Company Law (Test 4)

Time Allowed: 3 Hours Date: 29.11.2017

NOTE: All references to Sections relate to Companies Act, 2013, unless stated otherwise.

Question 1
Comment on the following:

a. Where a company borrows without authority conferred by Articles or beyond the amount
set out in the Articles, it is an ultra-vires borrowing and the lender can sue company for
recovery of loan.
b. As per Section 72, every security holder has a right to nominate a person to whom his
shares or debentures shall vest in the event of his death, however the nominee’s claims
are secondary to claims made by legal heirs.
c. Director appointed by small shareholders shall be appointed for maximum five years
and such director shall not be liable to retire by rotation.
d. Holder of Global Depository Receipt cannot be called as member of the company.
(5 marks each)
Attempt all parts of either Q. No. 2 or Q. No 2A

Question 2
Distinguish between the following:

a. Inspection and Investigation

b. Statutory Audit and Secretarial Audit
c. Ordinary Business and Special Business
d. Motion and Resolution

OR
Question 2A

a. The Board of directors of Wise Ltd., a company incorporated under the Companies Act,
2013 and listed at Bombay Stock Exchange, at its meeting resolves to issue certain
number of shares with differential dividend and voting rights. The Board of directors
presents the following information:
i. The Board has decided to keep the shares with differential dividend and voting
rights at 51% of the paid-up share capital.
ii. As per the track record, the company has a record of distributable profits for the
last two years only; before that the company had suffered heavy losses.

Examining the provisions of the Companies Act, 2013 and the rules framed thereunder,
stating the conditions, if any, decide whether the company can proceed with the
execution of Board's resolution for issue of shares with differential rights in respect of
dividend and voting.
b. Rohan, a person resident in India, has been running a hotel as a sole proprietor. He
now wants to convert his business into a 'one person company' (OPC) as permissible
under the provisions of the Companies Act, 2013 and seeks your advice in this regard.
Advise him on the procedure to be followed for conversion of his business into an OPC.
What shall be your advice if Rohan is a non-resident Indian? Whether a partnership
firm can form an OPC?

c. List out the additional items of business which cannot be passed through resolution by
circulation and have to be placed before the Board at its meeting in case of a listed
company.

d. "In case of listed companies, the Management Discussion And Analysis Report (MDAR)
should either form a part of the Board's Report or be given as an addition thereto in the
annual report to the shareholders." Discuss the statement and also state the contents
to be included therein.

Attempt all parts of either Q. No. 3 or Q. No. 3A

Question 3

1) The promoters of a public limited company want to insert a clause in the articles of
association of the company giving power of expulsion of a member to the Board of
directors, where the directors are of the view that the activities or conduct of such a
member is detrimental to the interest of the company. Is it a right step? Explain.

2) A company proposes to hold its Board meeting at a shorter notice through video
conferencing. As a Company Secretary, explain the requirements and procedures to all
the directors.

3) Section 143 imposes a statutory duty upon the auditor to report to Central Government
if he has a reason to believe that a fraud is being committed. Are these provisions
applicable only to statutory auditor or also to secretarial and cost auditor?

4) A contributory means a person liable to contribute to the assets of a company in the

event of its being wound-up. Explain. Whether legal representatives be liable as
contributories? (4 marks each)

Question 3A

a. Sunil, a member of Shetty Ltd., wants to inspect the register of deposits maintained by
the company as required under the provisions of the Companies Act, 2013. The
company refused to provide the register for inspection without assigning any reason.
Referring to the provisions of the Act, examine the validity of the company's refusal.
What shall be your answer if the same Register is demanded by the statutory auditors of
the company for inspection and for their audit.
b. Your client Mr. Vivek wants to form a private company with share capital of Rs. 50,000.
Examining the relevant provisions of Companies Act, 2013, advise Vivek on the following
issues with proper justification:
 Whether registration of Articles of Association of the proposed company is
mandatory?
 Whether Mr. Vivek will be able to convert the company into a One Person Company
at a later date?
 If the company holds shares in another company, will it require consolidation despite
being a private company?
 Is the company supposed to hold an Annual General Meeting?

c. Roopa (Pvt) Ltd is a company incorporated in 2016. The company has a subsidiary
company Swaroopa (Pvt) Ltd in which it holds 80% shares. Whether the companies will
be treated as ‘related parties?’ Will the transactions between them be governed by
provisions of Section 188?

d. A body corporate is not a living person who can sign. In such a situation, state the
manner in which a company can sign on important documents. What shall be your
advice to the company on the official signatures while entering into contracts with third
parties?

Question 4

1) Decent Ltd. was incorporated under the Companies Act, 2013 on 1st January, 2017.
The first financial year of the company was closed on 31st March, 2017. Explaining the
provisions of the Companies Act, 2013:
a) State as to when should have the company held its first annual general meeting
(AGM) and the subsequent AGM.
b) The meeting as per schedule was conducted but could not complete the business as
slated on the agenda. As a result, the meeting was adjourned to a later date to
transact the unfinished business. Certain shareholders give a notice to the company
where they wanted certain new business to be transacted at the adjourned AGM.
State whether the new business can be transacted at this adjourned meeting

2) A real estate company took advance money from its customers in the course of business
on which no interest is supposed to be paid to the customers. At the end of financial
year, company is in dilemma whether to treat this advance as 'advance' or 'deposit'.
Advise the company on how to treat this amount without interest.

3) Mention the classes of companies which are mandated by the Ministry of Corporate
Affairs to file their financial statements in eXtensible Business Reporting Language
(XBRL) mode with its key benefits. State exceptions, if any.
4) The financials of Hunter Ltd are given below:
Equity Share Capital - Rs. 10,00,000
General Reserve - Rs. 500,000
10% Debentures - Rs. 10,00,000
In the year 2016-17, the company has suffered a loss and wants to declare dividend out
of accumulated profits earned in previous financial years. The rate at which dividend
was declared in previous three years was as follows: 2013-14 – 10%; 2014-15 – 12%;
2015-16 – 15%.
In the current year, the company wishes to declare dividend at 17%. Whether the
company can do so? Advise. (4 marks each)

Question 5

1. Trips Ltd is a company to whom CSR provisions are applicable. The company seeks
your advice with respect to following queries:
a) Whether contribution to political party is considered as CSR Activity?
b) Whether CSR projects or programmes for the employees of the company and their
family will form part of CSR Activity?
c) Whether activities undertaken by company in pursuance of its normal course of
business constitute CSR?
d) Whether contribution in kind is permissible or not?

2. Barr-Ka Ltd. has three directors on its Board. A Board meeting was convened which
was attended by only two directors, where Rakhi was appointed as an additional
director. Rakhi is related to both the directors. Referring to the provisions of the
Companies Act, 2013, examine the validity of the appointment.

3. On 1st October, 2016 Opera Ltd redeemed its preference shares and money was duly
returned to the shareholders. On 1st December, 2016 the company passed a resolution
for buy-back of equity shares within limits given in Companies Act, 2013. The ROC
objected to this stating a period of six months should elapse from the date of preference
share redemption as cooling off period. Is the contention of ROC valid?

4. The Balance Sheet of Duck Company Ltd. shows paid-up Equity Capital of Rs. 5 crore,
Securities Premium A/c of Rs. 2 crore and free reserves of Rs. 2 crore. Due to heavy
financial requirements, it plans to apply for a loan of Rs. 8 crore with a bank. Advise the
management regarding formalities to be fulfilled. What other alternatives does the
company have?
(4 marks each)
Attempt all parts of either Q. No. 6 or Q. No. 6A

Question 6

a. At the annual general meeting of Vinay Ltd., in order to avoid duplication of the
resolutions, a single resolution was passed to appoint four directors on the company's
Board. Certain shareholders of the company objected to the resolution on the ground
that it is violative of the provisions of the Companies Act, 2013. Examine whether the
contention of the shareholders is tenable.

b. Sweet (Pvt.) Ltd. has committed a default which is in violation of the provisions of the
Companies Act, 2013. No specific penalty or punishment is provided in the Act for the
said default. Decide the quantum of punishment for contravention where no specific
penalty or punishment is provided under the Companies Act, 2013

c. Champa Private Limited is a company incorporated in 2016. The Board of Directors of

the company wants to contribute 2.8% of its average net profits of the last years to the
Prime Minister’s National Relief Fund. Referring to the provisions of the Companies Act,
2013, advise the Board.

d. At the annual general meeting of Soya Ltd., a matter was to be transacted by passing a
special resolution. The company had a total of 100 members holding equal shares. Out
of 40 members present, 30 voted in favour of the resolution and remaining 10 members
voted against. The ROC of the State objected the resolution stating only 30% members
attended the meeting and hence, provisions of special resolutions were not satisfied.
Justify.

Question 6A

a. Write a short note on ‘Nidhi’ Company.

b. What do you understand by Satisfaction of Charge?

c. What amounts are required to be credited to Investor Education and Protection Fund
constituted under Companies Act, 2013? Which classes of companies are required to
mandatorily create such Fund?

d. It has been found that Mrs. Shweta, director of a company, has drawn remuneration in
excess of the prescribed limits. The CFO of the company has sought your advice in the
matter. As a Secretary of the Company, advise the course of action that may be taken in
this regard