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Answer Paper

Corporate and economics law Duration: 80

Details: Test – 4 Marks: 45

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ANS-1 According to the Foreign Exchange Management (Export of Goods and Services)
Regulations, 2015,

Advance payment against exports:

(1) Where an exporter receives advance payment (with or without interest), from a buyer /
third party named in the export declaration made by the exporter, outside India, the exporter
shall be under an obligation to ensure that –
(i) the shipment of goods is made within one year from the date of receipt of advance payment;

(ii) the rate of interest, if any, payable on the advance payment does not exceed the rate of
interest London Inter-Bank Offered Rate (LIBOR) + 100 basis points and
(iii) the documents covering the shipment are routed through the authorised dealer through
whom the advance payment is received;
Provided that in the event of the exporter's inability to make the shipment, partly or fully,
within one year from the date of receipt of advance payment, no remittance towards refund of
unutilized portion of advance payment or towards payment of interest, shall be made after the
expiry of the period of one year, without the prior approval of the Reserve Bank.

Exemption: Notwithstanding anything contained in clause (i) of sub-regulation (1), an exporter

may receive advance payment where the export agreement itself duly provides for shipment of
goods extending beyond the period of one year from the date of receipt of advance payment.
In the light of the provisions as enumerated above

Since Bharat Computer Hardware Ltd. has exported the hardware within 9 months of the date
of receipt of advance payment, it has discharged its obligations within the provisions of the
Foreign Exchange Management Act, 1999.
Yes, it is possible to receive advance payment where the export agreement provides for
shipment of goods extending beyond the period of one year (here in question 15 months) from
the date of receipt of advance payment.
The maximum rate of interest, if any, payable on the advance payment should not exceed the
rate of interest London Inter-Bank Offered Rate (LIBOR) + 100 basis points.
ANS-2 (A) Residential Status: According to section 2(v) of the Foreign Exchange Management
Act, 1999, ‘Person resident in India’ means a person residing in India for more than 182 days
during the course of preceding financial year [Section 2(v)(i)]. However, it does not include a
person

who has gone out of India or who stays outside India for employment outside India or for any
other purpose in such circumstances as would indicate his intention to stay outside India for an
uncertain period.
Generally, a student goes out of India for a certain period. In this case, Mr. Sugam who resided
in India during the financial year 2016-17 left on 15.7.2017 for Australia for pursuing higher
studies in Biotechnology for 2 years, he will be resident for 2017-18, as he has gone to stay
outside India for a ‘certain period’ (If he goes abroad with intention to stay outside India for an
‘uncertain period’ he will not be resident with effect from 15-7-2017).

(B) Foreign Exchange for studies abroad: According to Para I of Schedule III to Foreign
Exchange Management (Current Account Transactions), Amendment Rule, 2015 dated 26th
May, 2015, individuals can avail of foreign exchange facility for the studies abroad within the
limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require
prior approval of the RBI. Further proviso to Para I of Schedule III states that individual may be
allowed remittances (without seeking prior approval of the RBI) exceeding USD 2,50,000 based
on the estimate received from the institution abroad. In this case the foreign exchange required
is only USD 55,000 per academic year and hence approval of RBI is not required

ANS-3 (A) SARFAESI is applicable to only those notified NBFC which has an asset base of 500
crore or above, hence in this case the PQR Finance Ltd. shall be able to sell the bad loans to
ARCs through SARFAESI.
Further SARFAESI is applicable to secured loans only, therefore only 45 crore of bad loans can
be sold to ARC under SARFAESI.
As per section 26D no secured creditor shall be entitled to exercise the rights of enforcement of
securities under Chapter III unless the security interest created in its favour by the borrower has
been registered with the Central Registry, therefore the buyer may not be keen to take over the
unregistered loan of 5 crore.
Further NBFCs can invoke SARFAESI for only those cases which are over 1 crore, therefore the
10 cases of 50 lacs each cannot be sold to ARC under SARFAESI.
Therefore, PQR Finance Ltd. are left with 8 cases of 5 crore each which can be sold to ARC
subject to meeting all other conditions of the law.

(B) Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking
possession of secured asset (Section 14)
The secured creditor may, for the purpose of taking possession or control of secured asset,
request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose
jurisdiction any such secured asset or other documents relating thereto may be situated or
found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may
be, the District Magistrate shall, on such request being made to him
(a) take possession of such asset and documents relating thereto; and

(b) forward such asset and documents to the secured creditor within a period of thirty days
from the date of application.
Provided further that if no order is passed by the Chief Metropolitan Magistrate or District
Magistrate within the said period of thirty days for reasons beyond his control, he may, after
recording reasons in writing for the same, pass the order within such further period but not
exceeding in aggregate sixty days

ANS-4 Decision to be by majority [Section 38 of the Prevention of Money Laundering Act, 2002]
If the Members of a Bench consisting of two Members differ in opinion on any point, they shall
state the point or points on which they differ, and make a reference to the Chairman who shall
either hear the point or points himself or refer the case for hearing on such point or points by
third Member of the Appellate Tribunal and such point or points shall be decided according to
the opinion of the majority of the Members of the Appellate Tribunal who have heard the case,
including those who first heard it.
In the instant case, the above procedure has to be followed by the Bench members.

(B) Punishment for false information or failure to give information, etc. [Section 63 of the
Prevention of Money Laundering Act, 2002]

1. Any person willfully and maliciously giving false information and so causing an arrest or a
search to be made under this Act shall on conviction be liable for imprisonment for a term
which may extend to two years or with fine which may extend to fifty thousand rupees or both.

2. If any person,-
(a) refuses to give evidence and

(b) refuses to sign statement made by him in the course of proceedings

he shall pay, by way of penalty, a sum which shall not be less than 500 rupees but which may
extend to 10,000 rupees for each such default or failure.

Mode of Recovery of fine or penalty [Section 69]

Where any fine or penalty imposed on any person under section 13 or section 63 is not paid
within six months from the day of imposition of fine or penalty, the Director or any other officer
authorised by him in this behalf may proceed to recover the amount from the said person in
the same manner as prescribed in Schedule II of the Income-tax Act, 1961 for the recovery of
arrears and he or any officer authorised by him in this behalf shall have all the powers of the
Tax Recovery Officer mentioned in the said Schedule for the said purpose
ANS-5 According to section 301 of the Companies Act, 2013, at any time either before or after
passing a winding up order, if the Tribunal is satisfied that
 a contributory or

 a person having property, accounts or papers of the company in his possession is about to
leave India or otherwise to abscond, or is about to remove or conceal any of his property, for
the purpose of evading payment of calls or of avoiding examination respecting the affairs of the
company, the Tribunal may cause—
(a) the contributory to be detained until such time as the Tribunal may order; and

(b) his books and papers and movable property to be seized and safely kept until such time as
the Tribunal may order.
In the instant case, by taking into account the above provisions:
(i) The Tribunal’s order for detention of contributory for next 6 months disallowing him to leave
India, is valid.

(ii) It is correct from Tribunal’s part to arrest and seize books of accounts from the person
planning to abscond to avoid examination of books of accounts in respect of the affairs of the
company

ANS-6 (A) Validity of RoC’s action

According to Section 271(d) of the Companies Act, 2013, a Company may, on a petition under

Section 272, be wound up by the Tribunal, if the Company has made a default in filing with the
Registrar its financial statements or annual returns for immediately preceding five consecutive
financial years.
In the instant case, the move by RoC to present a petition to Tribunal for the winding up of LED
Bulb Ltd. is not valid as the Company has made default in filing financial statements and annual
returns for a continuous period of 4 financial years ending on 31st March, 2019.

(B) Toy Ltd. being a Japanese company would be a person resident outside India. [Section 2(w)].
Section 2(u) defines ‘person’. Under clause (viii) thereof person would include any agency,
office or branch owned or controlled by such ‘person’. The term such ‘person’ appears to refer
to a person who is included in clauses (i) to (vi). Accordingly, robotic unit in Mumbai, being a
branch of a company, would be a ‘person’

Section 2(v) defines ‘person resident in India’. Under clause (iii) thereof ‘person resident in
India’ would include an office, branch or agency in India owned or controlled by a person
resident outside India. Robotic unit in Mumbai is owned or controlled by a person ‘resident
outside India’. Hence, it would be ‘person resident in India’.
However, robotic unit in Mumbai, though not ‘owned’ controls Singapore branch, which is a
person resident in India. Hence prima facie, it may be possible to hold a view that the Singapore
branch is ‘person resident in India

ANS-7 MCQS

1A
2B
Reason: Out of 9 cases of Rs. 5 crores each, 1 case is unsecured and SARFAESI Act is applicable
only to secured loans. One case is not registered with the central registry, therefore only 7
cases can be sold to the asset reconstruction company.
3C
Reason : As the provisions of SARFAESI Act is not applicable to such assets (Section 31).
4 (b)
Hint: Mr. Ram cannot be considered 'Person resident in India' during the financial year 2018-
2019 notwithstanding the purpose or duration of his stay in India during 2018-2019. An
individual has to be present in India for more than 182 days in the preceding financial year. Mr.
Ram does not satisfy this condition for the financial year 2018-2019. But shall be considered as
'Person resident in India' during the financial year 2019-2020

5. (b)
Hint : In terms of clause (b) of sub – section (1) of section 2 "payment system" means a system
that enables payment to be effected between a payer and a beneficiary, involving clearing,
payment or settlement service or all of them. It includes the systems enabling credit card
operations, debit card operations, smart card operations, money transfer operations or similar
operations

6. (b)

Hint: Section 277 (4) of the companies Act, 2013, states that within three weeks from the date
of passing of winding up order, the Company Liquidator shall make an application to the
Tribunal for constitution of a winding up committee to assist and monitor the progress of
liquidation proceedings by the Company Liquidator in carrying out the function and such
winding up committee shall comprise of the following persons, namely:—
(i) Official Liquidator attached to the Tribunal;
(ii) nominee of secured creditors; and
(iii) a professional nominated by the Tribunal

7. b) Company Liquidator