultation of the Central
Government
(d) This vacancy of auditor can be filled by the Board of Directors in consultation of the
Comptroller and Auditor-General of India (2 Marks March ’22)

Rupesh took a house loan of ` 80 lakhs from Best Bank Ltd. While granting the house loan, the bank
insisted to provide a guarantee. Rupesh’s neighbour, Mithun gave the guarantee for such housing
loan. Rupesh also purchased a life insurance policy on his life from A-One Life Insurance Company
Ltd., for a sum assured of ` 1 crore for a policy term of 20 years. He paid the first premium to the
insurance company. This policy was purchased by Rupesh in order to protect his family, in case of
untimely death of Rupesh. Rupesh made nomination of the policy in favour of Archana, his wife. After
some time Rupesh’s business started running into losses and he was not able to pay the instalments
of housing loan to the bank. As a result, his loan account was classified by the bank as Non- Performing
Asset (NPA) and the bank initiated to recover its pending dues. The Bank first sent the reminder
letters/ mails to both the borrower and his guarantor and thereafter a legal notice was served.
Even after notices, when the loan account was not regularised, the bank fi led a suit in Debt Recovery
Tribunal (DRT) against the guarantor. The guarantor objected and asked the bank to first get it
recovered from the borrower and if the borrower does not pay, then only the guarantor will be liable
to pay. But the bank continued to follow up the matter in DRT and ultimately the decree was passed
in favour of the Bank to recover the dues from the guarantor.
Bank recovered entire outstanding loan from the guarantor as per the decree. Now the guarantor
filed a suit against Rupesh to pay the amount, which he paid to the bank. Mithun also requested to
the court to provide the possession and ownership of the house, if Rupesh is not able pay such
amount.
Meanwhile, Rupesh met with an accident and died on the spot. Claim was lodged by his wife and the
insurance company paid the sum assured along with bonus amount to Archana (nominee of the
deceased). Archana paid the amount to Mithun, which had been paid by Mithun to the bank in
discharge of his guarantee and settled down all the issues. (March ’22)
Multiple Choice Questions (Chapter 11 The Indian Contracts Act, 1872 )
Case Scenarios
M 15.19
4. In the given case, who is discharging the liability of a third person in case of his default in
relation to the contract of guarantee?
(a) Mithun
(b) Rupesh
(c) Archana
(d) The Bank (2 Marks )
5. What is the consideration in case of contract between Mithun and the Bank?
(a) Promise made for the benefit of the principal debtor to avail loan on the guarantee of
the surety
(b) In contract of guarantee, there is no consideration involved between surety and the
creditor
(c) Mithun can freely utilise the house
(d) Any past consideration (2 Marks)

Madhu Oils and Fats Ltd. is a listed entity. It finalised its annual accounts for the year ended on 31st
March, 2021. The Audit Committee of Board (ACB) recommended and subsequently the Board approved
the same. Annual General meeting of the shareholders was convened on 25th August, 2021, in which the
annual accounts of the company were presented before the shareholders. The shareholders have
approved dividend @ 10%. A report of the Board of Directors was attached with the annual accounts of
the company. During the said meeting, a shareholder pointed out that during the year of 2020-21 there
was a big news in the media and newspaper that a fraud has happened in the company of an amount of
` 75 lakhs, with the involvement of a senior management official of the company, who is absconding since
the news came into media. However, there was no mention about the fraud in the Auditor’s Report as
well as no comment in the Board’s Report. The auditor, who was also present in the General Meeting of
the shareholders informed that fraud was detected during the course of audit but no further action was
taken by him (auditor). (April 22)
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
1. Going by the facts of the case, by what date should the amount be deposited in a separate
account maintained with the scheduled bank for dividend purposes?
(a) By 30th August 2021
(b) By 1st September 2021
(c) By 7th September 2021
(d) By 24th September 2021 (Chapter 8 Declaration & Payment of Dividend)
Answer: (a)
2. By what date should the dividend declared in the meeting, be paid to the members of the
company?
(a) By 30th August 2021
(b) By 1st September 2021
(c) By 7th September 2021
(d) By 24th September 2021 (Chapter 8 Declaration & Payment of Dividend)
Case Scenarios
M 15.20
Answer: (d)
3. With regard to preservation of the books of Madhu Oils and Fats Ltd, the books of accounts
for the Financial Year (FY) 2020-21 needs to be kept in good order until at least which of the
following years?
(a) FY 2025-26
(b) FY 2026-27
(c) FY 2027-28
(d) FY 2028-29 (Chapter 9 Accounts of Companies)
Answer: (d)
4. The auditor had noticed the fraud that was committed by the senior management. Which is
the correct statement in this respect:
(a) The auditor shall report the matter to the Central Government immediately.
(b) It is not necessary to disclose the details of fraud in the Board’s Report
(c) The auditor shall report the matter to the audit committee constituted under section 177
or to the Board.
(d) Since the Senior Management Personnel is absconding, the auditor is not required to take
any action. (Chapter 10 Audit & Auditors)
Answer: (c)

II. Ramji Lal is in the business of selling wheat, rice, pulses and other food grain items under the
banner of Ramji Lal & Sons. Bhim Singh was working as an employee with Ramji Lal, since past 10
years and have earned good image and trust. In the absence of Ramji Lal, Bhim Singh takes care of
the business of Ramji Lal as a prudent person.
Ramji Lal executed a Power of Attorney in favour of Bhim Singh for doing the banking transactions
i.e., to withdraw money, issue of cheque for making payment to creditors etc.
One day, Bhim Singh went to bank for withdrawal of ` 50,000 to make payments for utility bills and
for some petty expenses. When Bhim Singh was counting cash after taking it from the cash window,
some unscrupulous persons just standing behind him, snatched the cash from his hands and
disappeared quickly. Bhim Singh immediately informed the manager of the Bank, lodged FIR with
nearby Police Station and also informed Ramji Lal. Police visited the bank premises and asked for
the CCTV footage. However, the incident was not recorded since the CCTV were found damaged.
Ramji Lal was annoyed with this news and asked Bhim Singh that he should be very careful while
dealing the banking transactions, and advised to take care in future. Due to demand of the food
grains in the nearby city, Ramji Lal opened a branch in that city and Bhim Singh was asked to take
care of the business at the branch under the banner of Ramji Lal & Sons and shall not act beyond
his delegated authority, nor he shall employ any staff or agent, with out having the express
authority of him (Ramji Lal). Bhim Singh started doing the business activity under the banner of
Ramji Lal & Sons. He also appointed Chatur Singh, as manager there to look after this business, but
this fact was not made known to Ramji Lal. Chatur Singh was a very cunning person. Since ‘Ramji
Lal & Sons’ has established a good reputation in the market, so Chatur Singh started taking
advantages of brand image. He raised money from several sources, in the name of ‘Ramji Lal &
Sons’ and one day, ran away, without informing anyone and is absconding from that day.
The fraud came to the light when creditors started demanding money from Ramji Lal on the pretext
that the branch was running the business in the name and style of Ramji Lal & Sons’. (April 22)
5. When Bhim Singh was returning to shop after withdrawing money from the bank, theft had
Case Scenarios
M 15.21
occurred. Who is to bear such loss?

(a) Ramji Lal will bear the loss of money due to theft.
(b) Bhim Singh will bear the loss of money due to theft.
(c) Bank will be liable since the dacoity occurred in the bank’s premises.
(d) The person in charge of the CCTV in the bank is responsible. (Chapter 11 The Indian
Contracts Act, 1872)
Answer: (a)
6. Bhim Singh while doing business in the banner of ‘Ramji Lal & Sons’, appointed another person
Chatur Singh as manager of the business without informing his principal, Ramji Lal. Whether Bhim
Singh have the authority to do so?
(a) It is usual to appoint staff to take care of the business. Looking to the volume of busines
s, Bhim Singh has appointed Chatur Singh to manage the business.
(b) Bhim Singh has done beyond the express authority of his principal (Ramji Lal) in
employing Chatur Singh as Manager of that branch.
(c) It is an implied authority to appoint sub-agent since the big business transactions cannot
be handled by a single person.
(d) Chatur Singh should have directly inform to Ramji Lal that he has been appointed as sub
- agent. Chapter 11 The Indian Contracts Act, 1872)
Answer: (b)
Case Scenarios 17(Sep’22)

Question 1
The aggregate value of the paid-up share capital of Sai Ram Limited, a listed company, was ₹ 200 crore
divided into 20 crore equity shares of ₹10/- each at the end of the financial year 2021-22 having its
registered office at Pune. This company had been registered with an authorised share capital of ₹ 300
crore divided into 30 crore equity shares of ₹10/- each. The company has very good reputation in
compliance of all legal requirements on time. The company produces health related products such as
ayurvedic medicines, medical instruments, sanitizers, masks, medical soaps etc. The extract of Balance
Sheet of the company as on 31st March, 2022 showed the following figures–
Particulars Amount (₹ in
crore)
Free reserves created out of profits 200
Securities Premium account 80
Credit balance of Profit & Loss account 50
Reserves created out of revaluation of assets 25
Miscellaneous expenditure not written off 10
Turnover of the company during the financial year 2021-22 was ₹ 700 crore and the net profit calculated
in accordance with section 198 of the Companies Act, 2013 with other adjustments as per CSR Rules was
₹4 crore only.
The Board of Directors of the company constituted of the following persons as directors- a Chartered
Accountant ‘Sai Ram’ as the Managing Director, ‘Roshan’ and ‘Prachita’ as independent directors, ‘Hari
Om’, ‘Bindu’, ‘Reddy’ and ‘Komal’. Prakash, Chief compliance officer of the company informed the Board
on 20th April, 2022 that the company attracts the provisions of section 135 of the Companies Act, 2013
and all the formalities have to be complied with accordingly. Thereafter, on 30th April, 2022 a CSR
committee was formed to act and comply the provisions of Corporate Social Responsibility.
Case Scenarios
M 15.22
The company proposed a list of activities to spend 4% of the average net profits of the company made
during the three immediately preceding financial years in pursuance of its CSR Policy as under –
1. The CSR projects for the benefit of employees of the company and their families only.
2. A contribution of ₹ 10,000/- to a political party under section 182 of the Companies Act, 2013.
3. A contribution to the PM CARES Fund during Covid pandemic.
4. Local activities like promotion of child and women education.
5. Activities carried out for fulfilment of any other statutory obligations under any law in force in
India.
6. CSR projects undertaken through a Section 8 company.
On the basis of above facts and by applying applicable provisions of Companies Act, 2013 and the
applicable Rules therein, choose the correct answer.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks] (Sep’22)
Chapter 9: Accounts of Companies

1. Prakash, Chief compliance officer of the company informed the Board on 20th April, 2022
that the company attracts the provisions of section 135 of the Companies Act, 2013. On what
basis of the following he arrived at this conclusion -
(a) On the basis of turnover of the company.
(b) On the basis of turnover and net profit of the company taken together.
(c) On the basis of net worth of the company.
(d) On the basis of net worth and turnover of the company taken together. (Sep’22)
Answer 1: (c)
2. For the purpose of section 135 of the Companies Act, 2013, the net worth has to calculated
as defined under section 2(57) of the Act. In this context, which of the following statements
is correct with reference to the above case –
(a) The net worth of Sai Ram Limited during the financial year 2021-22 was ₹520 crore.
(b) The net worth of Sai Ram Limited during the financial year 2021-22 was ₹530 crore.
(c) The net worth of Sai Ram Limited during the financial year 2021-22 was ₹555 crore.
(d) The net worth of Sai Ram Limited during the financial year 2021-22 was ₹620 crore.(
Sep’22)
Answer2: (a)
3. Sai Ram Limited constituted a Corporate Social Responsibility Committee as per the
provisions of the Act and Companies (Corporate Social Responsibility Policy) Rules, 2014 ,
therein consisting of-
(a) Sai Ram, Hari Om, Bindu and Reddy
(b) Hari Om, Bindu, Reddy and Prakash
(c) Sai Ram, Hari Om, Bindu and Prakash
(d) Sai Ram, Hari Om, Bindu and Roshan(Sep’22)
Case Scenarios
M 15.23
Answer 3: (d)
Question
II. Akash wants to wear a new coat for his seminar which is to be held (after 20 days). He bought cloth
material from the market to make a new coat. Akash gives material to Mr. Stitch, a tailor, to make the
coat. Mr. Stitch promised Akash to deliver the coat within the stipulated time of one week. Akash paid
10% advance so that he stitches his coat on priority basis. After one week when Akash went to the tailor
he was shocked to see that the coat is still unstitched. The tailor demanded two more days’ time from
Akash to stitch the coat, but Akash refused and asked the tailor to return his piece of cloth. Tailor
retained the cloth and asked Akash to pay the price, as he already did the cutting of the cloth.
Nishant, Akash 's friend left his car at the company’s authorised showroom for servicing. As Nishant’s
house is located in the remote area of the city, so he instructed the manager of the showroom to park
the vehicle at Akash’s residence. So as per Nishant’s instructions the car was sent to Akash’s house after
servicing. The worker of the showroom parked the car outside Akash’s residence and handed over the
key to Akash's servant. Next day, when Nishant went to pick up his car he found that somebody has hit
the car while it was parked there.
Nishant found a mobile phone and a branded pen lying on the road outside Akash’s residence. Nishant
tried to enquire about the real owner. He took the phone and pen with him and kept it in the drawer of
his study table. Next day, Nishant’s wife came to the room searching for a pen, she saw the pen and
took the pen and went out. Unfortunately, Nishant’s wife lost the pen. After two days, the real owner,
approached him (Nishant), Nishant humbly delivered his phone and apologized for the loss of pen.
Multiple Choice Questions [2 MCQs of 2 Marks each: Total 4 Marks](Sep’22)
Chapter 11: The Indian Contracts Act, 1872
4. According to the provisions of the Indian Contract Act, 1872, do you think the tailor has a
right of lien over the cloth?
(a) Yes, he is entitled to retain the coat until he is paid.
(b) No, he has not completed the work within the agreed time
(c) Yes, in case of particular lien he can retain the cloth.
(d) No, but he is not required to return the advance amount (Sep’22)
Answer 4: (b)
Chapter 11: The Indian Contracts Act, 1872
5. Referring to the provision of the Indian Contract Act, 1872, what are the repercussions, when
Nishant found goods belonging to another and takes them into his custody? Choose the
correct statement.
(a) He becomes subjected to the same responsibility as of a bailee.
(b) merely possession of the goods does not make him a bailee
(c) No act is done by owner for placing the goods in the possession of Nishant, so he cannot
be treated as bailee.
(d) In the absence of any express or implied contract, absolves Nishant’s liabilities as
bailee(Sep’22)
Answer 5: (a)
Case Scenarios 1(Oct’22)

Question 1
Case Scenarios
M 15.24
Jai and Veeru, two friends, formed a private limited company as Basanti Taanga Private Limited and got
it registered on 10th January, 2018. The registered office of the company was situated at Kolkata, West
Bengal. The company had an authorised share capital of ₹ 50 lacs divided into 5 lacs equity shares of ₹
10/- each. The issued, subscribed and paid-up share capital of the company was of ₹ 30 lacs divided into
3 lacs equity shares of ₹ 10 each. The company was engaged in supplying various motor parts to the
vehicles companies. ‘Basanti’ was a registered Trade mark of Basanti Motorwala Private Limited of
Mumbai since 15th January, 2016 under the Trade Marks Act, 1999. This company was also engaged in
manufacturing and supplying various auto parts to the vehicles companies.
Basanti Motorwala Private Ltd. of Mumbai came to know on 20th January, 2022 about Basanti Taanga
Private Limited of Kolkata who was using identical name and mark. Being a registered proprietor of a
trade mark, Basanti Motorwala Private Ltd. filed an objection with an appropriate authority under
Companies Act, 2013 on 15th March, 2022 that the name Basanti Taanga Private Limited or the mark
the company was using is found to be identical with or too nearly resembles to the registered trade
mark of Basanti Motorwala Private Ltd. and as such the appropriate authority should direct Basanti
Taanga Private Limited to change its name. The appropriate authority after going through all the details
rejected the application of Basanti Motorwala Private Ltd.
Thereafter on 14th July, 2020, Basanti Motorwala Private Ltd. requested Basanti Taanga Private Limited
to change its name and Basanti Taanga Private Limited accepted the same in good relationship. Basanti
Taanga Private Limited complied with all the formalities under Companies Act, 2013 such as passing of
all necessary resolutions, taking approval from appropriate authority, filing of documents with the
Registrar of Companies etc. The name of the company Basanti Taanga Private Limited was changed to
Jai Veeru Private Limited. A fresh certificate of incorporation was issued to the company by the Registrar
after being satisfied with the name change application of the company. Subsequent to the issuance of
the new incorporation certificate, steps were taken up to incorporate the new name in all copies of the
Memorandum of Association, Articles of Association and other documents of the company.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks] (Oct’22)
Chapter 2: Incorporation of Company & Matters Incidental There to

1. In the above case scenario, what can be the most evident reason for the appropriate authority to
reject the application of Basanti Motorwala Private Ltd?
(a) The appropriate authority rejected the application on the basis that the names of both the
companies are different- Basanti Motorwala Private Ltd and Basanti Taanga Private Limited.
(b) The appropriate authority rejected the application as Basanti Motorwala Private Ltd (owner of the
registered mark) should had filed the objection within three years of the registration of company
with identical name.
(c) The appropriate authority could have rejected the application on the basis that both the companies
are located in different cities and thus can use almost similar names.
(d) The appropriate authority could have rejected the application on the basis that both the companies
have different years of incorporation and both are located in different cities. (Oct’22)
Answer 1:(b)

2. In the above case scenario, what ought to have been the time limit within which Basanti Motorwala
Private Ltd, should have filed the objection for wrong name:
(a) On or before 9th January, 2021
(b) On or before 9th January, 2022
(c) On or before 9th January, 2023
(d) They can file the objection at any time (Oct’22)
Answer 2:(a)

Case Scenarios
M 15.25
3. According to above case, a fresh certificate of incorporation was issued to the company by the
Registrar after being satisfied with the name change application of the company. Which of the
following statements is correct in this context?
(a) The change in name of the company is said to be complete and effective from the date of passing
of resolution in the general meeting of members.
(b) The change in name of the company is said to be complete and effective from the date of issue of
fresh certificate of incorporation by the Registrar.
(c) The change in name of the company is said to be complete and effective from the date on which
documents were filed with the Registrar.
(d) The change in name of the company is said to be complete and effective from the date of the
order of Ministry of Corporate Affairs approving the change of name.(Oct’22)
Answer 3:(b)
Question 2
I. Prem and Amar are friends. Prem is the owner of three cars. Amar is a resident of Bhiwadi. He had to
daily commute from Bhiwadi to Gurugram. He was using the services of various cab providers for
commuting. Due to the rising prices and daily tension of booking a cab, Amar asked his friend Prem to
rent one of his cars to him for a period of two month. They mutually agreed for a monthly rent of ₹
8,000.
Prem bought a new car to gift to his son on his 19th birthday. Prem’s son Guddu, wanted to take his
friends out for a ride in the new car for a treat. They went the famous Labela Café. Guddu found a Rado
watch in the cafe; lying on the floor. Guddu tried to find the owner of the watch but all his efforts went
in vain. Guddu got the watch repaired from the showroom by paying ₹ 9,500. Three days after Guddu
found the watch, he came to know about the real owner of the watch, from the advertisement
newspaper stating the loss of a watch in Labela Café, along with the reward of ₹ 10,000 to the finder of
the watch. Guddu went to the owner to return the watch. Guddu demanded ₹ 15,000 as he had paid ₹
9,500 for the repair of the watch.
After the expiry of one month from the date of lending the car to Amar, Prem went to Paris for 1.5
months. Prem informed Amar to return back the car at his residence. After the expiry 2 months (from
the date of renting the car), Amar thought to retain the car with him for a further period of 1 month, for
the ease of commuting. However, he did not inform Prem about the same and thought of paying ₹ 4,000
for this extra 15 days to Prem (Prem was already not in India for 15 days, so in any case car could not be
delivered to him directly).
Chapter 11:The Indian Contracts Act, 1872

4. With reference to the provision of the Indian Contract Act, 1872, which of the statement is correct?
(a) Amar can retain the car as he had no malicious intention and was ready to pay ₹ 4,000 for retaining
the car for 15 days
(b) Amar being a friend of Prem is authorised to retain the car after 2 months and also Prem was not in
India at that time
(c) After the expiry of 2 months, the car can be retained at least for the time of 15 days when Prem was
not in India but not for the balance 15 days for which Amar was ready to pay ₹ 4,000
(d) It was not justifiable for Amar to retain the car after the expiry of 2 months (Oct’22)
Case Scenarios
M 15.26
Answer 4:( d)
Chapter 11:The Indian Contracts Act, 1872
5. According to the provision of the Indian Contract Act, 1872, choose the correct statement.
(a) Guddu has a right to claim only the amount spent on repairing the watch.
(b) Guddu has no right to claim the prize money.
(c) Guddu can retain the watch till the owner pays him at least the prize money.
(d) The owner is not liable to pay anything to Guddu. Rather, he can sue Guddu for stealing the
watch. (Oct’22)
Answer 5:( c)
Case Scenarios 1 (March 23) (Chapter Registration of Charges)

Shiv IT Solutions Ltd. is a company engaged in the business of providing customized software to its
clients. These software’s are usually related to the employee’s attendance, leave management, salary
preparation, tax calculation and other matters incidental to HR.
The company is having its own building and other infrastructure in Bengaluru and also at Brussels,
Belgium. The company have patent rights over few of its software’s and also have the trade mark right
over the company’s logo.
The company got sanctioned term loan facility of ` 10 crores from Best Bank Ltd on 1st January, 2022
by creating a charge on the assets of the company which includes the company’s own buildings and
intangible assets. The charge should have been created by the company within the time prescribed
under the Companies Act, 2013 with the Registrar, however, the company could not get registration
of charges within the prescribed time line.
During the course of Secretarial Audit of the company, for the year ended March 2022, it came in the
knowledge of the Company Secretary in Practice, that charge was not registered with the Registrar. He
mentioned it in the report and advised the company to get it registered. However, the Action Taken
Report (ATR) on the audit objection made by the Company Secretary was not apprised to the Board
and no follow up was made by the company thereafter.
Bank’s concurrent auditor and statutory auditor also pointed out this issue and narrated that since
charge was not created by the company, hence this advance be treated as clean advance and interest
rate of clean / unsecured advance, which is 22% (as against the normal rate of 11%) should be applied
from the date of disbursement on the outstanding amount till date. Bank also asked a professional,
whether it can get the charge registered, at its own, to satisfy the audit objection.
The Bank applied for registration of charge which was considered by the Registrar and registration of
creation of charge was granted. The Bank in order to address the audit objections, applied the interest
@ 22% on the outstanding amount in the loan account of the company. The company aggrieved with
the decision of the Bank, managed to liquidate the term loans account by raising funds from other
sources and filed the ‘Satisfaction of Charge’ with the Registrar.
1. The company can create charge in favour of the lender on the the assets which are:
(a) Tangible Assets and situated in India only
(b) Intangible Assets and situated in India only
(c) Assets that are tangible or otherwise and situated in India or Brussels (Belgium)
(d) Assets that are tangible or otherwise and situated in India only
Case Scenarios
M 15.27
Answer 1 (c)
2. Where the company fails to get the registration of charge, whether the Best Bank Ltd, in whose
favour the charge was to be created, can move the application for creation of charge:
(a) No. It is the responsibility of the borrower company only to get the charge registered in favour
of the lender.
(b) If the company do not get the charge registered in favour of the lender, the lender suo-moto
cannot move application for registration of charge in its favour.
(c) The borrower company can be held liable to pay the penalty only.
(d) Yes. The lender company can move the application for registration of charge in its favour, if the
borrower do not get the charge registered with the prescribed time.
Answer 2 (d)
Case Scenarios 1 (April 23) (Chapter Declaration & Payment of Dividend)

I. Waste Papers Ltd. is company engaged in the business of collecting waste papers and old newspapers
and manufacture from these wastes the corrugated boxes which are used in packing of the products
by various suppliers.
The company is earning good profit margin and paying dividend consistently, which can be seen by
the following information:
(` in Lakh)
Year Payment of dividend Paid-up share capital Free Reserves
2012-13 to 2017-18 10 100 45
2018-19 15 100 60
2019-20 20 100 75
2020-21 22 100 95
2021-22 24 100 120
During the year 2022-23, the company’s business was severally affected due to low demand of the
corrugated boxes on account of recession situation (slow- down of economy) prevailing all over the
country. The company showed a loss of ` 20 lakh in the annual accounts.
However, the company wants to maintain its image of consistently dividend paying company and for
this year also, it also wants to declare dividend. The company have accumulated free reserves in its
hand and want to declare dividend @ 26% (since there is increasing trend of 2% from the preceding
years).
During the year 2022-23, Somesh, a shareholder of the company died due to cardiac arrest. He was
having 10,000 shares in his D-mat account in which he has made nomination in favour of his son
Romesh. When Romesh applied for transmission of the shares, his sister Sanjana, objected and filed a
case in the court that she also has right in the property of her father and mere making of nomination
do not dilute the rights of the legal heirs to claim share in the property. The matter is sub-judice in the
court of law awaiting decision.
The company has business dealing with Mahesh Kumar, who is also a shareholder of the company. The
company has supplied some goods to Mahesh Kumar worth ` 10,000, but he was not making payment
to the company. The company while making payment of the dividend to Mahesh Kumar deducted the
due amount, and as a result, nothing was payable to Mahesh Kumar towards the dividend. Mahesh
Kumar threated to take action against the company.
Based on the above facts, answer the following MCQs [3 MCQs of 2 Marks each: Total 6 Marks]
Case Scenarios
M 15.28
1. Whether Waste Papers Ltd, who suffered losses in year 2022-23, can make payment of dividend to
the shareholders:
(a) In case of losses, the company can’t pay dividend
(b) Company may pay dividend out of profits of previous years (which are free reserves), subject to the
fulfilment of conditions prescribed for declaration of dividend when there is inadequacy of profits
in a particular year
(c) Company may dividend out of Asset Revaluation Reserve Account
(d) Company may dividend without any restriction as it has enough amount in its Free reserves
Answer (b)
2. Romesh (son of the deceased) made a complaint, that even after declaration of dividend, the company
has not posted the dividend warrant at the address given in his transmission form. Which is the most
correct statement in this regard:
(a) The company is not liable to pay dividend to a deceased person
(b) The company is not liable to pay dividend to the legal heirs of the deceased person
(c) The company should deposit the dividend in the court, where the matter is under consideration
(d) The company is not liable where there is a dispute regarding the right to receive the dividend.
Answer (d)
3. In the given case, the amount due to be recovered from Mahesh Kumar was deducted by the company
and nothing was now payable to him on account of dividend. Is the action of the company right:
(a) No, payment of dividend is a separate matter and should not be clubbed with any other matter
(b) Yes, Mahesh Kumar can take action against the company for not paying any dividend to him
(c) The company can adjust the any sum, due to it, from the shareholder
(d) The company should take into confidence and consent of Mahesh Kumar’s family members to adjust
its dues
Answer (c)
Case Scenarios

Paper2 InterLaw MTP All Attempts May23

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Corporate & Other Laws

Mock Test Papers Compilation

Question 2 (This Question also includes concepts of Chapter 2 )

(a) Control of at least 10% of total voting power

 If at any time the number of members of a company is reduced,

(ii) Whether a firm can be member of the Section 8 Company ?

Answer 31: (c)

(ii) Whether the Company may be wound up?

(a) 31st March, 2022

the period of validity of that prospectus, no further prospectus is required;

following options is best suited in such a situation:

provisions relating to prospectus.

(a) By way of rights issue

Issued & Subscribed Capital:

1. Authorized Share Capital (25,00,000 equity shares of ` 10/- each) ` 2,50,00,000

3. Free Reserves ` 3,00,00,000

(i) its free reserves;

the circumstances of each case.

(a) 3 months (b) 6 months (c) 9 months (d) 12 months

repaid and not thereafter.

(a) Fully secured deposits (except a small portion)

deposit in terms of sub-clause (viii) of Rule 2 (1) (c).

was submitted within the permitted time.

(a) Lalit is bound with the offer due to ratification

President of India or Governor of a State, if he is a member of a company, may appoint such a

immediately preceding three financial years.

the payment due to family dispute about succession.

(d) 2012-2013 (2 Marks April 22)

The Answer is (b)

(a) Penal provision will be applicable for unspent amount of ` 10 lakhs.

of the company made during the 2 immediately preceding financial years.

(i) Who shall sign Board’s Report

(i) the relevant earlier accounts were prepared in a fraudulent manner; or

The Answer is (b)

and the rules or the regulations made under those Act;

‘A’ failing to repay, it is a _______ _

his house. State the nature of agency created between A and B:

contract contract guarantee, where a minor is a

A substituted agent acts on behalf of …………

(i) Specific Guarantee

Continuing Guarantee- A guarantee which extends to a series of transaction is called a continuing

is at maturity is a public holiday, the instrument shall be deemed to be due on the……..

(v) When the drawee is incompetent to contract.

(b) It should be in writing

is not entitled to the possession of it in his own name.

thereto. (4 Marks) (Oct’22)

i. the maker and

Any alteration is material:

IV. Permanently fastened to anything attached to the earth.

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

Question 10 Includes concepts of Chap 8- Declaration of Dividend

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

whether by itself or any other authority in exercise of that power.

(a) An obstacle clause

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

(a) To exclude females

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

DEVAANAND | 9597821577 Chapter 13 The General Clauses Act, 1897

(c) General words, narrow (d) General words, wider