CA FINAL NEW COURSE (May 2021)

GROUP I – PAPER 4
CORPORATE AND ECONOMIC LAWS
(Series 2)
Time Allowed: - 3 Hours Maximum Marks: 100

This question paper comprises two parts, Part I and Part II.
Part I comprises MCQs and Part II comprises descriptive questions.

PART – I (MCQs)
All MCQs are compulsory

Questions no. 1-10 carry 2 Marks each and Questions no. 11-20 carry 1 Mark each.
The following scenario relates to questions 1–5
Runway Infrastructure Limited (Public Company registered under the Indian Companies Act 2013) is
a globally recognised company dealing in various products and services. It has many branches and
subsidiaries in India and outside India. One of the Objects Clauses of the Memorandum of Association
of Runway Infrastructure Limited conferred upon the company, power to sell its undertaking to
another company with identical objects. Company's Articles also conferred upon the directors powers
to sell or otherwise deal with the property of the company. At an Extraordinary General Meeting of the
company, members passed an ordinary resolution for the sale of its assets on certain terms and
authorized the directors to carry out the sale. Directors refused to comply with the wishes of the
members where upon it was contended on behalf of the members that they were the principals and
directors being their agents, were bound to give effect to their (members') decisions.
Also Runway Infrastructure Limited entered into a contract with Royal forgings (a partnership firm),
in which wife of Mr. Patrick, a director of the Runway Infrastructure Limited is a partner. The contract
is for supply of certain components by the firm (Assuming that contract is within limits specified under
the Companies Act, 2013) for a period of three years with effect from 1st September, 2019 on credit
basis.
Considering the above facts, You are required to answer the following:

1. Whether approval of proposal by shareholders independently of the Board of Directors is correct?

(a) Yes, Shareholders can approve such proposal by passing ordinary resolution.
(b) No, Shareholders can approve such proposal only by passing special resolution.
(c) No, It is for the Board to approve a proposal of sale of the undertaking and then get the
members to approve it by a special resolution.
(d) No, It is for the Board to approve a proposal of sale of the undertaking and then get the
members to approve it by a ordinary resolution.

2. Whether the contention of members that they were the principals and directors being their agents
were bound to give effect to the decisions of the members is tenable?
(a) Members contention is tenable.
(b) Members contention is not tenable.

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 1
 (c) Above contention of members is partly tenable. As members are the real owners of the
company, they are the principals and directors being their agents but directors are not
bound to give effect to the decision of members.
(d) None of the above

3. Whether it is possible for the members to usurp the powers, which by the Articles are vested in
the directors by passing a resolution in the general meeting.
(a) Yes, members can do so by passing a special resolution
(b) Yes, members can do so by passing a resolution unanimously
(c) No, members cannot alter the articles
(d) No, members cannot supersede the powers of the Board of Directors

4. Which of the following requirement should not have been complied with by Runway
Infrastructure Limited before entering into contract with Royal forgings.
(a) Prior approval of Board of Directors
(b) Prior approval of Shareholders
(c) Furnishing of particulars of the contract in Form MBP-4
(d) Disclosure of interest in the transaction/contract by the Directors

5. What would be your answer in case Royal forgings is a private limited company in which wife of
Mr. Patrick is holding shares?
(a) Section 184 is not applicable but Section 188 is applicable
(b) Both Section 184 and 188 are applicable
(c) Both Section 184 and 188 are not applicable
(d) Section 184, 188 and 189 are applicable

The following scenario relates to questions 6–10

Gangotri Ltd. is a public company listed on Bombay Stock Exchange. It is engaged in the business of
packaged drinking water and other beverages from past 15 years. In December 2019, an investigation
under the companies act, 2013 had been conducted on the affairs of the company in the public interest.
During investigations, the inspector observed that the Directors of the company had been acting on the
instructions of the holding company and he proceeded to investigate the holding company after taking
prior approval of Registrar.
Seeking this investigation and activities of the company as indulging in unfair trade practices, Bombay
Stock Exchange delisted the securities of the company on 20th January 2020.
Later, The Management of Gangotri Ltd. was taken by LBV Bank Ltd. (secured creditor) complying the
provisions of SARFAESI Act, 2002 who appointed two Directors. The Board of Directors of Gangotri
Ltd., duly authorized by its Articles, appointed two Alternate Directors and the majority of the Directors
made a declaration required for voluntary liquidation proceedings. A special resolution requiring the
Company to be liquidated voluntarily by appointing an insolvency professional to act as the Liquidator
was passed at the general meeting of the Company. The Board of Directors and the Shareholders passed
the resolutions without the approval/consent of Directors appointed by LBV Bank Ltd. Also RP Finance
(an unsecured creditor) wants to take recourse against Gangotri Ltd. without taking permission of LBV
Bank Ltd.
Considering the above facts, You are required to answer the following:

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 2
 6. Is proceeding undertaken by the Inspector is valid under the provisions of the Companies Act,
2013?
(a) Yes, Inspector can proceed as he takes prior approval of Registrar.
(b) No, Inspector cannot proceed as it requires prior approval of Tribunal.
(c) No, Inspector cannot proceed as it requires prior approval of Central Government.
(d) No, Inspector cannot proceed as it requires prior approval of Special Court.

7. Is action taken by the Bombay Stock Exchange of delisting the securities of Gangotri Ltd. is correct?
(a) Yes, BSE can delist the securities on ground of unfair trade practices.
(b) No, BSE cannot delist the securities on ground of unfair trade practices.
(c) Yes, BSE can delist the securities on ground of investigation conducted in the company.
(d) No, BSE cannot delist the securities without permission of SEBI.

8. Aggrieved investors from decision of BSE to delist the securities of Gangotri Ltd. wants to file
appeal on 7th February 2020. What is the extended time limit for filing appeal to SAT?
(a) 15 days
(b) 45 days
(c) 3 months
(d) 1 month

9. Discuss the validity of the resolution passed requiring the Company to be liquidated voluntarily
by appointing an insolvency professional to act as the Liquidator under SARFAESI Act, 2002.
(a) Resolution passed is valid as it is approved by majority of BOD and on special resolution by
shareholders.
(b) Resolution passed is not valid as it requires 90% vote of shareholders.
(c) Resolution passed is not valid as it is not approved by unanimous consent of BOD.
(d) Resolution passed is not valid as consent of LBV Bank Ltd. is not taken.

10. Does RP Finance have recourse to SARFAESI Act, 2002?

(a) No. RP Finance doesn’t have recourse.
(b) No. Since, RP Finance didn’t take the permission of LBV Bank Ltd. (secured creditor).
(c) Yes. RP Finance always have recourse.
(d) Yes. RP Finance have recourse only if they had provided the loan to Gangotri Ltd. in good
faith.

11. Out of following which item cannot be exercised by the Board of Directors of ABC Ltd.?
(a) To diversify the business of the company
(b) To take over a company
(c) To approve amalgamation, merger or the reconstructionhv
(d) To sell of the whole or substantially the whole of the undertaking of the company.

12. Any person aggrieved by an order of NCLT may prefer an appeal to the Appellate Tribunal within

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 3
 a period of from the date on which a copy of the order of the Tribunal is made available to
the person aggrieved.
(a) 120 days
(b) 60 days
(c) 45 days
(d) 30 days

13. Which of the following is not the objective of The Prevention of Money Laundering Act, 2002?
(a) To prevent and control money laundering
(b) To confiscate and seize the property obtained from the laundered money
(c) To generate profit for an individual or a group
(d) To deal with any other issue connected with money laundering in India

14. An agreement or arrangement in writing for transfer of assets, or funds, goods or services, from
or to the corporate debtor is known as
(a) Transfer
(b) Transfer of property
(c) Transaction
(d) Transmission

15. A person who fails to get appointed as a director in a general meeting cannot be appointed as
(a) Additional director
(b) Alternate director
(c) Independent director
(d) Nominee director

16. Which of the following is not the correct manner in the event of any change in his particulars
as stated in Form DIR-3, an applicant intimate such change to the Central Government within
a period of 30 days of such change in Form DIR-3?
(a) The applicant shall download Form DIR-6 from the portal.
(b) The form shall be digitally signed by CA or CS or CMA.
(c) The applicant shall submit the fees.
(d) The applicant shall submit the form DIR-6.

17. SEBI has three functions rolled into one body. Which of the following is not the function of
SEBI?
(a) Quasi-legislative
(b) Quasi-judicial
(c) Quasi-executive
(d) Quasi-official

18. A Nidhi shall not accept deposit exceeding _______ times of its net owned funds
(a) Ten times
(b) Fifteen times

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 4
 (c) Twenty times
(d) Twenty five times

19. Which of the following exports don’t require furnishing declaration

(a) Goods & software value of 35,000 $
(b) Gift of Goods of value of more than ₹ 6,00,000
(c) Aircraft repairs sent abroad re-import 8 months
(d) Trade samples of goods and publicity material supplied free of payment

20. Mr. Anil committed a fraud amounting to Rs. 3 Lakhs. Mr. Ram is of the opinion that he is liable to
a fine of upto Rs. 20 Lacs as fraud does not exceed Rs. 10 Lacs. Turnover of the Company is 280
Lakhs. Is his contention correct?
(a) Yes, he will be liable to a fine of upto Rs. 20 Lacs
(b) No, we will be liable to fine of 100% to 300% of Fraud amount or Imprisonment from 6
months to 10 years
(c) No, he will be liable to a fine of upto Rs. 20 Lacs or Imprisonment upto 5 years or both.
(d) None of the above

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 5
 PART – II (Descriptive Questions)
This part comprises 6 questions. Question No. 1 is compulsory. Attempt any
4 questions out of the remaining 5 questions.
Marks
1 (a) Elegant Ltd. (public limited company) incorporated on 1st September 2016 with an 8
authorized share capital of ₹100 crore and paid-up equity share capital of ₹10 crore
comprised of 100 lakh equity shares of ₹10 each fully paid up. It has been engaged in
the retailing of petroleum products such as petrol and diesel sourced from the
national oil companies.
There has been a rapid growth in the business of the company in the current year. To
handle the work load and to provide company a new growth level, Elegant Ltd. is in
search of some person for the post of Director with relevant experience and abilities.
Comment, if in the following cases, the person concerned will be disqualified to be
appointed as a director of Elegant Ltd. :
(a) Ram has an application pending for adjudication as an insolvent and the
application is not yet decided by the authority.
(b) Govind was convicted for an offence, not involving any moral turpitude, and
sentenced to imprisonment for a term of 8 years, but a period of more than 5
years has elapsed from the expiry of the sentence.
(c) Raja has not paid the final call on 10,000 equity shares held by him in the
Company so far. The company had fixed 31st May, 2019 as the last date for the
payment of the call money.
(d) Keshav, who was a director in another company previously, had contravened the
provisions relating to related party transactions and was convicted during 2017.
(e) Prakash holds directorship in a total of 15 companies as on date comprising of 9
public companies, 2 private companies which are subsidiaries of a public
company and 4 private companies.

1 (b) Alkaline Private Limited is a chemical manufacturing company, which had availed 6
many bank loans and other facilities to fund its operations. The company has not
been able to repay the loan and interests thereon to the banks due to its dwindling
sales and other cost/labor issues. Over a period, as the company was not repaying its
loans, its account was classified as Non-Performing Asset (NPA) by the banks.
Various negotiations with the banks did not materialize and the banks-initiated
proceedings under Insolvency and Bankruptcy Code, 2016 (IBC) against the
company.
The Company is of the view that IBC does not have constitutional validity and
accordingly, it appealed in court of law. Will the Company succeed?

2 (a) HDF Limited, a listed entity was into real-estate business. Over a period in an attempt 8
to diversify its operations it borrowed heavily from banks and financial institutions.
The Company appointed a Merchant Banking firm, to provide strategic inputs for its
business operations. On the recommendation of the firm, the Company created
complex group structures and business models. Due to financial mismanagement and
lack of strategic operations, the Company started making losses and over a period was
not able to repay the loans it had taken. The Company also failed to repay the deposits
it had raised from public. Gradually, the market capitalization of the Company eroded

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 6
 and now it has been reduced to a penny stock. The shareholders are evaluating the
option of filing a case against the Company, the Merchant Banking firm and also the
Rating Agency which were involved with the Company during such period.
Evaluate whether the shareholders and depositors be successful in filing a suit in
these circumstances.

2 (b) Shitiza has recently started her articleship with a reputed CA firm. Her first 6
assignment involves understanding the working of stock exchange and the
transactions related thereto. Since she is a part of your team, your manager has
assigned you with the responsibility to make sure that Shubhangi is aware of the
basic terms relating to securities market. In view of the Securities Contract
(Regulation) Act, 1956, brief your teammate about the following terms -
a. Option in securities
b. Spot delivery contracts
c. Ready delivery contract

3 (a) The Board of Directors of Williams Ltd. have resolved as under : 4

(i) Appoint Mohan as Alternate Director of Rakesh, Director. Mohan is already
appointed as Alternate Director to Prakash, Director.
(ii) Appoint Mitesh, a Director of the company as Alternate Director of Manoj,
Director.
State the provisions of the Companies Act, 2013 and comment on the legality of the
above decisions of the Board of Directors.

3 (b) PQ Limited was a Company listed on XYZ Stock Exchange. The Company was making 4
continuous losses and was not performing well. There were also reports of alleged
financial irregularities in media. Also, many complaints were received by Securities
Board of India (SEBI), regarding its listed securities. Subsequently, SEBI passed an
Order to delist the securities of the Company from the said stock exchange.
As a Chartered Accountant, advise PQ Limited for further course of action.

3 (c) Mrs. Meera was the Managing Director of ME India Private Limited. During her tenure, 6
she sold few properties of the Company and cleared all the registered mortgages. She
also diverted Company’s funds of ₹ 50 Lakhs to her bank account and diverted another
₹10 Lakhs to pay off and discharge the Housing Loan on her daughter’s property. Later,
winding up proceedings were initiated against the Company.
Can the Liquidator of the Company commence proceedings against Mrs. Meera and her
daughter in these circumstances?

4 (a) Ajit is a Director of PQR Ltd. The Board of Directors of the company is considering a 4
proposal for the purchase of its office premises for which is owned by Ajit by issuing
fully paid equity shares as consideration. What advice would you give to the Board
of Directors keeping in view the provisions of the Companies Act, 2013 in respect of
such transactions?

4 (b) Referring to the provisions of the Securitisation & Reconstruction of Financial Assets 4

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 7
 & Enforcement of Security Interest Act, 2002 state the circumstances under which
the Reserve Bank of India may cancel the certificate of registration granted to a
Securitisation Company.

4 (c) The Board of Directors of ABC Ltd. has agreed in principle to grant loan of ₹ 6 crores 6
to XYZ Ltd. :
ABC Ltd. has provided the following information :
Authorised Share Capital ₹ 15 crores
Paid up Share Capital ₹ 10 crores
Free Reserves ₹ 4 crores
Securities Premium Account ₹ 1 crore
ABC Ltd. has already given loan of ₹ 3 crores to another company namely PQR Ltd.
and has made investment of ₹ 2 crores in the shares of other companies.
What advice would you give to the Board of Directors of ABC Ltd. about the proposed
loan to XYZ Ltd. in the light of provisions of the Companies Act, 2013 and the rules
made thereunder?

5 (a) Draft a resolution for reappointment of an independent director of a listed company 4

for the second term of five years, stating the authority, type of resolution and relevant
provisions of the Companies Act, 2013.

5 (b) X Ltd., a corporate debtor owes to Y Ltd. ₹100 lakh on account of unsecured loan @ 4
10% per annum and ₹35 lakh towards raw material supplied by Y Ltd. Determine
status of Y Ltd. in relation to the corporate debtor. Also, state the status under which
Y Ltd. can make representation on the committee of creditors?

5 (c) Mr. Suresh resided in India during the Financial Year 2013-14. He left India on 15th 6
July, 2014 for Switzerland for pursuing higher studies in Biotechnology for 2 years.
What would be his residential status under the Foreign Exchange Management Act,
1999 during the Financial Years 2014-15 and 2015-16?
Mr. Suresh requires every year USD 25,000 towards tuition fees and USD 30,000
for incidental and stay expenses for studying abroad. Is it possible for Mr. Suresh
to get the required Foreign Exchange and, if so, under what conditions?

6 (a) Ratanlal, a member of Rajratna Ltd. has given notice to the company for inspection 4
of the contract of service with Manohar, Managing Director. Advise the company.

6 (b) Explain the meaning of the term “Money Laundering”. Z, a known smuggler was 4
caught in transfer of funds illegally exporting narcotic drugs from India to some
countries in Africa. State the maximum punishment that can be awarded to him
under Prevention of Money Laundering Act, 2002.

6 (c) The liquidator shall ordinarily sell the assets of the corporate debtor through auction 3
method. Opine whether the liquidator can sell assets by a route other than auction
method?

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 8
6 (d) The Board of Directors of BIJI Private Limited made an application to the Registrar of 3
Companies under section 248(2) of the Companies Act, 2013 for removal of name of
the Company. The Board submitted an affidavit that Company has no pending
liabilities. However, it was later found that few amounts were still payable to creditors.
What penalties can be levied under the Companies Act, 2013 for such an application?

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Contact: 9024119090, 9829292947 Page 9