32524rtpfinalmay2014 4 PDF

PAPER – 4: CORPORATE AND ALLIED LAWS
PART – I : RELEVANT AMENDMENTS APPLICABLE FOR MAY, 2014

Applicability of relevant Amendments/Circulars/Notifications/Regulations etc.
SUBJECT AMENDMENT CONTENT LINKS FOR
REFERENCE
The Foreign Compounding The Reserve Bank of India vide http://www.rbi.org.i
Exchange of Master Circular No. 9/2013-14 n/scripts/Notificatio
Management contraventions dated 1st July, 2013 has issued a nUser.aspx?Id=809
Act, 1999 Master Circular on Compounding 8&Mode=0
of Contraventions under FEMA,
1999. The compounding of
contraventions under FEMA, 1999
is a voluntary process by which
an applicant can seek
compounding of an admitted
contravention of any provision of
FEMA, 1999 under Section 13(1) of
the FEMA, 1999.
The SEBI (Issue of SEBI vide Notification No. LAD- http://www.sebi.go
Securities Capital and NRO/GN/2013-14/19/6422. dated v.in/cms/sebi_data/
and Disclosure 26th August, 2013 has issued SEBI attachdocs/137757
Exchange Requirement) (Issue of Capital and Disclosure 6669523.pdf
Board of Regulations, Requirements) (Second
India Act, 2009 Amendment) Regulations, 2013 by
1992 amending SEBI (Issue of Capital
and Disclosure Requirement)
Regulations, 2009.
The SEBI SEBI vide Notification dated 13th http://www.sebi.go
Securities (Amendment) September, 2013 has issued the v.in/cms/sebi_data/
and Act, 2013 SEBI (Amendment), 2013 in the attachdocs/137957
Exchange Official Gazette by amending the 1080468.pdf
Board of SEBI Act, 1992 which shall be
India Act, deemed to have come into force
1992 on 21st January, 2013.
The Section 16 and The Securities and Exchange http://www.sebi.go
Securities Section 28 of Board of India vide Notification v.in/cms/sebi_data/
Contracts Securities No. LAD-NRO/GN/2013-14/26/6667 attachdocs/138079
(Regulation) Contracts dated 3rd October, 2013, has 1858733.pdf
Act, 1956 (Regulation) issued a notification under section
Act, 1956 16 and 28 of the Securities
Contracts (Regulation) Act, 1956
© The Institute of Chartered Accountants of India

PAPER – 4: CORPORATE AND ALLIED LAWS 119
and declared that no person in the

territory to which the Securities
Contracts (Regulation) Act, 1956
extends, shall enter into any
contract for sale or purchase of
securities other than a contract
falling under the notification.
Non-Applicability of the following Amendments/Circulars/Notifications

S.No. Subject Matter CA Final – Corporate and Allied Laws
1. The Companies Act, 2013 Not Applicable
2. The Companies (Second Not Applicable
Amendment) Act, 2002 [Only General Provisions of winding
[relating to Winding up] up as covered under Paragraph 9.4 of
the study material is applicable for the
examination. Students are being
advised accordingly.]
3. Provisions relating to Revival and Not Applicable
Rehabilitation of Sick-Industrial
Companies
PART – II: QUESTIONS AND ANSWERS

QUESTIONS
SECTION – A: COMPANY LAW
Accounts
1. (a) Hydra Clay Limited is having a foreign subsidiary company. The said Indian holding
company failed to furnish particulars of its foreign subsidiary company in its Balance
Sheet. Decide the liability of Hydra Clay Limited under the Companies Act, 1956.
(b) The Board of Directors of Blue Limited has a practical problem. The registered
office of the company is situated in a classified backward area of Odisha. The Board
wants to keep the books of accounts of the company at its Corporate office in Puri
which is conveniently located. The Board seeks your advice about the feasibility of
maintaining the accounting records at a place other than the registered office of the
company.
Audit
2. (a) Pawan Limited appointed Mr. Ashok as its auditor in the Annual General Meeting
held on 30th September, 2012. Initially, he accepted the appointment, but he
resigned from his office on 31st October, 2012 for personal reasons. The Board of

120 FINAL EXAMINATION: MAY, 2014
Directors seeks your advice for filling up the vacancy by appointment of Mr. Avinash
as auditor. Advise.
Also suggest the procedure to be adopted in case Mr. Avinash is proposed to be
removed from his office before the expiry of his term.
(b) The auditors of SRT Ltd. accepted the Certificate of the Manager, a person of
knowledge, competence and high reputation, as to the value of the stock in trade.
The stock was grossly overstated for several years in the balance sheets of the
company. As a result of this over valuation dividends were paid out of capital. The
Auditors did not examine the books of account very minutely. If they had done so
and compared the amount of stock at the beginning of the year,with the purchases
and sales during the year, they would have noticed the over valuation. The
company subsequently went into liquidation and the auditors were sued to make
good the loss caused by the wrongful payment of dividends relying on the balance
sheets figures. Based on the above facts, you are required to decide, with
reference to the provisions of the Companies Act, 1956 and the decided case laws,
the following issues:
(i) Whether auditors of the company will be liable for the loss caused to the
company by the wrongful payment of dividends based on the Balance Sheets
duly audited by the Auditors.
(ii) What are statutory duties of the Auditors in this regard?
Dividend
3. Lavish Ltd. made a loss of ` 20 lakhs after providing for depreciation for the year ended
31st March, 2012 and as a result the company was not in a position' to declare any
dividend for the said year out of profits. However, the Board of Directors of the company
announced the declaration of dividend of 15% on the equity shares payable out of free
reserves. The paid up share capital of the company and its free reserves as on 31st
March, 2012 are ` 2 crores and 10 crores respectively. The average dividend declared
by the Company in the last five years is 25%. Examine the validity of declaration of
dividend.
Directors
4. (a) In ABC Limited three Directors were to be appointed. The item was included in
agenda for the Annual General Meeting scheduled on 30th September, 2013, under
the category of 'Ordinary Business'. All the three persons as proposed by the Board
of Directors were elected as Directors of the company by passing a 'single
resolution' avoiding the repetition (multiplicity) of resolution. After the three directors
joined the Board, certain members objected to their appointment and the resolution.
Examine the provisions of Companies Act, 1956 and decide.

(i) Whether the contention of the members shall be tenable and whether both the
appointment of Directors and the 'single resolution' passed at the Company's
Annual General Meeting shall be void.
(ii) What would be your answer in case the company in question is an
"Association not for Profit" incorporated under Section 25 of the Companies
Act, 1956?
(b) As per their Articles of Association the maximum number of Directors of each of the
following companies is 9:
(i) Atlanta Company Limited.
(ii) Biscus Trading Private Limited.
(iii) Hindustan Zink limited (a Government company under section 617 of the
Companies Act, 1956).
The Board of Directors of the aforesaid companies proposes to increase the number
of Directors to 15. Advise, whether under the provisions of the Companies Act,
1956, the Board of Directors can do so?
5. (a) Mr. Albert is director of Vision Care Limited. He intends to construct a residential
building for his own use.
The cost of construction is estimated at ` 1.50 Crores, out of which Mr. Albert
proposes to finance partly from his own sources to the tune of ` 60 lacs and the
balance ` 90 lacs from housing loan to be obtained from a housing finance
company. For the purpose of obtaining the loan, he has approached the housing
finance company which has in principle agreed to grant the loan, but has put a
condition. The condition put by the housing finance company is that the Vision Care
Limited of which Mr. Albert is a director should provide the guarantee for repayment
of the loan and interest as per the terms of the proposed agreement for granting the
loan to Mr. Albert. You are required to advise Mr. Albert on the matter with
reference to the provisions of the Companies Act, 1956.
(b) M/s Shivalik Ltd. owns a Multi-specialty Hospital in Kochi. Dr. Harshit, a practicing
Heart Surgeon, has been appointed by the company as its non-executive director
and it wants to pay him fee, on case to case basis, for surgery performed on the
patients at the hospital. A question has arisen whether payment of such fee to him
would amount to payment of managerial remuneration to a director subject to any
restriction under the Companies Act, 1956.
Advise the company, which seeks to ensure that the same does not contravene any
provision of the Companies Act, 1956.
6. The Directors of XYZ Ltd. desire to authorise the MD to enter into the following
transactions namely-
(a) borrow from banks money required for the purpose;
(b) give loans to person, including firms in which Directors or their relatives are

partners;
(c) give donations to charitable trusts in which any of the Directors may be interested
as trustees. Discuss.
Meetings, Powers of the Boards and Related Party Transaction
7. (a) The articles of Association of Jacob Computers Limited provide for a maximum of
15 Directors.
But the company has only 10 Directors and for two of them representing Foreign
Collaborators, alternate Directors have been appointed. Board Meeting held on 1st
August, 2013 was attended by 4 Directors including 2 alternate Directors.
Examine with reference to the relevant provisions of the Companies Act, 1956
whether quorum was present at the Board Meeting held on 1st August, 2013.
Will your answer be different, if the articles provide for a Quorum of 6 Directors?
(b) A company proposes to appoint a Sole Selling Agent for its products. State the
cases in which such appointment requires approval of Central Government. Draft a
Board Resolution to appoint a sole selling agent in a case where such appointment
does not require approval of Central Government.
8. (a) Examine the validity of the following:
(i) Appointment of a proxy by a person authorised to represent a Body Corporate
at a General Meeting of a Company of which the body corporate is a member.
(ii) Fresh Proxies deposited by members in respect of adjourned Annual General
Meeting.
(iii) Casting vote by the Chairman of a General Meeting of a Company in respect of
a Special Resolution
(b) The Articles of Association of Atik Limited provide that a meeting of the Board of
Directors shall be held at 11.00 A.M. on the last day of every quarter ending on 31st
March, 30th June, 30th September and 31st December. Relying on the said provision,
the company did not send notices to the directors in respect of a board meeting held
on 31.3.2013. Some of the directors have questioned the validity of the board
meeting on the ground that individual notices have not been sent to directors.
Advise.
Inspection and Investigation
9. The Registrar of Companies, Bihar has received a complaint from a group of creditors of
a company. The complaint alleges that the Directors of the company, in order to prevent
the unearthing of their embezzlement of company’s funds, are engaged in falsification
and destruction of original accounting books and records. The complaints urged the
Registrar to seize the accounting books and records of the company so that the Directors
may not be able to tamper the same. You are required to state the powers, if any, of the
Registrar in this respect.

Compromise, Arrangements and Reconstructions

10. (a) Pro Ltd. And Nro Ltd. are two listed companies engaged in the business of
telecommunication. The companies are not making profits and as such their
share’s market prices have gone down. A substantial portion of their share capital
is held by Central Government as well as some Public Financial Corporations. In
order to increase the share value, the Central Government wants to amalgamate the
aforesaid two companies into a single company.
Examine the powers of Central Government to amalgamate the two companies in
public interest as per the provisions of the Companies Act, 1956.
(b) A scheme of reconstruction of Southern Stone Limited was, approved by its
shareholders and creditors in their meeting and resolutions to that effect were
passed. Afterwards a few shareholders and creditors of the company raised
objections against the said arrangements of reconstruction. The entire paid up
capital of the company was wiped out by the accumulated losses. Advise the
Directors of the said company about the steps to be taken, to give effect to the
proposed scheme under the Companies Act, 1956.
Prevention of Oppression and Mismanagement
11. The Managing Director of a large public company confessed that he was responsible for
manipulation of the accounts and window dressing of the published accounts of the
company. In view of this, the Central Government proposes to appoint its nominees as
Directors of the company. Explain briefly the powers of the Central Government under
the Companies Act, 1956 to appoint its nominees as Directors of a company to prevent
oppression or mismanagement and the role of the Central Government with regard to the
affairs of such a company.
12. Ethics Private Limited is a company in which there are eight shareholders. It is alleged by
a member holding less than one-tenth of the share capital that the directors of the
company have misused their position in making certain inter-corporate deposits which
are against the interests of the company. Will the Company Law Board entertain
application containing such allegation in the case of a private company?
Corporate Winding up and Dissolution
13. Omile Ltd. was a supplier of Raw Materials to Amar Ltd.,which could not make payment
to Omile Ltd. owing to huge losses and financial constraints. Ultimately, Amar Ltd, went
into liquidation and Official Liquidator was appointed. Omile Ltd. filed a suit for recovery
of its dues. The Court awarded a decree in favour of Omile Ltd. Armed with the Court’s
decree, Omile Ltd. approached the Official Liquidator to pay the amount to it in
preference over dues of the workmen. The workmen protested the demand of Omile Ltd.
and contended that their dues rank pari passu with the Secured Creditors and will
override all other claims of other creditors even where a decree has been passed.
You are required to ascertain the validity of the argument of the workmen in the light of
the provisions of the Companies Act, 1956 and the decided cases on the subject.

Producer Company
14. Kashyap Producer Company Limited was incorporated on 1st April, 2008. At present it
has got 200 members and its board consists of 10 Directors. The Board of directors of
the company seeks your advice on the following proposals:
(i) Appointment of one expert Director and one Additional Director by the Board for a
period of four years.
(ii) Loan of ` 10,000 to Mr. Krish, a Director of the company repayable within a period
of six months.
(iii) Donation of ` 10,000 to a Political Party.
Advise the Board of directors explaining the relevant provisions of the Companies Act,
1956.
E-governance/ Offences and Penalties
15. (a) What things should be taken care of with regard to supporting documents with
Director Identification Number (DIN) Application?
(b) What do you mean by marking a company as having management dispute by
Registrar of Companies (RoC) under MCA-21 system?
Companies Incorporated outside India/Miscellaneous provisions
16. (a) As per provisions of the Companies Act, 1956, what is the status of Glow Ltd., a
Company incorporated in Moscow, Russia, which has a Share Transfer Office at Delhi?
(b) Glass Ltd., a foreign company having its Indian principal place of business at
Mumbai, Maharashtra is required to deliver various documents to Registrar of
Companies under the provisions of the Companies Act, 1956. You are required to
state, where the said company should deliver such documents.
(c) In case, a foreign company does not deliver its documents to the Registrar of
Companies as required under Section 597 of the Companies Act, 1956, state the
penalty prescribed under the said Act, which can be levied.
Corporate Secretarial Practice
17. Draft a resolution proposed to be passed at a General Meeting of a Public Company
giving consent to the Board of Directors for borrowing upto a specified amount in excess
of the limits laid down under Section 293(1)(d) of the Companies Act, 1956 and also state
the borrowings, which are to be excluded from the said limits.
SECTION – B: ALLIED LAWS
The Securities and Exchange Board of India (SEBI)

18. (a) Mr. Rajan is a member of Cobalt Limited. Mr. Rajan obtains an order against the
company for redressal of his grievances against the company. But the company fails to

redress the grievances of Mr. Rajan within the time fixed by the SEBI. The Board
thereafter imposed penalty upon the company u/s 15C of the SEBI Act. Cobalt Limited
seeks your advice whether it has any remedy against the order of SEBI. Advise.
(b) A company proposes to make a public issue of equity shares for financing its project
through book building process. It proposes to fix the floor price of the share at
` 500 for a share of ` 10. Answer the following with reference to SEBI (ICDR)
Regulations.
(i) What is the price band that may be indicated in the red herring prospectus?
(ii) If the company wants to lower the floor price during the bidding period in order
to increase the response to the issue, state the conditions subject to which
such revision can be made.
19. The management of Box Ltd. a listed company is contemplating to issue bonus shares in
the ratio of 1:1. Explain briefly the provisions of SEBI (Issue of Capital and Disclosure
Requirements) Regulations 2009 to be followed by the management in this regard.
Examine whether a bonus issue when announced can be withdrawn?
Securities Contracts (Regulation) Act, 1956
20. (a) Industrial Finance Corporation of India, established under the Industrial Finance
Corporation Act, 1948 having its registered office at Mumbai issued 8%
Redeemable Bonds redeemable after 7 years. These bonds were issued directly to
the members of the public and not through mechanism of Stock exchanges.
You are required to state with reference to the provisions of Securities Contracts
(Regulation) Act, 1956, whether such direct issue of bonds by the Industrial Finance
Corporation of India is not violating the provisions of the said Act.
(b) Impression Ltd. is holding 33% of the paid up equity capital of Thyag Stock
Exchange. The company appoints Tilt Ltd., as its proxy who is not a member of the
Thyag Stock Exchange, to attend and vote at the meeting of the stock exchange.
Examine whether the Thyag Stock Exchange can restrict the appointment of Tilt ltd.
as proxy for Impression Ltd. and further restrict, the voting rights of Impression Ltd.
in the Thyag Stock Exchange.
Foreign Exchange Management Act, 1999
21. (a) Examine under the Foreign Exchange Management Act, 1999, whether "Payment of
remuneration to foreign technicians" is a permissible transaction under the
provisions of the said Act.
(b) The Reserve Bank of India issued certain directions to Dream Construction Limited,
an authorised person under the Foreign Exchange Management Act, 1999 to file
certain returns. The Company failed to file the said returns. Decide, as to what penal
provisions are applicable against the said authorised person under the said Act.
(c) Sabot Ltd. a vehicles manufacturing company situated at Bangalore, Karnataka has
received an order from a transport company in Italy for supply of 100 Trucks on

lease. You are required to state, how the said Sabot Ltd. can accept such an order.
The Competition Act, 2002
22. (a) The Central Government on the recommendation of selection committee appoints
Mr. Ravesh aged 56 years as Member of the Competition Commission of India to be
effective from 1st January, 2012. State with reference to the provisions of
Competition Act, 2002 the term for which he will be appointed and whether he can
be reappointed as such and also if he resigns after two years whether the vacancy
can be filled up by the Chairman of the commission.
You are further required to mention the composition of the selection committee on
whose recommendation the Central Government appoints chairman and other
members of the Competition Commission of India.
(b) Avish Ltd. and Latik Ltd. both dealing in chemicals and fertilizers have entered into
an agreement to jointly promote the sale of their products. A complaint has been
received by the Competition Commission of India (CCI) stating that the agreement
between the two is anti-competitive and against the interests of others in the trade.
Examine with reference to the Provisions of the Competition Act, 2002, what are
factors the CCI will take into account to determine whether the agreement in
question will have any appreciable adverse effect on competition in the market.
Interpretation of Statutes, Deeds and Documents
23. (a) Does an explanation added to a section widen the ambit of a section? Support your
answer with an example from the Companies Act, 1956.
(b) What do you understand by the term ‘Preamble” and how does it help in
interpretation of a statute?
Banking Regulation Act, 1949, The Insurance Act, 1938, The Insurance Regulatory and
Development Authority Act, 1999, The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
24. (a) Saumat Bank Limited is not managing its affairs properly. Employees as well as
depositors of the bank have complained to the Central Government from time to
time about such mismanagement and requested the Central Government to acquire
the undertaking of the Banking Company. Explain the powers of the Central
Government in this regard under the Banking Regulation Act, 1949.
(b) With reference to the provisions of Insurance Act, 1938 as amended by Insurance
Regulatory and Development Authority Act, 1999, state the norms in respect of paid
up equity capital for carrying out the business of an insurer. Also state the items that
are excluded in determining the amount of paid up equity capital of an insurer under
the said Acts.
Prevention of Money Laundering Act, 2002
25. What is Money Laundering? "Money Laundering" does not mean just siphoning of fund."

Comment on this statement explaining the significance and aim of the Prevention of
Money Laundering Act, 2002.
SUGGESTED ANSWERS/HINTS
1. (a) Attachment of documents in relation to an overseas subsidiary company:

Section 212 of the Companies Act, 1956, does not make any distinction between a
local subsidiary company and an overseas subsidiary company. Under section 4(4),
a company shall be deemed to be the holding company of another if, but only if, that
other is its subsidiary. Under section 4(5), the expression company includes
anybody corporate and the definition of body corporate in section 2(7) includes a
company incorporated outside India. In view of the aforesaid position, the Indian
holding company is legally bound to attach to its balance-sheet the documents
mentioned under section 212 prepared in accordance with the requirements of the
Companies Act, 1956.
However, there may be some practical difficulty in attaching the documents of
foreign subsidiary, in which case the Board of Directors of the Indian holding
company may apply to the Central Government under section 212(8) either to waive
the requirement or to modify the same. Hence, Hydra Clay Limited has violated the
provisions of section 212 in not furnishing the particulars of the foreign subsidiary.
(b) Maintaining the books of Accounts at a place other than Registered office of
the company: According to Section 209 of the Companies Act, 1956, every
company shall keep the books of accounts at its registered office. However, the
books of accounts can be kept at such other place in India as the Board of directors
may decide and when the Board of directors so decide, the company shall within 7
days of the decision, file with the Registrar of Companies a notice in writing giving
full address of that other place.
Thus, in the present case, Blue Limited can follow the above procedure and keep its
books of accounts at Puri office.
2 (a) Under section 224(6) of the Companies Act, 1956, the Board may fill any casual
vacancy in the office of an auditor. However, where such vacancy is caused by
resignation of an auditor, the vacancy shall be filled by the company in general
meeting. Thus, in the present case, the company may convene an Extra Ordinary
General Meeting to appoint Mr. Avinash as its auditor consequent upon the
resignation by Mr. Ashok.
In term of section 224(7) of the Companies Act, 1956, Mr. Avinash may be removed
from office before the expiry of his term, by the company only in General Meeting
after obtaining previous approval of the Central Government.
(b) The answer of the problem given in question is mainly relates to the duties of the
auditors. Section 227 of the Companies Act, 1956 provides that the main duty of
the auditor is to make a report to the members of the company on the accounts

examined by him and the balance sheet and the profit and loss account of the
company and on every document which is annexed to the balance sheet or profit
and loss account laid before the company in general meeting. The auditor owes a
duty to the members of the company, to state whether the accounts give a true and
fair view of the affairs of the company at the end of the financial year and of the
profit and loss account for the year.
The duty of an auditor is to give information in direct and express terms (Crichton’s
Oil Co. Re (1902) 2ch 86) and not merely to arouse inquiry. If he discovers that any
illegal or improper payments or any other papers have been made, his duty will be
to make it public by reporting. The auditor occupies a fiduciary position in relation
to the shareholders and in auditing the accounts maintained by the directors, he
must act in the best interest of the shareholders who are in the position of
beneficiaries.
But there is a limitation relating to the duties to be performed by the auditors. An
auditor is not bound to be a detective. He is a watchdog but not a bloodhound. He
is justified in believing tried servants of the company in whom confidence is placed
by the company. He is entitled to assume that they are honest and to rely upon
their representations, provided he takes reasonable care. If there is anything
calculated to excite suspicion, he should probe it to the bottom, but in the absence
of anything of that kind he is only bound to be reasonably cautious and careful.
The above problem is related to case of Kingston Mill Co. Re (No 2) (1896) 2 ch 279. In
this case it was held that, the auditors were not liable. It is not auditor’s duty to take
stock. There are many matters in which he may rely on the honesty and accuracy of
others. Further they (auditors) do not guarantee the discovery of all frauds.
3. Powers relating to Declaration of Dividend: Dividend can be declared by a company
for any financial year out of the profits for that year arrived at after providing for
depreciation only after transfer to the reserves as prescribed in the Companies (Transfer
of Profits to Reserves) Rules 1975. However, dividend can be declared by a company out
of accumulated profits subject to the following conditions:
(a) The rate of dividend declared does not exceed the average of the rates at which
dividend was declared by it in the 5 years immediately preceding that year or 10%
of the capital, whichever is less.
(b) The total amount to be drawn from the accumulated profits earned in previous years
and transferred to the reserves does not exceed an amount equal to 1/10th of the
sum of its paid up capital and free reserves and the amount to be drawn must first
be utilized to set off the losses incurred in the financial year before any dividend in
respect of equity shares is declared.
(c) The balance of such reserves after drawl does not fall below 15% of its paid up
share capital.
In view of the above, Lavish Ltd. cannot declare 15% dividend as proposed. However, it
can declare 10% dividend provided the conditions stated in (b) & (c) above are fulfilled.

4. (a) The matter of appointment of directors at the general meeting has been correctly
stated in the agenda as the ordinary business to be transacted at the general
meeting. But in accordance with the provisions of the Companies Act, 1956 as
contained in Section 263, at a general meeting of a public company or of a private
company which is a subsidiary of a public company, a motion shall not be made for
the appointment of two or more persons as directors of the company by a single
resolution unless a resolution that it shall be so made has first been agreed to by
the meeting without any vote being given against it. Any resolution moved in
contravention of above provision shall be void, whether or not objection was taken
at the time to its being so moved. However, Government and companies
incorporated under Section 25, i.e. associations not for profit have been exempted
from the above.
Answer to given situations:
(i) Taking into account the above provisions and the facts as given in the
question, the contention of the members shall be tenable. Each director has to
be appointed by way of a separate resolution only.
(ii) In the second case since the company is an association not for profit under
section 25 of the Companies Act, 1956, the above provisions do not apply.
(b) As per Section 259 of the Companies Act, 1956, in the case of a company
incorporated after 21st July, 1951, any increase in the number of its directors
beyond the maximum limit fixed by its Articles of Association as originally adopted
and registered and in case of a company existing prior to that date, any increase in
the number of directors shall not have any effect unless approved by the Central
Government, and it is to become void to the extent to which it is disapproved by the
Central Government. However, such approval from the Central Government is not
required if the number of directors is increased to 12 or less than that.
The above mentioned provision of the Companies Act, 1956 are applicable only to
public companies or private companies which are subsidiaries of public companies.
Based on the above mentioned provisions, following conclusion can be drawn in
respect of companies as mentioned in the question.
(i) In the case of Atlanta Company Limited the Directors have to obtain the
approval of the Central Government for increasing the number of Directors
from 9 to 15.
(ii) and (iii) In the case of Biscus Trading Private Limited (which is a Private
company) and Hindustan Zink Limited (a Government company) the provisions
of section 259 of the companies Act, 1956 are not applicable and hence the
directors of these companies can increase the number of directors from 9 to 15
without the approval of the Central Government, subject to fulfilment of other
procedural requirements.
5. (a) According to the provisions of Section 295 of the Companies Act, 1956, no company
(herein after called as the ‘lending company’) shall make any loan or give any

guarantee or any security in connection with a loan made by any other person to
any director of the lending company unless the previous approval of the Central
Government is obtained in this respect.
In view of the above provisions of the Act, Mr. Albert is required to approach Vision
Care Limited intimating the company the full details of the loan transaction and the
condition imposed by the housing finance company. The company Vision Care
Limited is required to pass a Board Resolution as required by Section 292 of the
Companies Act, 1956 and also a special resolution in terms of Section 372A if the
facts of the case so require. Thereafter, the company is required to make an
application to the Central Government for obtaining the previous approval under
Section 295 of the Companies Act, 1956. On receipt of the approval of the Central
Government, Vision Care Limited can provide the guarantee to housing finance
company in respect of the loan proposed to be granted to Mr. Albert.
(b) Under the proviso to sub-section (1) of section 309 of the Companies Act, 1956, in
case–
(i) the services rendered are of a professional nature; and
(ii) in the opinion of the Central Government, the director possesses the requisite
qualifications for the practice of the profession,
the remuneration paid for these services shall be outside the scope of Section 309
of the Act and shall not be a part of managerial remuneration. It is then not open to
the Central Government to put any restriction on the amount of remuneration
payable to him for his professional work. The company is, accordingly, advised to
approach the Ministry of Corporate Affairs to seek an affirmative expression of
opinion that Dr. Harshit who is a qualified surgeon, possesses the requisite
qualification to practice the profession of surgery.
6. (a) In terms of Section 292 of the Companies Act, 1956, the Board of Directors may
delegate to the Managing Director the power to borrow money otherwise than on
debentures which it can exercise only by means of resolutions passed at Board
Meetings. As per Explanation to Section 292(1), it is the arrangement for an
overdraft or cash credit that constitutes the exercise of the borrowing power and not
the actual utilisation of the arrangement. In other words, an arrangement for an
overdraft or cash credit constitutes the exercise of the borrowing power and not the
actual drawing of an amount on the basis of the overdraft or cash credit.
Consequently, the transaction in the instant case shall be valid. But before
implementation of the proposal, the Board must pass a resolution at its meeting
authorising the Managing Directors to borrow from banks money required for the
purpose of the company's business. Also the resolution delegating this power shall
specify the total amount outstanding at any one time up to which the delegate may
borrow money.
If, however, the moneys to be borrowed together with the money already borrowed
by the company (apart from temporary loans obtained from the Company's bankers

in the ordinary course of business) will exceed the aggregate of the paid up capital
of the company and its free reserves, [that is to say, reserves not set apart for any
specific purpose] the Board of Directors of the company in question must obtain the
consent of the company in its General Meeting. Consequently, care should be
taken to ensure that while delegating the power to the Managing Director the
aforesaid provision has not been violated, also it should be ensured that the
Memorandum of Association permits borrowing.
(b) According to Section 295(1), a company cannot directly or indirectly lend money to
persons including firms, in which Directors or their relatives are partners, without
obtaining prior approval of the Central Government in that behalf. Thus, the
company in question must in the first instance seek the Central Government's
approval. Then since the power to make loans may be delegated under Section
292(1)(e), the Board of Directors of the company in question must pass a resolution
and every resolution delegating this power to the Managing Director shall specify
the total amount up to which loans may be made by the delegate, the purpose for
which loans may be made and the maximum amount of loans which may be made
for each such purpose in individual cases. According to section 291(1), the Board
must see with reference to the memorandum and articles whether the company is
authorised to exercise the power.
(c) Under Section 293(1)(e), the Board of Directors of a public company can contribute
or donate to charitable and other funds not directly related to the business of the
company or the welfare of its employees any amount the aggregate of which will
not, in any financial year exceed ` 50,000 or 5% of its average net profits as
determined in accordance with the provisions of sections 349 and 350 during the
three years immediately preceding, whichever is greater. If this power of the
company is not ultra vires the memorandum of the company then only the Board
can act in pursuance of the above-mentioned resolution of the company and in so
acting, it can authorise the Managing Director to exercise the power on behalf of the
Board.
It may be noted that the power of the Board to donate to general charities is not
conditional to the existence of any profits. In such case, they may contribute up
to the limit given in Section 293(1)(e).
7. (a) Section 287(2) of the Companies Act, 1956, provides that the quorum for a meeting
of the Board of Directors of a company shall be one third of its total strength (any
fraction contained in that one-third being rounded off as one), or two directors,
whichever is higher. Hence, in this case 1/3 of 10 i.e. 3 1/3 the fraction being
rounded off as one i.e. 4 is quorum.
The alternate directors present at a meeting will be counted for quorum, if the
original director is not present at the meeting. The Board meeting held on 1.8.2013
was attended by 4 directors including 2 alternate directors. Thus, quorum was
present at the meeting. Hence, it is a valid meeting.
Section 287 only provides for a minimum quorum. It does not forbid a company to

fix a higher quorum. A company in its articles cannot provide a quorum of lesser
number of directors than what is provided in Section 287(2). However, it can
provide for a higher number. Hence, if the articles provide 6 as quorum, the
meeting held on 1.8.2013 is not valid as it was attended only by 4 directors.
(b) Appointment of sole selling agents: Under Section 294AA of the Companies Act,
1956, in following cases, appointment of sole selling agents will require approval of
Central Government:
(i) An individual firm or body corporate who has a substantial interest in the
company cannot be appointed as a sole selling agent without prior approval of
Central Government. Substantial interest means shareholding of ` 5. lakhs or
5% of paid up capital of the company, whichever is less. The shareholding may
be calculated singly or together with relatives (in the case proposed Sole
Selling Agent being an individual), partners and their relatives (in the case of a
firm) directors and relatives of directors (in the case of a body corporate (as
per Explanation (b) to Section 294AA).
(ii) According to section 294AA(3), any company having paid up share capital of
` 50 lakhs or more cannot appoint sole selling agent without approval in
general meeting by a special resolution and also approval of Central
Government. These restrictions apply to all Companies i.e. both private and
public companies.
Board Resolution: “Resolved that pursuant to the provisions of section 294 of the
Companies Act, 1956, and subject to the approval of the Company at a general
meeting by ordinary resolution, the Board approves the appointment of …… as the
company’s sole selling agent for the sale of ….. in the territory of …. for a period of
five years with effect from …… on the terms and conditions set out in the draft
agreement produced to this meeting and initiated by the chairman for purposes of
identification or with such modifications (not being less advantageous to the
company) as may be mutually agreed by the Board and…..”.
8. (a) (i) Appointment of a proxy by a person representing a member company:
According to Section 187 (2) of the Companies Act, 1956 a person authorized
by board resolution of a member company shall be entitled to exercise the
same rights and powers (including the rights to vote by proxy) on behalf of the
body corporate which he represents as that body could exercise if it were an
individual member of the company. The representative may, instead of being
present in person, appoint a proxy.
(ii) Fresh proxies for adjourned general meeting: A proxy properly lodged
before a general meeting will be valid for an adjourned meeting also. It is also
possible to lodge fresh proxies 48 hours before the adjourned meeting is held.
Regulation 61 of Table A specifically permits deposit of proxies 48 hours
before the time for holding the adjourned meeting. Companies may adopt
Table A or its articles may contain provisions similar to Regulation 61. Hence,
fresh proxies deposited in time for the adjourned meeting are valid.

(iii) Casting vote in respect of a special resolution: Regulation 54 of Table A

provides for casting vote by the chairman of a general meeting in case of
equality of votes. Companies usually provide for similar provision in the
articles. However in absence of specific provision, chairman does not have a
casting vote. Further, Chairman can use his casting vote only when there is
equality of votes. Thus, the vote can be used only for ordinary resolution and
not where a special resolution is required.
(b) If the Articles of Association of Atik Limited provides that a meeting of the board of
directors shall be held on the last day of each quarter, it is not necessary that
separate notices are required to be served on the directors. It was held in the case
of Arunachalam Chettiar vs. Kaleeswarar Mills Ltd. [(1956) 26 COMP. CAS. 431]
that where articles of the company provide that there will be a meeting of the board
of directors on the first Saturday of every month, there will be no necessity of
service of notice to individual director and such clause in the articles of association
is sufficient compliance of Section 286(1) of the Companies Act, 1956. In view of
the said judgement the clause in the article is sufficient compliance of the
requirement of sending the notice for a board meeting and the contention of some of
the directors is not legally valid. However, as a good secretarial practice, notice for
every board meeting should be sent to all the directors eligible to receive the notice.
9. The powers of the Registrar of Companies in respect of seizure of books and records of
any company are governed by section 234A of the Companies Act, 1956. Sub-section (1)
of the said section provides that if, pursuant to the information in his possession, the
Registrar has reasonable ground to believe that books and papers of a company may be
destroyed, mutilated, altered, falsified or secreted, the Registrar may make an application
to the Magistrate of First Class or the Presidency Magistrate, as the case may be, having
jurisdiction for an order for the seizure of such books and records.
According to Section 234A(2), the Magistrate, after considering the application and
hearing the Registrar, may authorize the Registrar to do the following:
(i) To enter the place or places where such books and papers are kept.
(ii) To search the place or places in the manner as provides in the Magistrate’s order.
(iii) To seize the books and papers as he considers necessary.
Section 234A(3) authorises the Registrar to keep the seized books and papers for a
period of thirty days maximum, after which the same have to be returned to the person
from whom the seizure was made. But the Registrar is empowered, before returning the
said books and papers, to take copies of or extracts from them or place identification
marks on them or deal with them in the manner he considers necessary.
Section 234A(4) states that the Registrar, while conducting search and seizure, has to
follow the provisions relating to search and seizure as prescribed in the Code of Criminal
Procedure, 1898.

In view of the above provisions of section 234A of the Companies Act, 1956, the
Registrar of Companies is empowered to seize the books and papers of the company
against whom the complaint has been made by following the procedure laid down in the
section.
10. (a) According to section 396 (1) of the Companies Act, 1956 where the Central
Government is satisfied that it is essential in public interest that the two public
limited companies should amalgamate, the said Government may by order
notification in the Official Gazette, provide for the amalgamation of the said two
companies into a single company with such constitution; with such property,
powers, rights, interest, authorities and privileges and with such liabilities, duties
and obligations as may be specified in the order.
This power of Central Government is notwithstanding anything contained in sections
394 and 395 of the Act that deal with amalgamation and reconstruction of
companies. The Central Government has also the power to pass and provide for
any consequential incidental and supplementary provisions in connection with the
amalgamation including the confirmation by or against the transferee company of
any legal proceedings pending by or against any transferor company. Any member
or creditor who is aggrieved by the order of the amalgamation resulting in any
financial loss is entitled to compensation which will be assessed by such authority
as may be prescribed. Any person aggrieved by the order of compensation can file
an appeal to the Company Law Board within 30 days of the publication of the order
of compensation. Any order passed by the Central Government under this section
can be made only where the draft copy thereof is sent to both the companies who
have right to make an appeal and the same has been either disposed of or no
appeal has been filed within the time provided thereof. The Central Government has
duty to make such modifications in the light of any suggestions and objections
received. All copies of the orders made under this section shall be laid before both
the Houses of Parliament as soon as the same has been made.
(b) Scheme of reconstruction: The Company is a sick company and therefore can be
considered as a company liable to be wound up with the meaning of section 390 of
the Companies Act, 1956. The proposed scheme involves a compromise or
arrangement with members and creditors and attracts section 391 of the said Act.
An application be submitted before the High Court under section 391 of the said
Act. On such applicable the court may order that a meeting of creditors and/or
members be called and held as per the directions of the court.
The company must send notice of meeting to every creditor/member containing a
statement setting forth the terms of compromise explaining its effects. At the
meetings convened as per directions of the court majority in number representing
atleast ¾ in value of creditors/members present and voting must agree to
compromise or arrangements. Thereafter, the company must present a petition to
the court for confirmation of the compromise or arrangement.

The notice of application made by the company will be served on the Central
Government and the court will take into consideration representation, if any, made
by the Central Government (Section 394A). The court will sanction the scheme, if
satisfied, after consideration of all relevant matters. Copy of order issued by the
court must be filed with the Registrar of Companies and then only the order will
come into effect. Copy of the said order must be annexed to Memorandum of
Association issued thereafter. The scheme sanctioned by the court shall be binding
on all members and creditors even on those who were dissenting.
11. Power of Central Government to prevent oppression or mismanagement: The
Central Government is empowered to appoint its nominees as directors of a company to
effectively safeguard the interest of the company or its shareholders or the public
interest. If the Central Government wants to appoint its nominees as Directors of such a
company then it has to make a reference to the Company Law Board (CLB) and if the
CLB is satisfied that the affairs of the company have been conducted in a manner
oppressive to any member of the company or in a manner prejudicial to the interests of
the company or to public interest, it may pass an order asking the Central Government to
appoint directors for a period not exceeding three years on any one occasion. There is no
limit as to the number of directors that can be appointed. The CLB may also pass similar
orders on an application of not less than 100 members or members holding atleast one
tenth of the total voting power. Hence, Central Government can appoint its nominees as
directors of the company only on an order passed by CLB in this regard and not on its
own.
Notwithstanding anything contained in the Companies Act, 1956 or in any other law for
the time being in force, where any person is appointed by the Central Government to
hold office as director or additional director. Section 408 (6) of the Companies Act, 1956,
empowers the Central Government to issue such directions to the company as it may
consider appropriate in regard to its affairs. Such directions may include directions to
remove an auditor already appointed and to appoint another auditor in his place or to
alter the articles of the company. When such directions are given, the appointment,
removal or alteration, as the case may be shall be deemed to have come into effect as if
the provisions of the Companies Act in this behalf have been complied without requiring
any further act or thing to be done. Though these powers are substantial, yet the same
do not empower the Central Government to interfere in the day to day management of
the company.
Further, Section 408(7) empowers the Central Government to require the persons
appointed as directors to report to the Central Government from time to time with regard
to affairs of the company.
12. For a petition under section 398, the complainant members are required to establish that
the company’s affairs are being conducted in a manner prejudicial of the public interest
or in a manner prejudicial to the interest of the company.

Thus, in the present case, the CLB may entertain the application if complainant member
is able to prima facie establish that the directors have misused their position in making
certain inter-corporate deposits which are against the interest of the company.
13. The problem given in the question is covered by the provisions of Section 529A of
Companies Act, 1956 read with Sections 529 and 530 of the said Act. The effect of
combined reading of these sections is that the workmen of the company become secured
creditors by operation of law to the extent of the workmen’s dues and are entitled to
proportional payment along with other secured creditors. If there is no secured creditor
then the workmen of the company become unsecured preferential creditors under the
said Section 529A to the extent of workmen’s dues. The purpose of the said section
529A is to ensure that the workmen should not be deprived of their legitimate claims on
the event of the liquidation of the company and the assets of the company would remain
charged for the payment of workmen’s dues and such charge will be pari passu with the
charge of other secured creditors. There is no other statutory provision overriding the
claim of the secured creditors except the said Section 529A.
Thus, under the said Section 529A, the dues of the workmen and debt due to the secured
creditors are to be treated pari passu and have to be treated as prior to all other dues.
Thus, the law is very much clear in this respect and the Hon’ble Supreme Court of India
held in the case of UCO Bank [(1994) 81 Comp. Case 780] that the provisions of Section
529A of the Companies Act, 1956 will override all other claims of the creditors even
where a decree has been passed by a court.
In view of the above stated legal position, the contention of the workmen of Amar Ltd. is
valid and the Official Liquidator will have to pay their dues as provided in Section 529A of
the Act.
14. (i) Appointment of expert director or additional director: Section 581P(6) of the
Companies Act, 1956 empowers the Board of directors of a producer company to
co-opt one or more expert directors or an additional director not exceeding one fifth
of the total number of directors for such period as the Board may deem fit. But the
maximum period shall not exceed the period specified in the Articles of the company
(Second Proviso to section 581P(6).
The number of directors proposed to be co-opted is only 2 and it does not exceed
one-fifth of the total number of directors (10*1/5 = 2). They can hold office for the
period specified by the Board provided it does not exceed the period specified in the
Articles (Section 260 stipulating that the additional director can hold office only upto
the date of the next annual general meeting is not applicable to a producer
company). Hence, the proposed appointment of one expert director and one
additional director is in order.
(ii) Loan to a director: Section 581ZK empowers the Board of directors to provide
financial assistance to the members of the producer company subject to the
provisions made in articles. Such financial assistance can be provided by way of
loans and advances, against security specified in the Articles, repayable within a

period of exceeding 3 months but not exceeding 7 years from the date of
disbursement of such loans and advances. However, any loan or advance to any
director or his relative shall be granted only after the approval by the members in
general meeting (Proviso to Section 581ZK).
In view of the above, the directors must convene the general meeting and get the
approval of the members before granting the proposed loan of ` 10,000 to Mr.
Krish, a director of the company.
Also, section 295 related to Loan to directors etc. is not applicable to Kashyap Ltd.
as according to Section 581C(5)a producer company is a private limited company
and there is no limit to the number of its members.
(iii) Donation to a Political Party: According to second proviso to section 581ZH, a
producer company shall not make directly or indirectly to any political party or for
any political purpose to any person any contribution or subscription or make
available any facilities including personnel or material. As the donation to a political
party is prohibited, the company cannot donate ` 10,000 to a political party.
15. (a) Following are some precautions to be taken before attaching supporting documents
with DIN application:
• Documents submitted are currently valid and not expired.
• Documents issued by LIC may be enclosed as Date of Birth and Address proof.
• Bank Statements, Utility Bills like telephone, electricity bill etc. furnished as
residence proof are in the applicant's name only and not older than two months.
• All supporting documents attached with form DIN-1 must be duly attested by an
authorized person/ authority.
• In case the director is illiterate, thumb impression should be certified from the
concerned revenue authority (where the applicant resides) and then all the
documents should be notarized or attested OR if applicant is not in a position
to sign the application due to medical reasons and affixed thumb impression
on the application then duly attested medical certificate from Government
hospital is must with the application stating the reason of his / her ailment.
(b) In the present electronic MCA-21 system, there is a facility with the Registrar of
Companies (RoC) to mark a company as ‘marked as having management dispute’
on the basis of complaints received in his office. This marking creates an alert and
the documents are not approved and remain in the registry as work in process till it
is demarked by the Registrar. In order to bring uniformity of practices by all RoC,
Ministry of Corporate Affairs vide General Circular No. 19/2011 dated 2nd May, 2011
has clarified that the RoC shall use this facility as under:-
(i) The RoC shall mark a company as having management dispute in only those
cases where the court or Company Law Board has directed to maintain the
status-quo with reference to any e-forms including status of Directors in the
company or

(ii) The Court or Company Law Board has granted any injunction or stay in taking
the document on record and RoC is a party in such court cases and/or the
directions have been issued to the RoC.
(iii) In other matter, where the RoC is not a party and such orders have been
passed and has not been served to the RoC, it is for the parties to comply to
such orders and in case of non-compliance, the law shall take its own course.
16. (a) According to section 591 of the Companies Act, 1956, a company incorporated
outside India and having a place of business in India is treated as a "Foreign
Company". As per clause (c) of section 602 of the said Act, the expression 'place of
business' includes a Share Transfer office. Thus, according to the provisions of the
Companies Act, 1956, the status of Glow Ltd. incorporated in Moscow, Russia,
which has a Share Transfer office in Delhi, shall be that of a 'Foreign Company'.
(b) According to section 597 of the Companies Act, 1956, any document which a
foreign company is required to deliver to the Registrar of Companies shall be
delivered to the Registrar having jurisdiction over New Delhi and also to the
Registrar of the State in which the principal place of business of the foreign
company is situate.
In light of the above provisions of the Companies Act, 1956, Glass Ltd. is required
to deliver the requisite documents to the Registrar of Companies having jurisdiction
over New Delhi and also to the Registrar of Companies, Maharashtra.
(c) Section 598 of the Companies Act, 1956 prescribes the penalty for non-compliance
of the provisions of section 597 of the said Act. According to the provisions of the
said section 598, the foreign company and its every officer or agent, who is in
default, shall be punishable with a fine upto ` 10,000/- and in case of continuing
offence, additional fine upto ` 1,000/- per day for the period during which the default
continues.
17. DRAFT BOARD RESOLUTION:
Draft of ordinary resolution under Section 293(1)(d)
“Resolved that the company hereby consents to the Board of Directors borrowing monies
not exceeding ` ……(Rupees………………..) in excess of the aggregate of the paid-up
capital of the company and its free reserves, that is to say reserves not set apart for any
specific purpose, as provided in Section 293(1)(d) of the Companies Act, 1956, and in
addition to any temporary loans obtained from the company’s bankers in the ordinary
course of business”.
Borrowings
Section 293(1)(d) does not apply to the borrowing by a company by way of temporary
loans obtained from the company’s bankers in the ordinary course of business.
Therefore, in calculating the limits stipulated in this provision, temporary loans obtained
from the company’s bankers in the ordinary course of business shall be excluded.

The expression ‘temporary loans’ here means loans repayable on demand or within six
months from the date of the loan such as short term cash credit arrangements, the
discounting of bills and the issue of other short terms loans of a seasonal character, but
does not include loans raised for the purpose of financing expenditure of capital nature.
18. (a) Remedy against order of SEBI: Cobalt Limited was penalized by the SEBI under
section 15C for failure to redress investors’ grievances. The following remedies are
available to the Company:
(1) Appeal to the Securities Appellate Tribunal: Section 15T of the SEBI Act,
1992 provides that any person aggrieved by an order of the Board may prefer
an appeal to the Securities Appellate Tribunal (SAT). Such appeal shall be
filed within 45 days from the date on which a copy of the order of the Board
was received. However, the Tribunal may entertain an appeal after the expiry
of the said period if it is satisfied that there was sufficient cause for not filing it
within the said period of limitation.
(2) Appeal to the Supreme Court: Section 15Z of the SEBI Act, 1992 provides
that any person aggrieved by the decision or order of the SAT may file an
appeal to the Supreme Court within 60 days from the date of communication of
the decision or order on any question of law arising out of such order. The
Supreme Court may, if it is satisfied that the application was prevented by
sufficient cause from filing the appeal within the said period, allow to to be filed
within a further period not exceeding 60 days.
(b) (i) The price band is the range within which the price can move. The cap of the
price band shall not be more than 20% of the floor price. If the floor price is `
500 the cap of the price shall be ` 600 and the company may indicate a price
band of ` 500 to 600 in the red herring prospectus (Schedule XI, Clause 8(b)
SEBI (ICDR) Regulations, 2009.
(ii) The price band can be revised during the bidding period in which case the
maximum revision on either side shall not exceed 20% i.e. floor of the price
band can move up or down to the extent of 20% of the floor price. Hence the
revised price band may be ` 400 (` 500 less 20%) to ` 480 (120% of ` 400).
Any revision in the price band shall be widely disseminated by informing the
stock exchange, by issuing press releases and also indicating the change on
the relevant website and terminals of syndicate members. The bidding period
shall be extended for a further period of 3 days subject to the total bidding
period not exceeding 10 days. The manner in which the shortfall, if any in the
project financing arising on account of lowering of price band will be met shall
be disclosed in the red- herring prospectus. It shall also be disclosed that the
allotment shall not be made unless the financing is tied up. These are the
conditions subject to which the price band may be lowered.

19. BONUS ISSUE: Subject to the provisions of the Companies Act, 1956 and Chapter IX of
the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, a listed
issuer may issue bonus shares to its members if:
(i) it is authorised by its articles of association for issue of bonus shares, capitalisation
of reserves, etc.;
Provided that if there is no such provision in the articles of association, the issuer
shall pass a resolution at its general body meeting making provisions in the articles
of associations for capitalisation of reserve;
(ii) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(iii) it has sufficient reason to believe that it has not defaulted in respect of the payment
of statutory dues of the employees such as contribution to provident fund, gratuity
and bonus;
(iv) the partly paid shares, if any outstanding on the date of allotment, are made fully
paid up
Completion of bonus issue
(1) An issuer, announcing a bonus issue after the approval of its board of directors and
not requiring shareholders’ approval for capitalisation of profits or reserves for
making the bonus issue, shall implement the bonus issue within fifteen days from
the date of approval of the issue by its board of directors:
Provided that where the issuer is required to seek shareholders’ approval for
capitalisation of profits or reserves for making the bonus issue, the bonus issue
shall be implemented within two months from the date of the meeting of its board of
directors wherein the decision to announce the bonus issue was taken subject to
shareholders’ approval.
(2) Once the decision to make a bonus issue is announced, the issue cannot be
withdrawn.
20. (a) In order to prevent undesirable transactions in securities and to promote healthy
stock market, the Securities Contracts (Regulation) Act, 1956 was enacted and all
the Stock Exchanges in the country are registered under this Act. Section 73 of the
Companies Act, 1956 states that offer of shares or debentures to public for
subscription shall be made only after the permission of a Stock exchange.
Section 28(1) of the Securities Contracts (Regulation) Act, 1956 states that the
provisions of this Act shall not apply to the Government, the Reserve Bank of India,
any local authority, or corporation set up by a special law or any person who has
effected any transaction with or through the agency of any such authority as stated
earlier.
As stated in the question Industrial Finance Corporation of India is a corporation set
up under the Industrial Finance Corporation Act, 1948 i.e. under a special statue

enacted by the Parliament. Therefore, this Corporation does not need any
permission from a Stock Exchange to issue any Bond or other securities.
Accordingly, it has not violated the provisions of the Securities Contracts
(Regulation) Act, 1956. The nature and tenure of the Bonds are immaterial.
(b) Section 7A of the Securities (Contracts) Regulation Act, 1956 provides that a
recognised stock exchange is empowered to amend rules to provide for all or any of
the following matters:
(a) Restriction of voting right to members only.
(b) Regulation of voting rights by specifying that each member is entitled to one
vote only irrespective of number of shares held.
(c) Restriction on right of members to appoint proxy and proxy to attend and vote
at a meeting of the stock exchange.
As such Thyag Stock Exchange can restrict the appointment of Tilt Ltd., as proxy, if
rules of the exchange so provide. If it is not so provided, rules may be amended and
after getting approval of the Central Government regarding amendment, it can
restrict appointment of proxies.
Thyag Stock Exchange can also restrict the voting rights of Impression Ltd. as proxy
if rules of the exchange so provide. If it is not so provided, rules maybe amended
and after getting approval of Central Government regarding amendment, it can
restrict appointment of proxies.
Thyag Stock Exchange can also restrict the voting rights of Impression Ltd.
Foreign Exchange Management Act, 1999
21. (a) Foreign Technician: Salary payable to a foreign technician is a current account
transaction. According to Section 5 of the Foreign Exchange Management Act, 1999
any person can sell or draw foreign exchange to or from authorized person if such
sale or drawal is a current account transaction. Reasonable restrictions on current
account transactions can be imposed by the Central Government. Basically all
current account transactions are free unless specifically restricted by the Central
Government. Hiring of foreign nations as technicians is permissible without
restriction. There is no ceiling on salary which can be paid as per contract. Their
salary can be remitted abroad after tax deducted at source.
(b) Penal provisions: Section 11(3) of the Foreign Exchange Management Act, 1999
states that where any authorized person contravenes any direction given by the
Reserve Bank of India (RBI) under the said Act or fails to file any return as directed
by the RBI, the RBI may, after giving reasonable opportunity of being heard impose
a penalty which may extend to ` 10,000/- and in the case continuing contraventions
with an additional penalty which may extend to ` 2,000/- for every day during which
such contravention continues.
(c) Under provisions of section 7 of the Foreign Exchange Management Act, 1999,
certain rules have been made governing export of goods and services. The

Regulation prescribes that no person shall, except with prior permission of the RBI,
take or send out by land, sea or air any goods from India to any place outside India
on lease or hire or under any arrangement or in any other manner other than sale or
disposal of such goods.
Accordingly if Sabot Ltd. wants to accept the order for dispatching 100 trucks to
Italy on lease, it has to take prior permission of the RBI.
22. (a) Term of office of chairperson and other members are contained in Section 10
of the Competition Act, 2002: As per this section, the chairperson and every other
member shall hold office as such for a term of five years from the date on which he
enters upon his office and shall be eligible for re-appointment. They shall not hold
office as such after attaining the age of sixty-five years.
A vacancy caused by the resignation or removal of the chairperson or any other
member by death or otherwise shall be filled by fresh appointment in accordance
with the provisions of Sections 8 and 9 of the Act.
Keeping the above provision in mind, Mr. Ravesh can be appointed as member of
the commission for a term of 5 years as he is aged 56 years on 1-1-12. He can also
be reappointed but his reappointment will be only up to the age of 65 years. If Mr.
Ravesh resigns as member after working for two years the resulting vacancy can be
filled up by fresh appointment approved by the Selection Committee and the
Chairman has no power to fill up the vacancy on his own.
Selection committee for chairperson and members of commission
The chairperson and other members of the commission shall be appointed by the
Central Government from a panel of names recommended by a selection
committee.
Selection committee shall consist of –
(a) The chief justice of India or his nominee as chairperson;
(b) The secretary in the ministry of corporate affairs as member;
(c) The secretary in the ministry of law and justice as member;
(d) Two experts of repute who have special knowledge of, and professional
experience in international trade, economics, business, commerce, law,
finance, accountancy, management, industry, public affairs or competition
matters including competition law and policy as members.
(b) Factors determining appreciable adverse effect on competition: It is not be
lawful for any enterprise or association of enterprises or person or association of
enterprises or persons or association of persons to 'enter' into an agreement in
respect of production, supply, storage, distribution, acquisition or control of goods or
provision of service, which causes or is likely to cause an appreciable adverse
effect on competition within India. All such agreements entered into in contravention

of the aforesaid prohibition shall be void.

According to section 3 of the Competition Act, 2002, any agreement entered into
between enterprises or associations of enterprises or persons or associations of
persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprises or association of persons, including cartels,
engaged in identical or similar trade of goods or provision of services, shall be
presumed to have an appreciable adverse effect on Competition, which—
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
(c) shares the market or source of production or provision of services by way of
allocation of geographical area of market, or type of goods or services, or
number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding.
However, any agreement entered into by way of joint ventures, if such agreement
increases efficiency in production, supply, distribution, storage, acquisition or
control of goods or provision of services, shall not be considered to be an anti-
competitive agreement.
23. (a) 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 any ambiguity in the main section. Something may be added 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.
For example, section 294AA of the Companies Act, 1956 gives power to the Central
Government to prohibit the appointment of Sole Selling Agents of a company in
certain cases. An explanation has been added to that section which states that an
“appointment” includes “re-appointment”. By inclusion of this explanation, the
legislature has only clarified the main provisions of that section and has not widened
the ambit of the powers of the Central Government.
(b) Preamble: The “Preamble” expresses the scope, object and purpose of the Act. It
may recite the ground and the cause making the statue and the evil, which is sought
to be remedied by it. It is a part of the statute and can legitimately be used for
construing it. However, it does not over-ride the plain provisions of the Act, but if the
wording of the statute gives rise to the doubts as to its proper construction, e.g.,
where the words or phrase have more than one meaning and a doubt arises as to
which of the two meanings is intended in the Act, then the Preamble can and ought
to be referred to in order to arrive at the proper construction..
24. (a) Under Section 36AE of the Banking Regulation Act, 1949, if the Central Government
is of the opinion that a Banking company has failed to comply with the direction

given by RBI relating to policy matters under section 21 and 35A and or the affairs
of the Bank are being managed in a manner detrimental to the interest of depositors
or that of the banking policy or for better provision of credit generally or of credit to
any particular section of the community or in any particular area; it is necessary that
the Government may after consultation with RBI, by notified order, acquire the
undertaking of a Banking Company. In such a case, on the date specified in the
notification, the undertaking of the Banking Company and its assets and liabilities
shall stand transferred to and vest in Central Government. Before acquiring the
undertaking, the Central Government shall give a reasonable opportunity of hearing
to the Banking Company.
(b) Requirement of Paid Up equity capital for insurance business: No insurer
carrying on the business of life insurance, general insurance or re-insurance in India
on or after the commencement of the Insurance Regulatory and Development
Authority Act, 1999, shall be registered unless he has, —
(i) a paid-up equity capital of rupees one hundred crores, in case of a person
carrying on the business of life insurance or general insurance; or
(ii) a paid-up equity capital of rupees two hundred crores, in case of a person
carrying on exclusively the business as a re-insurer:
Items to be excluded in determining the amount of paid up equity share capital:
In determining the paid-up equity capital specified above, following item must
be excluded-
(i) The deposit of 1% and 3 % of the gross premium with respect to life
insurance and general insurance business in any financial year to be
made by the insurer to the Reserve Bank of India.
(ii) In the case of re-insurance business, a deposit of sum of rupees twenty
crores made by the insurer to the Reserve Bank of India.
(iii) Any preliminary expenses incurred in the formation of the company, and
(iv) Any preliminary expenses that incurred in the registration of the company.
25. Money laundering does not mean just siphoning of fund: Money Laundering is
moving of illegally acquired cash through financial systems so that it appears to be
legally acquired. Thus, money laundering is not just the siphoning of fund but it is the
conversion of money which is illegally obtained.
Prevention of Money Laundering Act, 2002 has been enacted with aim for combating
channelizing of money into illegal activities.
Significance and Aim of Prevention of Money Laundering Act, 2002: Preamble to the
Act provides that it aims to prevent money–laundering and to provide for confiscation of
property derived from, or involved in, money–laundering and for matters connected
therewith or incidental thereto.

In order to further strengthen the existing legal framework and to effectively combat
money laundering, terror financing and cross-border economic offences, an Amendment
Act, 2009 was passed. The new law seeks to check use of black money for financing
terror activities. Financial intermediaries like full-fledged money changers, money transfer
service providers and credit card operators have also been brought under the ambit of
the Prevention of Money-Laundering Act, 2002. Consequently, these intermediaries, as
also casinos, have been brought under the reporting regime of the enforcement
authorities. It also checks the misuse of promissory notes by FIIs, who would now be
required to furnish all details of their source. The new law would check misuse of
“proceeds of crime” be it from sale of banned narcotic substances or breach of the
Unlawful Activities (Prevention) Act. The passage of the Prevention of Money Laundering
(Amendment), 2009 have enabled India’s entry into Financial Action Task Force (FATF),
an inter-governmental body that has the mandate to combat money laundering and
terrorist financing.

32524rtpfinalmay2014 4 PDF

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

32524rtpfinalmay2014 4 PDF

Загружено:

Авторское право:

Доступные форматы

PAPER – 4: CORPORATE AND ALLIED LAWS

PART – I : RELEVANT AMENDMENTS APPLICABLE FOR MAY, 2014

© The Institute of Chartered Accountants of India

and declared that no person in the

Non-Applicability of the following Amendments/Circulars/Notifications

PART – II: QUESTIONS AND ANSWERS

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Compromise, Arrangements and Reconstructions

© The Institute of Chartered Accountants of India

SECTION – B: ALLIED LAWS

The Securities and Exchange Board of India (SEBI)

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

1. (a) Attachment of documents in relation to an overseas subsidiary company:

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(iii) Casting vote in respect of a special resolution: Regulation 54 of Table A

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

of the aforesaid prohibition shall be void.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Вам также может понравиться