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PROFESSIONALPROGRAMMEEXAMINATION

JUNE2011

DUEDILIGENCEANDCORPORATE

COMPLIANCEMANAGEMENT

Timeallowed:3hours

Maximummarks: 100

NOTE: Ans!.yerSlXquestions includingeuestionNo.1whichis COM7I)LSOR(.

Question1

(a) State,withreasonsinbrief ,

whetherthefoltowingstatememsaretrueor false:

(i)

(ii)

(iii)

(iv)

A companyregisteredundersection25

berequiredtohaveminimumpaid-up capitalof.Slakhorsuchhigherpaid_ upcapitalas maybeprescribed fromtimelotime.

Remateriarisationmeanstheconversionofphysicar hotdingsback intothe electronicholdings.

of theCompaniesAct,1956shatt

Alltees/compensation,if any,paidtonon-executivedrectorscanbefixed bytheBoardofdiectorswithouttheprevious approvalof theshareholders ina generalmeeting.

TheSecuritiesContracts(Regulation) Act,l956 statesthatif a companv

failsto cornplywiththetistingconditionsor

orconnnitsa breachthereof,it shallbeliabletoapenalty notexceeding

crorc.

delistingconditionsor grounjs

.20

(v) A companynoteligibleto raisefundsfromthelndiancapitalmarketwill not be eligibleto issueforeigncurrencyconveftiblebonds

(b) Criticay examineandcommenton thelollowing.

(2markseach)

(i) A remunerationcommitteemaybeset-upby theBoardof directors.

(ii) Asper

SEBIregulations,everyissueris requiredtosubmitauditrepofton

(S

markseach)

a quanerlybasis.

Answer'1(a)(i)

False: Accordinglo Section3(6)of theCompanjesAct,a

Companyregislered

undersection25beforeora{terthecommencemEntofcompan jes(Amendment) Act,

sl3!

i009, Section3(6).

Answer1(axii)

not be requiredio

have minimumpajd upcapitatspecifiedunder

False:

Remateriarisationmeansconversionofdemateriarizedshares(i.e.erectronic

holdings)intophysical hotdings.

Answer1(axili)

False: As per

Clause49of thelistingagreement,alllees/compensation,if any.

paidto non-executive directors,includingindependentdirectors,shaIbefixedbvthe

PP-DDCCt/_June 2011

$'li1+##i*,['ffiii'rii*Tfiffr#Fiiry;*g

Answer 1(aXiv)

iii[ ji:;""ffl!"fil:;ild[fd[:,,,;#*l;fil:;,{{*H""":

Answer 1(axv)

::ii[dr;:iit"",.T?X#;J#.,i;ili::SfJ:::J,?:

*x**n*":+l***#u,*

Answer 1(bXi)

*#:*'":l'ni1;fl"g-,,fu[,;,fr','t]'trtp:*i:,1 r:;i"i

mlT'"#r**l$"'il":,#

Answer 1(b)(ii)

::f

i{,:a-ii,ll.'.ilJlT'"x.jftT#ff ;l"l:?,?t":;ly,?,.".1ee6provdes

jstotheconc"'n"J.'o"i

!i#ffilltas

*lft1':#''ffi&{f i'{#iil:"?-:nd

iJ:i::',ffi'"1':l:U;:,*n::1,:*;,J"1"d

;':ff ,#ilTft;::fr

a","".:.u#,#,T*1,ffi l'.Hitililt'*,41;';it

*****##*t*{*u#':'tr

Question 2

3

pp-DDcctvt_June 2011

''

appropriate answer rrom the siven options in

f:i!?.,t?. clnpty

with the

requireme

R,eSiAra,

i"ii"i,,i"",

iui.i ii"

[il:";:;,'"st

(i)

respect ot the

ot titing

Where a company

compttance cerrificate.y:t! tl:

lompany and thecompany shau 6e prri"niit" "r

the

of the

whtch may extend

otticer

every

( )

(a)

(b)

(c)

(d)

< 250 per day during which thedefault continues

< 1 ,000 per day during which thedefault continues

T500per day during which the default continues

< 750per day during which thedefault continues.

f:;:::::E4s:r

(a)

(b)

(c)

(d)

2 Times

3 Times

4 Times

S Times.

the tistins asreement, theBoard ordirectors sha, meet

(iii) Whena charge on the

tolowins

(a)

(b)

(c)

(d)

a-s^:,t: :f

th.ecompany is satisfied, which

;;;t;i;;7.or

formsis required to be fited;ft;;;

oneof the

companies _

Form No.10

Form No.t2

Form No.g

Fotm No.17.

fivl

,!

n

ygUl

regutations, antndianparty ispermitted tomakeaninvestment

ownedsuLsiaiarii iot.)r"rro,rg *

overseasjoint venture/wholly

lTy

.@) 1no/"

(b)

(c)

(d)

of itsnet worlh as on the date of the last audited balance

200.a

400%

500%

sheet.

(v) Theproceedings of eachgeneral meeting of thecompany shouldbe entered

(a)

(b)

(c)

(d)

60 Days of the meeting

45 Days ot the meeting

90 Days of the meeting

30 Days ofthe meeting.

PP-DDCCN4--June 2011

(0

(vi) Which.of the

foltowingActs does notcome undet the

tndiaAct,1gg2

securitieslaws _

(a)

(b)

(c)

(d)

SecuritiesandExchangeBoardof

Foreign Contribution(Regutation) Act,t976

SecuritiesContracts(Regulation) Act,1956

DepositoriesAct, 1996.

Distinguish betweenthefollowing:

(i)

'Equity shares'and

'Buy-back of shares'and 'redemption of shares,.

'sweat equityshares,.

(ii)

Answer2(aXi)

purvrcw of the

(1markeach)

(5markseach)

(c) Rs.500per dayduringwhichthedefauttcontjnues.

Answer2(a)(ii)

(c) 4 Times

Answer2(a)(iii)

(d) FormNo.17

Answer2(a)(iv)

(c) 400%

Answer2(aXv)

(d) 30days

Answer2(aXvi)

(b) ForeignContrlbution(Regutation) Act,1976

Answer2(b)(i)

EquityShare

Asper Section85oltheCompaniesAct1956,anequitysharecapttatisonewhich

norj"i" oi

sharesdonot

rightsofreceivingdividends.Theywirrreceivedividendonryafter

"qrity

thetimeofiiluiOltiono, thecompany,

f^:.?t^1p1"1::"*e sharecapitat.Thismeansrharth"

l]-1ve anyprererentiar

thepreterence dividendhasbeenpaid.Theyalsodonothaveanyprrorrty oveipreference

sharesregardingtherepayment.of capitatat

Equityshareholders havevotingrights.

SweatEquityShares

SweatEquitySharesmeanequitysharesissuedby

acompanytoitsemployeesor

proviOing know_howor

drrectorata

maKrngavairabrerightinthenature^ofinterectuarproperty rightsorvarueadditions,by

whatevernameca

equity.shares toemployeesordirectorsinrecognitionofthejrconkibutionforproviding

l(now-how etc.

.

discountorforconsideration,otherthancashtoi

ed. Section79A of

theCompanLJeci,plrmits

issueof Sweat

Answer 2(bxii)

Buy-Back ofShares

5

PP-DDCCM-June 201 .j

O:,

Secrron77 A of rheCompanies Acr.

^.

aulhonzation

.,1:.

.1956,

ofttsArticles maypurcnase ttsownshares

'1othe

d;:#Hi:,:'jject

.r",9, J:'"1;:;::::rves (ii)thesecuriries

Premium account (lij) the proceeds ot any

Thebuy-back of

sharehorcreis orp,,;r;;;;;Iil,f'iiffi#"

,

sharesr

L::ff: "s orsharesrromexistins

',u:'fr":l;ffi :fl ff1i:1":;J",:'fffl:1n:XT?iJTl""?:T' I\4eetnsautho'zins

Redemption of Shares

""fi:ffi ffi::"11;i,'i:"::Iiili:.#,:;"11?$:::3:.,:Xi,""^,,ic,jc

(i)

Proceeds ot treshissue ot shares_or

(ii) outof profits availabte fordtvidend.

Further,

no such

shares cal

#i"'?i*lff

;:x'"ffiflE:::il;i$j,;;3.'i:

iIiJ;:",i:l:,t:l:.,TL":,li:

Question 3

(4

:::fl:ni:X;i!:"""[u^'37l?toi.no.g"rtiticate otpractice., whiteissuins the

curenaa,yea,zi:i';,;;i:

1stmeeting

2nd meeting

3rd meeting

4th meeting

5th meeting

6th meeting

gs6 ?

Exptain.

hasappIed

for

f;:;?:i;;:

.?i,: g"; !;:,;::l!: :li:: ;*

"f;#

26thFebruary; 2010 30thMarch, 2010

26thMay,20t0

30thiune,2010

l st October, 2010

2,th December, 2010

Do you feel that thereis anv vi(

I

swadesh

'lation of the provisions of the companies Act,

(6

marks)

sharesun(lcr ptn^t^\,^^- ^.^^t. -.,

(b)

yan9"oliitrI;;;;;;;;;7,;:iT,:ff:f f,Zi;,1:1":f::;;*",:;,,:;?fJ,

':,?i::i;:d'

documents

vnod comment o'

ontine.,.

::;:::l::

'MCA 2t

ti" "neix piiiJio,

sratemenr

nin-t,ansreratirity

[],,,,!,"1"

"ro ",nJl,

r," pro""orr"

"i6ffi,

offersthefacititytoview-doc-uments and atsos""r"n

ExD.tain_t.he

ofrecords fitedLyacompany withthii;;oiili

otpubtic

tor examination

aii-nirri',J

(c)

PP-DDCCM*June 2011

Answer 3(a)

a

Sectjon 295oftheCompaniesAct,j,956prescribes thatinthe

suchmeetings sha behetdi"

meertng oftheBoard of

a

at teastfour

caseofeverycompany,

and

Directors shallOeheld at teasl on""'in""u"ry rnr"emonths

""

'

.

Ithasbeen clarified so

";;ty;'

lonoas

fourboardmeetings areheldina

;"

;;;e

in eachquarter; the

Instance, jf a

calendaryear, than 3 months.

interval bJtween two_meetjng. ;ut

.1, ti,e

one

For

30,

meeting is heldon January

nexf melting m-aybe heldon June

g1;"OJ""io"r.

thethirdone

on 1stJutyandthefourrh on" i" onin"

n]rriililiJ.

irmustbeensuredthatineachquarrer ofacatendaryear aboardmeetrng

In the

given case,it is observed that the board

meeting

quaner

of the calendaryear 20Ogexcept in,f,r"qr"n", iJrVrOSto SeptemOer

ru[6sio E"J,#b"|.

has been held

jn

each

OS1i.e.

ther€lsno boardmeetinginthe3rdqur.t"r or

og "f thecarendar

So thereis a violatjon of section 2g5 of theCompanies Act 1956. Answer 3(b)

Checkpoints for Non_Transferability of Option under ESOS

(i)

Checkrhatoptiongranted to anemployee isnottransferaote to anyperson.

(a) No pe;son

(ii)

otherthantheemployee to whomtheoptionrsgranted shallbe

entj ed to exercise theoption.

(iij)

(iv)

(b) underthe

permttheempan""{ililil".F?:"li?;,llli"iT,Xll"T;

cashless s

which sha

subject to theprovisions of the Companie; ;;i

beadjusted againstthesat"pro"""JJJi.orne ora theshares,

1r;;:

Checkthatthe

optjongranted to,the

theeventof thedeathof

employee js not

pledged, hypothecated,

-

mongaged orotherwise alienated inanyothermanne1.

Check that jn

-'

employee whileinemployment, allthe

inthelegalheirsor nominees of

optionsgranted to

thedeceased emp,ou"".

htmttllsuchdaterro,,o.i.-,ii-^-.;^;^:^,

t"n

datearevested

"

(v)

(vi)

(vir)

Check that in case the employee

suffers a permanent

i;;'

:-Tl]?lTglt, ailrheoption srantedto hi. ;. ;;

Incapacitation, shallvestin himon thatdav.

rncapactty whilein date of permanent

checkthatifanemproyee resrgnsoristerminated, aI

thatdayexpire.However,theemproyeesha[,subjecttothetermsanoconditions

rormutated by

options.

optionsnolvestedason

compensaiion committee, O" "n,itf"J io-rltain allthevested

Ctl_eckthat,theoptionsgranted,to adirector,whoisanemployee oranInstitution

andhasbeennomjnatedbythesaidin.t,trtion, nu" nJi-deenrenounced

iavour ofinstitution

nominatinq him.

ln

Answer3(c)

PP-DDCCM-June 201i

MCA-21offersthefaciritytoviewdocumentsandarsosearchandothertaciritiesof

publicdocuments.Thisfacilityishandyforusersandbanksandfinancialinstitutions

whilesanctioningloans,

Thisfacirityenabresviewingofpubricdocumentsofcompaniesforwhichpayment

Thedocumentcanbeviewedonlywithin7

daysaftertite

hasbeenmadeby user.

payment hasbeenconfirmed.Also,thedocumentsareavailableforonly

3 hoursattertheuserhasstartedviewingthefirstdocumentolthecompany.

(a)

(b)

(c)

Userhastoaccessl,4yMCAportalandlogjntotheMyMCApcrtal.

Clickonthe'MyDocuments,tabafterloggjngintothesysrem.

Listofcompanynameswiflbedisprayed,forwhichuserhavearreadvoairifor

publicviewing.ltalsodisplays

(i)

Dateof requesti.e,thedate,whenusermadethe requestto viewthe companydocument.

Statusoftherequesti.e.whetherviewedor toview.

(ii)

Clickontheviewlinkunderstatusfleld.

(d)

(e)

Thedocumentsaregroupedunderfivecategoriesi.e.userhastoclickonthe desiredcategoryunderwhichthedocumentfalls.

(t)ll

(g)

morethanonedocumentislisted,theusercanarrangethemnamewiseor

datewise.

Onclickingthedocumentname,thedocumentshallbedisplayedlorviewing.

Thepublic documentsunderthisfacilityareavailableforviewingbypublic onpayment ofrequisitefee.PublicdocumentsincludeIncorporationdocuments,chargedocuments, annualreturnsandbalancesheet,changelndirectorsandotheroocumenrs.

Question4

|

(a) Whatdoyoumeanby 'persons actingin concert,? Whowillbedeemedtobe

(b)

(c)

personsactingin conceftasper

the SEBI(SubstantialAcquisitionof Sharcs

(6marks)

and Takeovers)Regulations,1997?

Sunilis a CompanySecretaryholdingcerlificateofpractice. He hasaccepted

theassignmentofsecretarialauditofXyZLtd.forthefinancialyearended31st

March,2010.Hereceivedthenoticeof

signedtheauditreporton30thJune,2010.lt

hisassignmenton l SthAprit,2010and

isnoticedthatSunilceasedtobe

June,2010.Examinethevaliditvof

a CompanySecretaryinpracticefroml st

issuedandpaid-upcapitativas<4

therepoftdated30thJune,2010signedby

AmarPropeftiesPvt.Ltd.wasincorporatedbyAmarand histhreesons.The

Sunil.

(S marXs)

lakhcomprising4,000sharesof < 100each.

thattimehisnameappearedinthe

Afterfewyears,Amardiedinanaccident.At

followingmannerintheregisterofmembers.

PP DDCCM-June2011

Name

No.of Shares

Amar

100

Amar and his tirstson

600

Amarand hissecondson

600

Amarand histhirdson

500

Total:

LegT

On thedemiseofAmar,his wife claimedthather latehusbandheld 1 ,800 equity shares jointly and severally. He had left behind a will and she accordingly obtaineda probatein her favourin respectof theabovementionedsharesfrom thecoun and appliedto the companyfor transmissionof all the 1 ,800 sharesin her tavour. The company transmittedonly 1A0shares in the name of Amar's wifebecauseof complaintsmadeby the othersurvivors.Amals wife hasfiled

a petition under sections 111(2)and 111(4)ol the CompaniesAct, 1956

challengingthe actian of the company.Preparea note for the companyabout

the defencesit may take.

(5 marks)

Answer4(a)

Accordingto Regulation2(e)ooSEBI(SAST)Regulations,1997,"personactingin

concert"comprises,-

(1)

personswho,fora commonobjectiveor purpose of substantialacquisitionof sharesorvotingrightsorgainingcontroloverthetargetcompany,pursuantto an .rqreement or understanding(tormalor informal),directlyor indirectlyco- operalcby acquiringor agreeingto acquiresharesorvotingrightsinthetarget companyorcontroloverthetargetcompany,

(2) wilhoutprejudicetothegeneralityoi thisdefinition,thefollowingpersonswlllbe deemedtobepersonsaclinginconcertwithotherpersonsinthesamecategory, Llnlessthecontraryis established:

a company,itsholdingcompany,orsubsidiaryorsuchcompanyorcompany underthesamemanagementeitherindividuallyortogetherwitheachother;

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

a companywithany of its directors,or any personentrustedwiththe managementofthefundsofthecompany;

directorsof companiesrelerredto in sub-clause(i)of clause (2) andtheir associates;

mutualfundwithsponsoror trusteeorassetmanagementcompany;

foreigninstitutionalinvestorswithsub-account(s);

merchantbankerswaththeirclient(s)asacquirer;

portlolio managerswiththeirclient(s)as acquirer;

(viii) venturecapitallundswithsponsors;

(ix) bankswithfinancialadvisers,stockbrokersoftheacquirer,oranycompany whichisa holdingcompany,subsidiaryor relativeoftheacquirer:

Providedthatsub-clause(ix)shallnotapplytoa bankwhosesolerelationship withtheacquireror withanycompany,whichis a holdingcompanyor a

PP-DDCCfr4' June2011

subsidiary of the -^^.,,-^--"

ilil

'"1ffi

.,

::,"J:Ex,,iffI:"?iiijJ:j

avaitabit,tv

"T,#fii""",: Li11iffi

oti'"J' n"".,1,"g

"no f,i;Jlffil:i"ffi"#irmins

""."p,"n"".

(x) anyinvestment

rundmanaser'"'S:,ii:li'a*liffi

c(

ofthepajd_up capiralofthatcompanV

jn

paio-up

which suchp",."on o,r

capitar

,i,

:'-ilx,#.xl:::?'j"";3f

::T

rnv-estment company

"i "i,n"iu "ilr :^?^er

hordsnoiteAstnan2pe'centorth!

otinoJ:1,::"ffi:1i"

"."5;;i"1:i::1:1

Answer 4(b)

TheBoard

appointed [/tr.Sunil

as Secretarial Auditor.

hording certificateor

practice. wniresuniLrereiv#;

";

HewasCompany Secretary

^i;;J:

on rsthAprir2010 he

ofAuc,itFeport he

norvalid.

Act,1980.

wasPractisins company secretall whergas

wasnotcompanv secretary rnpractice interms o]6;;;;;;!r"r",".es

nencereport submitted ascompany secretarv i" prJi";rJ.

,h""i;;';;;;;ng

Answer4(c)

Sincetheprovjsions

ofCompanies

Act,1956/Articles

arebindtngonthecompany

too(600+600+5oo)

m::lniU::

ff#""Jff,"J"JJ

i"i"*i"iii,

:Tim

;' ^"Ill't:,1'r,;

.rui'unyu,.r,,iu-";;ffi :;fi:i";,::'ii:J:'Y#i

:i;ii#j;ffiff

"'I,il:J,"Jf

ilffn':J:i,v"no tn","roi".i"i.*,

,,nliil "n,nstransm,ssion

il ;:ll?Jif,i';"J$i*,,on, wifeofAmarisenriiledro onryinrespect of100

'" ''''

' ''t'complalnant

cannotget

anyrelieffrorn companyLai

.r",::1.;

onlythel0osharestoher. Th""^:a:^:-tATar' Thecompanywasrrghtintransmitting

eoiro intnisi"s"l".

Thispresent caseissimilartothecasein

Smt.Bivapyne v. pynepropefties

(p)

blili"To in",,n" petitionerwas

Ltd. andothersl2ot 0l94CLA192(CLB).

;::H:J::#ffiil:;,;"

"n,r

r.,r,,"""*

inrespect olshareswnicnwerenJointhesorenameof

Question 5

(a) Re-writethefollowing word(s)/figure(s) : sentences afterfilling-intheblankspaceswithappropriate

(i)

(ii)

(iii)

promoters' contribution hast-obe

brought in as per the SEBIguiclelines

in theformofdepository

beforethe

tndian depositoo,""",,y:?:n:^1!;_-_ receipt createdbydomestic depositoryi

Thedepositoryparticipant sharrre.dress the

ownerswithin

ofpubtic iss,ie,.

- nA^ --

grievances of thebenefi,at

it

,r,

of thedateoficeipt

(iv) Form No.

"'''i",i,iu"^;;u*"*,,',lniiL!:{:,LL:;r:!;i"!:::AX;",,1;'J

"orptuint.

_

PP-DDCCM,June 2011

'10

(v)

(vi)

Legalduediligenceis a hnowtheslrenglhsand

F_vetycompany accepting

Registrar of campanies the return of Companies Act,1956onorbefore _

operationthroughwhrchonecan weaknesses of a Company.

depositsfrom the public has to tite with the

depositsunder

sections6A of the

_ evea,ye)r. (1inark each)

(D) Ka.treena Ltd.,a

ristedcompany,wantsto make an issueof secuntas

through

a ngntsissueand the aggregatevalueofthe

<.70 lakh. As a Company Secretaryof Katreena

aboLtttheprocedures to be followedfor makingthe rigiris,ssue.

while conductingthesecretariaraudit of Rainbow

securitiesincludingpremium exceeds

Ltd., ajvise

thecompany

(Smarks)

came

pharmaceuticars Ltd.,it

resigned andin

out the b;siness ;ctyfties, two

etfectin the siid singtedirector

andtheappointnent of

/t\

to notrcethat a

conducted by Jagat

lound thatexceptJagat,all

order to constitutethe quorum and to

additionardirectorswereappointedwithimmeliate

B,oardmeetng. Decidethe validityol

Ine lwo addtttonat dircctorsin the meetingheld on 24th March, 2b11.

Board meetingheld on 24th March, 2011 was convened

otherdirectcrs of the compa;y had

carry

and

alone as a directorol the company. On enquiry, it was

theBoardmeeting

(5 marks)

Answer5(aXi)

Atleastoneiiaybeforeopening

Answer5{;li,i)

Instiunret

Answer5faXiii)

30,i,

r,s

Answer5(a)(iv)

25C

Answer5(a)(v)

Precautionary

Answer 5(aXvi)

"r,n-o 30th

Ansvier 5(b)

5Etsl(ICDR)

Regulations20Ogareapplicableforrightsissuewheretheaggregate

fiftyrakhrupees-or more.Thetottowing-arJtne

valueof

';ompliances whichareto beensuredforissueof rightsshares.

specified securitiesotferedis

',

FecordDate

. Ensurethattherecorddatehasbeenannouncedforthepurpose ofdetermining thesharehorders erigibreto appryforspecifiedsecuritiesintheproposed righti

.

11

PP-DDCCM-June2011

rssue.lt may be notedthat the issuershall not withdrawriohtsissueafter announcementoftherecorddate.

lttheissuerwithdrawstherightsissueafterannouncingtherecorddate,itshall

not make an applicationfor listingof any of its

recognisedstockexchangefora period oftwelvemonthsfromtherecorddate

announced.However,theissuermayseeklistingof iis

pursuant to conversionorexchangeofconvertiblesecuritiesissuedprior tothe

announcemenioftherecorddate,ontherecognjsedstockexchangewherelts

securitiesarelisted.

speciliedsecurjtieson any

equitysharesallotted

2. R€strictionon rightsissue

No issuershallmakea rightsissueof equitysharesil

partly convertibledebtinstrumentsatthetimeol makingrightsissue,untesstrnas madereservationofequitysharesofthesameclassinfavouroftheholclersof sucn outstandingconvertjbledebt jnstruments inproportion totheconvertiblepart ihereof.

The equitysharesreservedfor the holdersof fullyor partjally convertibleclebt instrumentsshallbe issuedat the timeof conversionof suchconvertibledebt

instrumentson the issuewereissued.

it hasoutstandingiullyor

sametermson whichthe equitysharesofferedin the rights

3. Letterof offer,abridgedletterof offer

Theabridgedletteroloffer,alongwithapplicationlorm,shallbed slratchecithrough regrsteredpostor speedpostto alltheexistingshareholdersat leastthreedays beforethedateof openingot the issue.The letterof offershallbe given by the issuerorleadmerchantbankertoanyexistinqshareholderwhohasrnaclea request inthisregard.Theshareholderswhohavenotreceivedtheapplrcalonrormmay applyinwrilingon a plainpaper, alongwiththe requisiteappljca|onrnoney.I he shareholdersmakingapplicationotherwisethanon theapplicationformshallnot renouncetheirrightsandshallnotutilisetheapplicationformforanypurposeincluding renunciationeven if it is receivedsubsequeny. lf any shareholdermakesan applicationonapplicationformaswellasonplainpaper,theapplicationisliabieto berejected.

A Pricing

Theissueprice shallbedecidedbeforedeterminingtherecorciclatewhichshallbe determinedinconsultationwiththedesignatedstockexchange.

5. Periodof subscriplion

A rightsissueshallbe openforsubscriptionfora minimumperiod oi iitteendays andfora maximumperiodof thirtydays.

6. Pre-lssueAdveftisementfor rightsissue

Theissuershallissueanadvertisementforrightsissuedisclosingthefollowing:

(a)

thedateofcompletionofdespatchofabridgedletterol offerandtheapplication form;

(b)

thecentresotherthanregisteredof{iceoftheissuerwheretheshareholdersor the persons entitledto receivethe rightsentitlementsmay obtainduplicate copiesoftheapplicationformsincasetheydo notreceivetheapplicationform withina reasonabletimeafteropeningoftherightsissue;

PP DDCCMJune2011

7. Obligationol issuer/intermediaries

12

The obligationof

advertisement.appointmenlolcomplianceofficer,redressalol investorgrievances,

due diligence,post issuereports,postissueadvertisementsetc is sameas the oublicissue.

issuer/intermediariesfor a rightsissuer, with respectto

Answer5(c)

Asgivenintheproblem,normally,thequorumfortheboardmeetingsofthecompany s three,whichisinaccordancewithSection287oltheCompaniesAct.Themeetingin questionwasheldforincreasingthestrengthof boardto meetoutthecriteriaprescribed lorquorum,whereas,Regulation75ofTableA ofScheduletotheCompaniesAct,1956 providesthat whenthe numberof directorsol the companylalls belowthe requisite quorum.thecontinuingdirectorsordirectorpresent couldbethequorumforthepurpose ofincreasingthenumberofdirectorsrequiredto havea quorum, butfornootherpurpose.

lt washeldin l,4annalalKhetanv KedarNathKhetan(1977)47 CompCases185 (SC)theonlyproposalthatthecontinuingdirectorscouldhaveconsideredintheBoard N4eetingwasto increasethenumberof directorsand nothingelseandeventheBoard wilhthequorumestablishedinthatmeetingcannotconsiderany itemotherthanthe appointmentoidirectorsforthepurposeofconstitutingquorum.

Therefore,lheboardmeetingwouldbeconsideredvalidandtheappointmentoftwo additionaldirectorsv/illalsobe valid. However,decisionsif any takenin that board meetingotherthantheconstitutionalol theboardwouldbe considerednullandvoid, evenif it is intheinterestof thecomDanv.

Question6

(a)

Mentionthepossiblehurdlesin carryingout a legal due diligence. (6 marks)

(b)

MPSLtd.is an educationalinstitutionregisteredas a societyundertheSocieties Registration Act, 1860. lt wishes to make overseas investment in United Kingdomby establishinga wholly owned subsidiary to run schools in that country. Explaintheprovisiansrelatingto overseasinvestmentsby a registeredsociety. (5 marks)

(c)

Mentionthe variousrecordsrequiredto be maintainedby depositorypafticipants

underthe DepositoriesAct, 1996.

(5marks)

Answer6(a)

PossibleHurdlesin carryingout a legaldue diligenceand remedialactions

1. Nanavailabilityof information

ln rnanyoccasions,whena person carriesout due diligence,the required informationmaynotbe availableor insufficientto derivea completepicture.

2. Unwillingnessof targetcompany'spersonnelin providingthe completeinformation

Non-co-operationoftargetcompany'spersonnelmayalsoproveto bea major hurdleduringduediligenceprocess.Sometimes,theavailableinformationwould beorelendedas nolavailable.

13

3. Providingof incorrectinformation

PP DDCClvl-June2011

Providingof incorrectinformationby thetargetpersonalalsoactsas a major hurdleintheduediligenceprocess.

4. Complextax ooliciesand hiddenliabilities

Complextaxpolicies & structuresmaycreatea numberol hlddentaxtiabrtrtres, whichmaynotbe easyto track.

5. MultipleRegulationsand itsapplicability

Owingtothenewandemerginglegislations,it isdifficultto interpretwhethera specificlegislationis applicableforbusinessandgettinglegalopinionon the samewouldproveto be verycostly.

6. Processin providingdata

MultipleLayersof reviewandscrutinybeforedataisprovidedforduediligence alsohindersanddelaystheduediligenceprocess.

7. Absenceof DroDerMIS

Duediligenceprocesswouldbecomudiflicultil thereis no properMISinthe company.

Actions to breakhurdles in due diligence

Thefollowingactionsmaybreaktheaforesaidhurdles

- Focuslollowup questions.

- Ask severalpeoplelhe same questionsand utiliseappropriate professional ske ptic ism.

- Politepersistencemayhelpto overcomethisattitude.

- Independenlcheckwilhregulato'yautho/ilies.

Consideringthjshurdles,itisadvisableto insertthenecessarydisclaimerclauses intheduediligencereport.

Answer6(b)

Overseasinvestmentby registeredsociety

RegisteredTrustsand Societiesengagedin manulacturing/ educationalsector/ set up hospitalin Indiaare allowedmakeinvestmentin the samesector(s)in a Joint VentureorWholly QwnedSubsidiaryoutsideIndia,withthepriorapprovaloftheFleserve Bank.Trusts/Societiessatisfyingtheeligibilitycriteriaas givenbelowmaysubmitthe application/sin FormODI-PartI, throughtheirAD Category - | bank/s,to the Chief GeneralManager,FleserveBankof India,ForeignExchangeDepartment,Overseas lnvestmentDivision,CentralOtfice,AmarBuilding,5thFloor,Fort,NIumbai400001 , for consideration:

(i)

The Societyshouldbe registeredunderthe SocietiesRegistrationAct,1860.

(ii)

The [4emorandumofAssociation:nd rulesandregulationspermittheSociety tomaketheproposedinvestmentwfrichshouldalsobeapprovedbythegoverning body/ councilora managing/ executivecommittee.

PP DDCCM-June 2O'i1

1 4

(iii)

(iv)

(v)

TheAD Category - lbank issatisfiedthattheSocietyis KyC (Know your

Customer)compliantandisengagedina

TheSocietyhasbeeninexistenceatleastfora period ofthreeyears;

TheSocietyhasnotcomeundertheadversenoticeof

bonafideactiviry;

anyRegulatory/

EnforcementagencyliketheDjrectorateofEnlorcement,CBIetc.

Inadditiontotheregistration,theactivitieswhichrequirespeciallicense/

Category _ |

permission

eitherfromtheMinistryofHomeAffairs,GovernmentofIndiaorfromtherelevantlocal

authority,as thecasemaybe,theAD

speciallicense/

Answer6(c)

DepositoryParticipantshourdmaintainthefoflowingrecordsforperod orfivevears:

bankshouldensurethatsuch

permission hasbeenobtainedbytheapplicant.

(a) Formsubmittedbytheclientfor:

(b)

(c)

te)

Openingofaccounts. Closingol accounts. Freezingofaccounts. Defreezingofaccounts DeliveryInstructionsgivenbyclients. Recordsolallactionstakenontheexceptionreportsgenerated bythesystem. A Registershowingdetailso{grievancesreceivedfromtheclientsandtheir present status. lnstructlonsreceivedfromtheclearingmemberto transferbalancesfromthe

PoolAccounttotheDeliveryAccountoftheClearingN4emberinordertoenable

himtodeliverthesesecuritjestotheclearingcorporationforsetflementoltrades.

(l)ln structronsgiven by clearingmemberauthorislngthetransferof securities fromthepoolaccounttotheaccountofitsclients.

(s) DematerialisationRequestForms(DRFs)andRematerialjsationRequestForms

(RBFs)filledbyclients.

Formsreceivedinthecaseol pledgeandtransmissiono{securities. Detailsofcertificatessentfordematerialisation. ProofofdespatchofDRFsandShareCertificatesbycourier.

(h)

(i)

0)

(k) Detailsof certificates,sentfor dematerialisation,receivedbackalongwith objectionmemofromvariouscomoanies.

Question7

(a) Explainthecompliancesrequiredwithregardto any twoot the following:

(i) .Removalofa director.

0i)'friangularmerger.

(iii) Statutorymeeting.

(4markseach)

t:)

(b) Writenoteson anytwoof thefollowing:

(

sectorswhereforeigninvestmentisprohibited

PP-DDCCM-June2011

(ii) Eligibitityfor issuanceof lndiandepositoryreceipts(lDRs)

(iii) Closureof registerofmembers.

Answer7(aXi)

( markseach)

A directormayberemovedlromollicebeforetheexpiryol hjStermby-

(a)

Shareholders

Board.

oftheCompany; (b)CentralGovernment;

or(c)CompanyLaw

la\ RemovalbYshareholders

b\

Pursuanttosection2S4(1)oftheAct,theshareholdersotacompanymay'

passinganordlnaryresolullonata

iheexpiryoftheperiodofhisolliceHowever,thefollowingdirectorscannotbe

|'"tou"d by thecompanyunlessotherwisestipulated in thetermsof aooointment:

generalmeeting'removeadirectorbetore

their

{a) adirectorappointedbytheCenvalGovernment underSection408;

(b)

adirectorofaprivatecompanyholdingolficeforlifeonthelirstdayofApril' .1g52 whelherornotheissubjecltoretirementunderanagelimitbyvirtue ofthearticlesorotherwise;

wheretnecompanyhasavailedilseltoftheoptiontoappointnotlessthan

two-lhirdsof thetotalnumberof

(c)

directorsaccordingto

theprincipleol

(d)

proportionalrepresentationunderSeclion265;

a directorappointedbya FinancialInstitution/Bank underthetermsof a loanagreement.

I

TherightgivenbySection284isa

statutoryrightwhichcannotbetakenaway

provisionwillbevoid

388Econtalns provrsrons

bythememoranoum, articlesorbyanycontractoranyotherdocumentandifit

issoughttobetakenaway,sucha

Removalof directorsbytheCentralGovernmcnt

ChapterIVAoftheAclcomprisingSection3888to

removemanagerial personnelol

[g"toing

" Lotpiny

Tribunal.

po*", oftheCentralGovernmentto

tromofficeontherecommendationof theCompany LawBoard/

(c\ RemovalbyCompanyLawBoardlTribunal

forpreventionof

Whereonanapplication

ofpies"ionunderSection397andmismanagement underSection398ofthe

n"i, tn" cLenriornal

terminateorselasideanyagreementol

it maythink jusl

totheCompanyLawBoard/Tribunal

findsthattherel;e{oughttobegranted,itmaybyorder,

thecompanywithadirectorormanaging

directororotner personneionsuchtefmsandconditionsas

andequitable.

PP-DDCC[,4-June 201 j

Answer 7(aXii)

Triangular Mereger

t o

tnangular Merger

meansnthe^ amalgamation of

orsappearing

.

two

company rsmerq-ed into suosioiary otsuiriuinJ al"-punv

.nrr",

li r-n""Jr_;;X;:;,.n0""".

compantes by which fhe

unosharehorders

orthed'sapDearing company-recervu

Answer 7(aXiii)

Statutory Meeting

n,",iJ"jt"i:[o::J,,'il:ii,?1":1111 1ld

months from,rr"*J,"? *i,j"i Ylt:l-l 9"'t9

ofth"m".nbe tnecompany

n.,oon,u jl^ol

generar meeting

statutory meering,"

arenotrequired tono'o.,u,rioil"r"Jltll;

Answer 7(bXi)

"y".v companvrimited

notlessonetont'

by suaranteeand

nor-tor" ti,-]ii

isentitled tocommence

uu.ine"s, r'otJa

Jo,.np"","l

llerompany whichiscalledasstaiut;tM;;;s.

lifetimeorthecompanypttr,"

'",,Jil;'3ili;i:n"#;J'nt

" isrreervpermifted

inarmost

ailsectors

except rorrhe

(i) Business ot chitfund, or

(ii) Nrdhr i

rmpany, or

(iii)

Agricuituraj or plantation activities, or

(iv)

(v)

Real estate bustness, or construction offarm houses

Tfading inTransferable Development Rights

Real

Eslate Business doesI

resident,arlcon.me;"';i;;;;.1:*"1lliff;'"0'""t ortownships, construction or

,",,iJa"J

i:i:::lm:'J'lyffi:'#il'J,

l"iiffiT:I?ns investments

asperFEMA

0,";ffjj,lT"';"tfrxT,J:; flT[ent

inthetormofForeisn

DirectInvestment

isarso

(j) BetailTrading(except forsjngleorandproduct retailing)

(iij

iiji)

Atomic Energy

Lottery Busjness

(iv) Gambting andBetting

(v)

Agricurturc(excruding

Froricurture,

Horticurture,

Husbandry,pisicutrure

Deveropment

ofseeds,Animal

"r

unO",

andCu[ivation,

controled conditjons

Planl3trons

"no

oJuug"rubl";, ilur,;ro,oii.

,"ru,":.:^::,,","0 i"

(Other thanTeaplantarrons

).

"jr"_i.ju,iiiJ,l"",or'r1 "no

Answer 7(bXii)

Eligibitity for issue of lDRs

1 7

PP-DDCCt4_June AO.1 j

(a) pre-jssue paid-up capital andfree

o

n' *;:?r1Tlffi"^31"-

precedrng fiveyear.:otP"ni"t

''J::,?H*:??i""

,ff,ff3?:llili:i"jili;"Til$il:il""j3ffi ff:-$Jilili.:ffi',ili];;

3::i[:Til;:flil":::X,"J l,;'::fi!il:?y exchansein 'sparenrcountry

l,l"ck.record

ofdisrriburabre

profits

inrerms of

Act'1956'foratleasttn*"

,iri"urr"o'"Liu

jffi

reserves has

rot

j;[!'":";:ffi

:j?ipl[,,?

:[il#"1fi3;H#

Answer 7(b)(iii)

Section l54of the

Compan jes

Act,1956

ffr"*lllfr$Hgtil:#ffnrffi!,fl::;:;ffiil jx;:fi i"fi?i!?ir;:ffi :T

;:fi:,"J"::;""fr"T#'";ri'"11::"1:'-:'h"

vear,but ""t ,j"l""ii"g'r[j,l;::ff:i::",

,r1firn rheassresate

Question 8

'usi't"'oi;"'fJ;;:i#l::J::i:fl;Iff:

ro'tv-ru"

ouy,in "u-"n-

containsprocedu

Critically

(i)

examine and comment on ahy four of thefottowino :

company

planning lo makea

r!:":;rf:"a

An tndian

Amenca needno,,"n:l:,:i#

pubtic orrerin theL.rnitedstates or

nuht;.

(ii)

Thepreferentiat allotm twoyears.

entmade to anyperson shall be tocked-in for a period of

,,, ,::rri;::":l:rl:l|of

thentead

merchant banker toensuretheclespatch

ofshare

(iv) The depository system functions very much like thebanKng system.

''

2:f ft!;i,i;!':!:f:"!

wnicnnaviaqliiir"iei 3:"lr';:;:;::i:,2!,i.uroon ascompared

:":'^vention ortheprovistons ot thecompanies

g

to

"oipnnii"

marks each)

::

Answer 8(i)

This statement is not correct.

lndian Companies planning a

;tJff;.t?:ix1ii*#1*#H""fi,ifiigfi ?:ii{il[n%:Jf

^_ ,

information, ,.rrrr""i"i. j"J'

,"iiJ^". f]-"_t?:.ty suchasuseor

"T:il|::;

[1?i"31,x$;t5::::syjat""f,.:iffi r:[: jdtri,.,1ft[ilil",.1,::t{

PP-DDCCM-June 2011

18

Answer 8(ii)

Thisstatemenlis notcorrecl.

Asper chaptervl

ofsEBr(rcDR)fiegurat;ons 2009,thespecifiedsecuritiesalrotted

orpromotergroup andtheequiiysharesallottedpursuant

onpreferential

basjstopromoter

toexerciseofoplionsattached.towarrantsissuedonpretere,itiat basistopromotei oi

promotergroup, shallbelocked-inforaperiod ofthreeyears fromthedatecl allotment

otthespecitiedsecuritiesorequitysharesa|ottedpriar"nt

attachedtowarrant,asthecasemaybe:

to exerciseoftheoption

Itmaybenotedthatnotmorelhantwentyper centofthetotalcapitalofthe jssuer

"rate of atotment.Equitysharesatottedin

tromthedateof their

peflodotoneyear

shallberocked-inforthreeydarsfromthe

excessotthetwentypercent.shallbelocked-inforoneyear

allotmentpursuant toexerciseofoptionsorothe'*ise,asthecasemaybe.Thespecified

securitiesatottedonpreferentiar basisto

group andtheequitysharesaflottedpursuant toexerciseofoptionsattachedtowarrants

persons otherthanpromorer andpromoter

rssuedonprelerential basistosuchpersonsshallbelockedinfora fromthedateol theirallotment.

Answer8(iii)

Thestatemenlisnolcorrecl.

Asperreguration

69ofsEBr(rcDR)Reguration2009,thepost-issue

merchantbanker

shallensurethatthedespatchofrefundoiders,allotmenllettersandsharecertificates

isdonebywayof

post-issue merchantbankershalensurepayment oiint"r"!ttoth"

drspatchoralotmentretters,refundorders,etc.asperthediscrosuremadeIntheotfer

document.

Answer8(iv)

Thisstatementiscorrect.

registeredpost orcertificateofposting, asmaybeapplicable.The

"ppt,""nts fordelayed

TheDepositorySystemfunctionsverymuchlikethebankingsystem.A

bankholds

_

fundsinaccountswhereasa

Banktransfersfundsbetweenaccountswhereasa

Depositoryhordssecuritiesinacdountstoritscrients.A

Depositorytransterssecuritiesbetween

tundsor securitieshappenswithoutthe

accounts.In bothsystems,thetransferof

actualhandlingoffundsorsecurities.BoththeBanksandtheDepositoryareaccountabre

torthesafekeepingotfundsandsecuritjesrespectivelv.

Answer8(v)

Thisstatementiscorrect.

largenumberofprosecutions

agarnstthecompaniesandtheirofficersii1defaurtforcontraventionofvariousprovisions

Mostorthecompaniesagainstwhichprosecutions areinstiruted

ofthecompaniesAct

areprivate limitedcompaniesorsmallpubliclimitedcompanieswhichdonothavethe

benefitofexpertprofessional servicesofqualified CompanySecretaries.

.The l\,4inistryofCorporateAtfairsinstituteseveryyear,a

Appointment

ofwhore-timecompanysecretaryorseekingprofessionar

advicefrom

a companysecretar-yin practicerelivesthe

companyand its directorsfromthe

19

pp_DDCCtr4*June

2011

;iffl;ffi ;"",'"'#Jil",,'_:i:ff:i1,:,!""#1""?:" i:.n:l

y#:!,flfl::i] :Tff i:":""f?:l11" o,r*rorpior"-.1'.i

r,"cun"m"nts

tnesma'ercompanies

Jiiie;;iilil;'ffj:J'lRil:#1,:#f

fa'Drevtoviorations

ortne fioJ;il;

!,iop"nrhecompany

+,:.:l::lf

;,;"

,iru;ii

companies Actin

8#il|":jj:"j"ssionarsupport as "on'p",";l;;;;;:;;": vilnrcnhaveaquariried

GOVERNANCE, BUSINESS ETHICS AND

Timeallowed:3hours

SUSTAINABILITY

Maximum marks: 100

PABTA

Question1

(Answer euestion

No. 1 which is

compulsory

and any two of the restfrom this paft)

@) ',fhe controtted

mis-qovernance is a

?::lir,

person(s) running,nJ

teadsa,

successfutty, wnitein37!!v

type of fraucl thatis perpetrated

tnsuci situiiiori.Jihe'

by lhe

thestakehotders

nanagement aeceplvay

,,

Dengrunsuperbtv

the

,t.o betievetnat-ite cJiii,r,

rj is t3ato oa,nxruli[i.',) Withreference to

statement, examine tl

reteuant case(s)

incorpo'ate awemanie ciini

I ru marks)

"t ""::r:;i:Z::l:.hattenses

(b)

State,with reasons in brief , whether

(i)

thefollowing statemems are true or false :

lnsurance is a method af riskavoidance.

lnsider may not simply stealthe earnings.

Femuneration CEO onty. committee is constituted to determine theremuneration of

(ii)

(iii)

Answer

(iv)

(v)

1(a)

ln terms of

Clause49 ofthe listing agreement, ,rela.ed pany tansactions,

imporl3nt role

o tciuulces

?n

in preventing and detecting t'raud

e

marks each)

"'ve"roa'tvtt

resources.

i:.e orohibited.

tltternal controlplals

andprotecting theorganisation,s

Conlroedmisgovernance

thattheyruna

traudlhatrsperpetrared

runn,ing thecompany

rntoberieving

rowards

bytheperson(s)

rnsuchasituationthemanagem"nio"i"iu"" urrtnestakehorders

superbry .r"""s"trt"or"in"Js"l'ui

in rearityit isheading

i:.,i^,J,1"^S1

bankruptcy rtthenbecomesimpossibte

c)ifirmcouldhavedupedallitsstakeholders.

torustoo"iJuetn"ttn" governance

Butthatishowcontrolledmisgovernance

grossJy infratednumbersintte

isexpectedtounfoldInthedaystocome.

oydocumentation

coverotapparent

tn" regutarors and

upadvocating

rhe

financiat sta;;;;i;;;;Jiled

thatmakes outsideauditorstoretyontnemwnicni"lri"

p.j0",""

fortheperperrators ofthefraud.So,insucnisceilrio

rnoependent :l,itlllY

directorsinsteadofderenoingtheinterests ortn"'r"u"!iora

LTi,,,iu"t"., ol

themanagement. Wnen'inetrauo,.l"ro. "roli"r, oftenseekreduced

"no

^.^.lT -a:,Uy casemisgovernance

jn

theBoardprocesses, theydid;ot

T:l::,

consequences

that anindependent

hightighted

thelackof inoependenr

director,s

pfuY in"t,,J" i"

proceeded rhemeremeetingotciiteria oti"i"p""i'""""

directorisactinginoepJnoenit.

mannerandthe

"fficient

ooesnotensure

vigirantrorebv

in"v "ii""rJ-p,uv "

20

.I

PP_GBESJune 2011

:li#;3;iiil::lil?i

i','"lii.lil? lnarvsinstho

asendapapers'

askrhenshtquestions

sessions or

'""o.o"o andhaveseparate

inoepenient oiiec;;;il;i;il1/,1Jf,1''

On theolherhandrheauditors in this case

tnetraudperpetrated

havetriedto

bythemanagement

distance rhemselves

,rr'r"

nyissuint asialrn-Jnl',"ni,

,rom

madebytheChairman

appearto

,"presentations

andothermanagement-to

tnearJiiors-Orring theauditnow

t'elalseand,therefore, arenolonger reliable.,,

Someissuesandchallenges thatneedscrutiny are:

(t) Roleoflndependent directors

lndependent

directorsare.knoy,nto ?ring anobjective

i"

",i

o-"rr#i"

Theyarerequired to ensureth.attn"*

speciar

viewinboarddeliberatjons.

ot onuindividuar or

actasthe

especially inthe

varuabre outside

interestgroup orthe,stifring

orneartny d;-u;tJ.i["y.norro

anOstat<enoljers,

-o,i"i'"

guardtans

areasof

perspecttve tothedeliberations

oftheinterestofallsharefrotOers

potentiar confricr.Independent oir""t""

(ii) Holeofindependent directorsinauditcommittee

l1!9n91o"nt directors,ptay a

committee isresponslble toensuretheintegrity oftrunJJ

eachindependent

cruciatrotein

AuditCommrttee.

Theaudit

r"pon,ng, therefore,

directorwhoisamembeir

oiauoitcom]tr,tte" snourdbeabre

toreadandunderstandfinancratstatements.

(iiitl Tenure ofindependent directors

Excessively lcngtenureof

l!."p"nq:ngg

astrongliketjhoodrhatindependent dir""tor"]J""

doesspecifyas.anon_mandatory

notexceednineyears.

independent

djrectors maycompromise

rongp;riod *ir?"

Onbeingassociat"o ror'u

their

"ornp"ny, rn"r"i,

Ctause49

inlii iop",,u,,y.

.equirement

tnl,'in" ,l,"ir^

termshould

(w) Flowofinformation totheboard

Companies shouldensurethat.timely,relevant andcompleteinformation is

madeavairabreto

independent,directoi.

whenever Indoubt.

,o ir.,"ri'r.,"v "rl"aol

decisions. Theindependent directors ontheirpa;t ahorlO-"f.oquestion and

seekclariflcations

tomaterntormeo

lv) Recording of dissent

Itisimportant thatwherean

jndependent directorisnot jn

decisionotrhemajority,heshouroinsistthat-nis dii.""nt'oJrr"oro"o.

agreement withthe

(vil RoleofAuditor

Auditorsareexpectedtowork^withandnot aga jnst management, whilealways

remainingprofessionally oblTtlve - tnatist6

skillsimpartially andretaining a

theiraccountabitity to thosewnorormarry app;;;;;;;;.

professionat

andobjectiveretationship

"ay,"ppty"rg rn"irprofessional

i aon""iousness of

i,ranruining .u"n u

critical detachm"nt,unO

i" tn"?".p"""tiliiiri

Oornot boardsoI

PP-cBES-June ZO11

22

otrectors and of auditors, as is

thatrelationship nolongerholds.

thatol takingapproprjare actionifthe basisfor

Audits area reassurance to allwhohavea

apartfromtheirvalueto boardsof

to go by thenumberspresented inthe

rathertheyneedto verifythefactspresented Uytneco_pany.

Evenifthereis

mustshowthewayiorwardforauditorsto

financial interest jn companies,quite

theaudjtors i" ;;ilr;j

bogusaccounts

directors.Theroleof

accounts andstgnolt

a

remotestpossjbility thatthismayindeeo be the casethenit

direcflfinteract withthe banksand

independent

a majorroleinelfective oversight bodyto holdthemanagement

otherinstitutions to obtainthe required confirmaiion anOtor tne

otrectors to pay

accountableto theshareholders

Answer1(bxi)

False

rtisnotamethodofriskavoidanceratheritisrisktransfer.Thevatueoftheinsurance

thatafirmcanobtainUytransterringroanrnsurer,inreturn

premium fortheriskof lossesthatmightariseontheo"-"rrr"n."of

ln$rrance doesnotprotect afirmagairista[ perits uuiitotiersresroration,aaeast

rora l':

peril

Inpart otanyresultanteconomicloss.

].^tl"Jl:T:l"t.security

a specified

Answert(bXii)

True

TheSecuritiesandExch-angeBoardot

India(prohibition

oir"s

ot InsiderTrading)

connectedwrththe

Regurations,1gg2, detinethat"rnsider"isanyper.on, *no i"