Company Law (Part A)

Marks :- 80 Time :- 3 Hrs

Question 1
Case Study : --
Anil, Sunil and Vaishali are close friends from a renowned business family. After doing their
masters from IIM, Ahmadabad they decided to start e-commerce in commodities. However,
they were not sure about the legal format in which they should start the business. On
request, M/s AB & Associates, a firm of practicing Company Secretaries advised them to
form a company limited by shares being the best suitable device for running the business.
After complying with the legal formalities, the company in the name and style of ‘‘Dynamic
E-Commerce Ltd.’’ (hereinafter referred to as ‘‘the Company’’) was incorporated on 1st April,
2020 by seven subscribers (including Anil, Sunil and Vaishali) to the Memorandum and
Articles of Association of the Company with the main object of carrying e-commerce in
grains, grocery, and medicines throughout India.
The registered office of the company is situated in Pune, the State of Maharashtra (India).
The capital clause of the Memorandum of Association (MOA) provides as under :
‘‘The authorised share capital of the company shall be Rs 1,00,00,000’’ The Articles of
Association (AOA) contain the capital clause as below :
‘‘The authorised share capital of the company shall be Rs 1,00,00,000 divided into 8,00,000
equity shares, carrying voting rights pari-passu of Rs 10 each and 20,000 preference shares
of Rs 10 each.
" The company offered preference shares to the financial institution, its promoters, and a
group of individuals on which rate of dividend shall be 10% as per the term of issue. The
financial institution refused to subscribe to the issue of preference shares on the contention
that MOA is ambiguous as it does not authorise the company to issue class of preference
share and hence the act of offering preference shares is ultra vires the company. Considering
the growing business, the company wants to shift its registered office from Pune to Mumbai
in the State of Maharashtra (India). The Managing Director of the company has been
apprised by the Legal Officer that the company may shift its registered office, as proposed,
by passing a unanimous board resolution and filing necessary forms with the Registrar of
Companies .
Encouraged with the financial results of last three years the Board of directors of the
company intends to declare interim dividend for the first time in its next board meeting to
be held on 31st May, 2023 out of the profit earned for the year 2022-23.
The balances extracted from the financial statement for the preceding year are as below :
 Particulars Financial Results for the year ending
31st March, 2023 (Rs in lakh)
Net Profit for the year after depreciation 80.00
but before interest and tax (NPBIT)
Charge of Interest on the profit on term 5.00
loan
Fully Paid-up equity share capital 60.00
Fully Paid-up Preference share capital 16.00
Free Reserves 10.00
Term Loan 50.00
Contingent Liabilities for which profit is to 24.65
be set aside
Assume Income-tax provision @ 25%
Based on the above facts answer the following :
a) Whether the contention of the financial institution in refusing to subscribe to the
issue of preference shares of the company is valid ?
b) Referring to the provisions of the Companies Act, 2013 advise the company of the
compliance requirement for shifting of its registered office from Pune to Mumbai.
c) Referring to the provisions of the Companies Act, 2013 read with Secretarial
Standard-3 (SS-3) and requirement of the Board. Explain the meaning of ‘‘Divisible
Profit’’ and can interim dividend be paid by the company out of free reserves, in the
event of loss or inadequacy of profit during a financial year ?
(5 Marks Each)

Question 2:-
a) Amar, Akash and Ashish were the owners of a coffee estate in Munnar. They
registered a new company called Mandoli Coffee Estate Private Limited and
transferred their coffee estate to the newly formed company.
They claimed exemption from paying Registration charges and Stamp duty on the
ground that since they were the only shareholders of the company, the transaction
was nothing but transfer by them from one name to themselves in another name.
Referring to the provisions of Companies Act, 2013, is their claim tenable?
(marks 3)

b) The Board of Customer last Limited, an unlisted public company is exploring ways to
increase its paid up share capital from ₹ 125 crore to ₹ 150 crore. The CFO of the
company suggested that instead of offering shares to all existing shareholders as a
rights issue the company can issue further shares by private placement to four
identified Qualified Institutional Buyers and the top 250 existing shareholders by
receiving cash without offering shares to other shareholders.
 The company secretary of the company objects to the manner of raising further
capital, i.e. the offerings to the select shareholders as well as receiving cash.
Referring to the provisions of Companies Act, 2013 decide.
(3 marks)

c) AB Pvt. Ltd. Is unlisted material subsidiary of HD Ltd. Which is a listed entity. It is the
strong conviction of the Company Secretary of HD Ltd. That secretarial audit for AB
Pvt. Ltd. Is not required for two reasons such that it is a private company and
secondly an unlisted company. Based on the information and input data provided
above, referring to the provisions of the Companies Act, 2013 you are requested to
examine/analyse and answer the following : Explaining the requirement and timeline
for submission of secretarial compliance report by a listed entity, state whether the
Secretarial Audit of AB Pvt. Ltd. Is voluntary in light of the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ?
Also, explain the meaning of material subsidiary
(3 marks)
d) Sunrise Online Coaching Limited (the company) is registered in Singapore. It has no
place of business established in India, however, it is conducting online educational
courses and providing online tutorials and coaching for various courses by charging
fee for Indian students who have joined the courses online from India. The registered
office is situated at Singapore and having its main server for online coaching outside
India. State the status of the company under the provisions of the Companies Act,
2013.
(3 marks)
e) Stunning Commodities Ltd. Gave notice seeking information from Ujjwal (not a
member of the Company) whom the company has reasonable cause to believe to be
having knowledge of the identity of a significant beneficial owner (SBO) of the
company. It is observed that information given by Ujjwal is not satisfactory. You are
General Manager (Secretarial) of the Company. The CEO of the Company asks you for
further action to be taken by the company on this, if any. Please advise.
(3 marks)
“OR”
Global Services Limited is planning to issue its equity shares through private
placement to some of the persons residing outside India. There is a provision in the
Articles of Association of the company for issuing equity shares to the foreigners
through private placement. Board in its meeting approved the resolution allotting
10,000 shares to A and B who reside outside India. You are requested to elucidate
the compliance requirement of the following referring to the provisions of the
Companies Act, 2013 :
(i) Maintenance of foreign register of members ?
(ii) (ii) Option available, if any, to discontinue the maintenance of foreign register
of members.
(3 marks)
Question 3:-
(a) A newly appointed auditor of a listed company came across the evidence of under
invoicing of exports, round tripping of funds through tax heavens and fraudulent
siphoning of funds amounting to ten million USD. Explain the further course of action
by the auditor. Also explain what is fraud? (5 marks)

(b) Sanjay Diagnostic Limited (the Company) was registered in Bihar under the provisions
of the Companies Act, 2013. Its future project is to diversify into other profitable
business, which is unique and provide sustainable business growth. Due to the
recession in the industry and excessive competition from the seasoned player, the
Company has no significant accounting transaction and business activities during the
last two financial years. However, the Company has been regular in filing its financial
statements and annual returns with the Registrar of Companies, Patna by making
payment of applicable filing fees. The Company decided to file the application for
obtaining the status of dormant company in line with the relevant provision of the
Companies Act, 2013. The Company instead of passing a special resolution to this
effect in the general meeting of the Company issued notice to all the shareholders of
the Company for this purpose and obtained consent of 82% of shareholders in value.
Referring the provisions of the Companies Act, 2013 and Rules made there under
answer the following :
(i) Explain the term ‘‘Dormant Company’’.
(5) Whether the payment of applicable filing fees to the Registrar of
Companies (ROC) could be considered as significant accounting
transaction under the Companies Act, 2013.
(5) Whether the application made by Sanjay Diagnostic Limited is in order, in
the absence of passing a special resolution ?
(5 marks)

(c) Referring to the provisions of the Companies Act read with the relevant Rules
examine, whether the following amounts received by a company will be considered
as deposits or not :
(i) Tiwari Exports Limited has raised ` Rs 12,00,000 through issue of non-
convertible debentures not constituting a charge on the assets of the
company and listed on a recognized stock exchange as per the applicable
regulations made by the Securities and Exchange Board of India.
(ii) National Refrigeration Ltd., a leading fridge manufacturer in North India,
received `Rs 2 crore from Mr. Ankit for supply of 2000 fridge and made
appropriation of such advance after expiry of 390 days from the date of
acceptance of such advance.
(iii) Lalit ceased to be a director of ABC Pvt. Limited (the company) by resignation
w.e.f. June 15, 2023 and the company received Rs. 50,00,000/- (Rupees Fifty
lakh) from Priya (spouse of Lalit) on June, 10, 2023 and the amount was self-
earned savings of Mr. Priya as per her declaration. (2+2+1=5 marks)
Question 4:-
(a) Analyse the eligibility of a minor to become member of the company and other
issues incidental thereto in the following scenarios :
(i) Minor becoming member by agreement signed by him
(ii) Minor becoming member by allotment or transfer of fully paid-up shares
through guardian
(iii) Minor becoming member by transfer of partly paid-up shares and liability of
future calls thereon
(iv) Restoration of dividend to the company, if he repudiates the agreement of
membership on attaining majority.
(5 marks)
(b) Anil, Sunil and Sunita are proposed to be first directors in the Articles of Association
of the proposed company. However, as they do not have DIN would not be able to
assume office of director immediately on incorporation of the company. Is there any
way out available to obtain DIN simultaneously with incorporation of the company so
that the company, on incorporation, will meet the requirement of having minimum
number of directors ? Advice, referring to the provisions of the Companies Act, 2013
(5 marks)

(c) )Rakesh Agarwal is a Non-Executive & Non-Independent director of Happy Travels

Limited, an unlisted company. The paid-up share capital of the company is ` 120
crore. The company has availed a term loan of ` 65 crore. The Board of directors, in
their meeting passed a resolution to grant a housing loan of rupees one crore to
Rakesh for purchase of an apartment in Navi Mumbai at concessional interest rate.
The company has implemented a housing loan for its permanent employees at
concessional interest rates. The Secretarial Auditor has objected to the loan granted
to Rakesh in his Secretarial Audit report. Is the claim of Secretarial Auditor correct?
Will your answer differ if the company is a private limited company?
(5 marks)
“OR”
The Board of directors of ZED Ltd. (Listed Company) is actively considering a proposal to buy
back its shares. Naveen has recently joined the Board as an Additional Director. You are the
senior partner of a firm of Company Secretaries and Naveen has sought your views, if there
is any requirement for filing Declaration of Solvency by the company with any regulatory
authority and particulars thereof. Also, what would be the time gap between two buy-backs.
Advise Naveen in the light of the provisions of the Companies Act, 2013. (5 marks)

Question 4A :-
(a) Provide various grounds on which the investigation is assigned to Serious Fraud
Investigation Office (SFIO) ? (5 marks)
 (b) ABC Ltd. is engaged in the manufacture of ayurvedic medicines, sales are good. Over
the years, it has built a good reputation in the market made the huge profits and its
Balance Sheet as at 31st March, 2023 shows the following position :

Authorized Share Capital (50,00,000 equity shares of face value

or Rs. 10/- each) Rs. 500,00,000/-)
Issued, subscribed and paid-up share (10,00,000 equity shares of face value
capital or Rs. 10/- each, fully paid-up) Rs.
100,00,000/-)
Free Reserves Rs. 30,00,000
Securities Premium Rs. 10,00,000
Debentures Redemption Reserve Rs.10.00.000

The Board of Directors proposes to declare a bonus issue of 1 share for every 2
shares held by the existing shareholders. The Board wants to know the sources,
conditions of bonus issue and the maximum number of bonus shares that can be
issued under the provisions of the Companies Act, 2013. (5 marks)

(c) Ankur Steel Limited is a manufacturer of stainless steel. It had raised 400 crores
through public issue of its equity shares for starting one more unit of steel
manufacturing in Odisha. It has utilized 100 crores. Due to reduction in customs duty
on import of steel, imported steel from China are cheaper than its own
manufacturing. Since there is no scope for growth and expansion in the existing
business, management of the Company thought of utilizing remaining amount in
software development business (including Artificial Intelligence) by adding a new
object in the Company’s its mernorandum of association. As per the provisions of the
Companies Act, 2013 can it do so ? If no, what advise will you give to the company ?
If yes, then explain the various steps to be followed by the company. (5 marks)

Question 5:-
(i) CASE STUDY
Manoranjan, a young Journalist and MBA with flair for writing started a small net-based
business of content writing in the year 2011 by the name–Nirbheek Contents. Initially, his
business focused on website copywriting and business blog writing. Riding the wave of
sourcing work from India by western countries, his business grew quite rapidly.
Having taken the business to the highest level his focus shifted from writing contents himself
to have a team to write content. He personally monitored them to ensure quality. In the year
2016, he formed a media company namely (MTR) Ltd. in Delhi and had a team of fifty
persons who were working with him on regular basis.
With the initiative of Manoranjan being very ambitious and positive about his business MTR
Ltd. expanded the business by entering into the business of printing books, journals,
exporting printed material to the foreign clients etc. After few years the Board decided for
demerging its both business where MTR Limited (MTR or ‘‘Demerged Company’’) shall
remain engaged in media business and a new company i.e., ATR Limited (ATR or ‘‘Resulting
Company’’) which was formed will engage in the printing business.
The Board of Directors of MTR & ATR approved the scheme of arrangement in their
respective meetings. Accordingly, the complete printing business, as a going concern of the
demerged entity, was required to be transferred including its assets and liabilities which
belong to the printing business of the demerged company to the resulting company.
However, the immovable properties were excluded from the deal.
A meeting of members of MTR Limited was convened under the order of the Hon’ble NCLT
to consider a scheme of compromise and arrangement. Notice of the meeting was sent in
the prescribed manner to all the 1200 members holding in the aggregate 1,00,00,000
shares. The meeting was attended by 900 members holding 60,00,000 shares. 420 members
holding 44,00,000 shares voted in favor of thc scheme. 360 members holding 12,00,000
shares voted against the scheme. The remaining members abstained from voting.
A group of creditors of MTR Limited was against the ongoing scheme of arrangement and
they made a complaint to the concerned Registrar of Companies (the Registrar) alleging that
the management of the company has indulged in destruction and falsification of the
accounting records of the company and proposed scheme is not in the interest of the
unsecured creditors.
The registered office of ATR Ltd. is presently situated in the premises of MTR Ltd. However, in
order to have a separate registered office for corporate business ATR Ltd. hired the premises
in the same city where its registered office will be shifted after complying with the legal
formalities.
XYZ Limited, an associate company of MTR Limited, has a paid-up capital of RS 460 lakhs and
accumulated free reserves of Rs 740 lakhs. Loss for the year ending 31st march, 2023 is Rs
74 lakhs.
Dividend was declared at the following rates during the three years immediately preceding
to the year 2022-23 :
Year 1 10%
Year 2 12%
Year 3 14%
Based on the above information and referring to the provisions of the Companies Act, 2013
answer the following :
(a) Examine, whether the scheme of compromise and arrangement is approved by the
requisite majority of members. (3 marks)
(b) A group of creditors of MTR Limited, not satisfied with the scheme being approved in
a fraudulent manner, made a complaint to the Registrar of Companies (the Registrar)
and the Registrar, immediately on receiving the complaint, attempted during the
 business hours at 11 a.m. on 25th September, 2023 to enter the premises of the
company for seizure of the record but the company opposed to it on the contention
that the Registrar has no power to enter the premises and seize the record without
the order of the special court. Decide, whether the contention of the company is
valid. (3 marks)
(c) What is the maximum rate at which the dividend can be declared by XYZ Limited ? (3
marks)
(d) What is the amount available for declaration of the dividend subject to fulfillment of
other conditions in case XYZ Limited declares the dividend ? (3 marks)
(e) ) Referring to the provisions of the Companies Act, 2013 explain the managing
director of ATR Ltd. the formalities to be completed before and after shifting of the
registered office clarifying whether the approval of members of the company
through a special resolution is required for it. (3 marks)

(ii) Direct Question

Draft a specimen of notice of the Board Meeting considering the provisions of the
Companies Act, 2013. (5 marks)
“OR”
(i) Draft a sample Board resolution for the approval and adoption of a new
CSR policy.
(ii) (ii) Draft a specimen Board resolution for approval of Board’s Report.
(3+2=5 marks)