question & answer collect from company law vol 2 · 3 3 amit bachhawat ques ons and answer 9 l...

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Amit BachhawatQues ons and Answer

1What is the place where Board Mee ngs can be held?

A Board Mee ng may be held at any place, in India or aboard.

2The Ar cles of associa on of Godrej Ltd. contains pre - determined dates for holding the Board Mee ng. On 4th May of a calendared year, 2014, a BM is to be held (men oned in AOA) , so No, wri en no ce has been given to the director individually. Is the provisions of the sec on 173(3) duly complied with?According to the prescribed sec on of the Companies Act, 2013, Every Company whether public or private has to deliver the no ce-in wri ng regarding the date of the upcoming BM at least seven days in advance, to the directors individually through the prescribed mode failing which every offi cer whose duty is to give no ce, under this sec on, shall be liable to a penalty of ` 25,000 whether the pre-determined dates of holding BM is contained in AOA or not.Even SS-I has prescribed that even if pre-determined dates are given for holding board mee ng wri en no ces must be given individually.But as per given case, Godrej Ltd did not deliver no ce –in-wri ng to the directors of the company regarding the date of the coming BM; Hence the provisions of the sec on 173(3) of the new Companies Act,2013 is not complied with.

3Hero Ltd. called a urgent mee ng giving a shorter no ce before four days of such mee ng to transact urgent business. In that mee ng no independent Director was present. Is the provisions of sec 173(3) not complied with?According to the prescribed sec on of the new Companies Act, 2013,a urgent mee ng for a urgent purpose can be called by giving a shorter no ce provided that at least one independent Director (if any) shall be present at the mee ng.

In absence of Independent Directors from such a mee ng of the Board decisions taken at such mee ng shall be circulated to all the directors and shall be fi nal only on ra fi ca on, thereof by at least one Independent Director(if any).

In the given case, of Hero Ltd. as the independent Director is absent from the urgent mee ng (on receiving the shorter no ce); the provision of this sec on shall be deemed to have complied if the decisions taken at such mee ng is circulated to all the Directors and it is ra fi ed by at least one I.D.

4 Can a director’s dissent be refused to recorded in the minutes of board mee ng?

In case a director has requested to record his or her dissent on par cular item or ma er then in line with secretarial standard clause 7.2.2 which deals with specifi c content, the dissent along with the fact and name of directors is to be recorded in the minutes .

You must be worrying that is not it the right of Chairman to include or Exe life the ma ers to be recorded in minutes. Yes the chairman can exclude the items or ma ers which are defamatory in nature but he can’t refuse to record the dissent of director with reason. Please also refer sec on 149 which says independent and non execu ve directors would be responsible for any acts of omission or commission which had occurred with his knowledge . That means by not recording dissent you are ge ng them unnecessarily a racted by way of 149(12)

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5Is it mandatory for companies to provide their directors with the facility of par cipa on in mee ngs through electronic mode?It is not mandatory for companies to provide their directors with the facility of par cipa on in mee ngs through electronic mode.Chairman has been given the discre on to allow such par cipa on only over and above the physically present Quorum in case he needs to take views of any such Directors on restric ve items to encourage informed decision making. Any such Director par cipa ng through Electronic Mode in respect of restricted items with the express permission of chairman should neither be counted for the purpose of Quorum nor be en tled to vote in respect of such restricted items.

6The directors of a public company desire to authorise the managing director to invest from me to me surplus funds in the purchase of shares of other companies. State with reasons whether the

delega on to the managing director is valid.

Hints : Sec on 179(3)(e) of the Companies Act, 2013 empowers the Board of directors to delegate to any Commi ee of Directors, the managing director, the manager or any other principal offi cer of the company the power to invest the funds of the company. But inter-corporate investments by public companies in the shares is concurrently governed by sec on 186 of the Companies Act. Sec on 186 contains the relevant provisions and sub-sec on (5) provides that no investment shall be made by the Board of Directors of an inves ng company unless it is sanc oned by a resolu on passed at the mee ng of the Board with the consent of all the directors present at the mee ng. Thus, sec on 186 overrides the provisions of sec on 179 insofar as investments in shares are concerned. Sec on 186 does not contain any provision for delega on of the power and hence notwithstanding the general provisions under sec on 179, the proposed delega on to managing director, if made, shall not be valid.

7The Board of Directors of a company met three mes in a year. The fourth mee ng was adjourned twice for want of quorum. Does it not cons tute a viola on of the Act ?Companies Act is silent about such issue but prac cally it shall be considered as Quorum.

8In the last audited Financial statement of U Ltd,an unlisted company ,the aggregate of outstanding Loans, borrowing , Debentures or deposits stands ` 50 crores. Is It necessary for U Ltd, to cons tute an audit commi ee?According to Sec 177 of the Companies Act,2013, every unlisted Public company whose in the last audited fi nancial statement:

(a) Paid up capital of ` 10 crores or more,

(b) Turnover of ` 100 crores or more

(c) Aggregate of outstanding loans or borrowings or debentures or deposits exceeding ` 50 crore or more Shall cons tute an Audit commi ee

But, as per given case, it is not compulsory for U Ltd,(an unlisted company) to cons tute an audit commi ee because the aggregate of outstanding Loans, borrowing , Debentures or deposits is exact ` 50 crore.

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9L Limited is a listed company which accepts deposits from the public amounted ` 45 to ` 50 crores. Is it required for the L Ltd, to establish a vigil mechanism for Directors and employees?According to the prescribed sec on of the companies Act, 2013, every listed company, or the companies, which accepts deposits from the public, the companies which have borrowed money from banks and public fi nancial Ins tu ons’ in excess of 50 crores rupees shall establish a vigil mechanism for Directors and employees.

In the given case, of L Ltd shall compulsorily establish a vigil mechanism because L Ltd is a listed company.

10Kite Ltd is a unlisted company which have borrowed money from banks and Public Financial Ins tu ons amounted to ` 50 crores in the last date of the audited Financial statement. Is IT necessary for Kite Ltd to establish vigil mechanism in the Audit commi ee?As per Sec on-177 of the companies Act, 2013, every listed company , or the companies, which accepts deposits from the public, the companies which have borrowed money from banks and public fi nancial Ins tu ons’ in excess of 50 crores (>50) shall establish a vigil mechanism for Directors and employees to report genuine concerns in such a manner as may be prescribed.

In the light of the above case, its not necessary for Kite, an unlisted company to establish a vigil mechanism in the Audit commi ee because the company has borrowed money from banks and P. F. I. not exceeding ` 50 crores( i. e. exact ` 50 cr) ,Therefore the said provisions is not a racted.

11A Ltd consists of one- thousand debentures- holders, Is it required for the Board of Director of A Ltd to cons tute a stakeholder Rela onship commi ee?According to the prescribed sec on of the companies Act, 2013, the BOD of a company which consists of more than one – thousand shareholders or Debenture- holders or deposit holders or other any security holders at any me during a Financial year shall cons tute a stakeholder Rela onship commi ee consis ng of a chairperson who shall be a non- execu ve Director and such other members as may be decided by the Board.

As per given case of A Ltd, it is not necessary for the BOD of A Ltd to cons tute stakeholders Rela onship commi ee because the number of Debenture- holder is exact one-thousand in number.

The Sec on will be a racted if it exceeds 1,000.

12Discuss the func on of Nomina on & Remunera on Commi ee

Hints — Sec 178(2)

13Explain the name of func oning of Vigil Mechanism.

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14A Public company having 300 members wants to sell its sugar unit at Kanpur. The company’s Net worth is 100 Crs. The company has an Investment of 45 Cr in the Kanpur sugar unit. The above informa on is as per last audited P/L, Balance Sheet. Advise can the company do so.The Board of Directors of a company shall require the prior consent of the company by a special Resolu on to sell, lease or dispose of the whole or Substan ally the whole of the undertaking of the company, as per Sec on 180. The undertaking for the purpose shall mean the undertaking in which the investment of the company exceeds 20% of the NET WORTH of the company during the previous fi nancial year. In the above case, the sugar unit is an undertaking as per Sec on 180 because the investment in the sugar unit (i.e., ` 45 Crs.) exceeds 20% of the net worth of the company as per last audited P/L and Balance Sheet (i.e., ` 100 Crs). Therefore, the company can sell the sugar unit by passing a special Resolu on by POSTAL BALLOT.

15MIs ABC Ltd. had power under its memorandum to sell its undertaking to another company having similar objects. The Ar cles of the company contained a provision by which directors were empowered to sell or otherwise deal with the property of the company. The Shareholders passed an ordinary resolu on for the sale of its assets on certain terms and required the directors to carry out the sale. The Directors refused to comply with the wishes of the shareholders where upon it was contended on behalf on the shareholders that they were the principal and directors being their agents were bound to give eff ect to their decision. Based on the above facts, decide the following issues, having regard to the provisions of the Companies Act, 2013 and case laws.

a) Whether the conten on of shareholders against the non-compliance of their wishes by the directors is tenable.

b) Can shareholders usurp the powers which by the ar cles are vested in the directors by passing a resolu on in the general mee ng?

According to sec on 179(1), the Board of Directors of a company shall be en tled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:Provided that in exercising such power or doing such act or thing, the Board shall be subject to the provisions contained in that behalf in this Act, or in the memorandum or ar cles, or in any regula ons not inconsistent therewith and duly made thereunder, including regula ons made by the company in general mee ng:Provided further that the Board shall not exercise any power or do any act or thing which is directed or required, whether under this Act or by the memorandum or ar cles of the company or otherwise, to be exercised or done by the company in general mee ng.The Companies Act, 2013 vide sec on 180 (1) lays down the powers of the Board of Directors of a company which can be exercised only with the consent of the company by a special resolu on. Clause (a) of sec on 180(1) defi nes one such power as the power to sell, lease or otherwise dispose of the whole or substan ally the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substan ally the whole of any of such undertakings.Therefore, the sale of the undertaking of a company can be made by the Board of Directors only with the consent of the members of the company accorded vide a special resolu on.Even if the power is given to the Board by the memorandum and ar cles of the company, the sale of the undertaking must be approved by the shareholders by a special resolu on.

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Therefore, the correct procedure to be followed is for the Board to approve the sale of the undertaking clearly specifying the terms of such sale and then convene a general mee ng of the members to have the proposal approved by a special resolu on.

In the given case therefore, the procedure followed is completely incorrect. The shareholders cannot on their own make out a proposal of sale and pass an ordinary resolu on to implement it through the directors.

Therefore, the conten on of the shareholders is incorrect in the fi rst place as it is not within their authority to approve a proposal independently of the Board of Directors. It is for the Board to approve a proposal of sale of the undertaking and then get the members to approve it by a special resolu on.

Further, in exercising their powers the directors do not act as agent for the majority members or even all the members. The members therefore cannot by resolu on passed by a majority or even unanimously supersede the powers of directors or instruct them how they shall exercise their powers.

16The BOD of a Private limited company contribute to a charitable fund the last 3 years profi ts are as follows.

2010- 11 → ` 1500,000

2011-12 → ` 1500,000

2012-13 → ` 1800,000As per the Companies Act 2013 , sec on 181, a company (either private or public) can contribute to bonafi de charitable funds.

Step – 1 Company’s profi t for the preceding 3 years fi nancial years

2010-11 → ` 15 lacs

2011-12 → ` 15 lacs

2012-12 → ` 18 lacs

Total ` 48 lacs

To fi nd out the preceding year average Net profi t.

= 4800,000/3

= 16,00,000 is the average.

Average Net Profi t of the preceding 3 fi nancial year.

Step – 2 5% of Average Net profi t

i.e., 5% of 1600,000 = 80,000

Step – 3 BOD can contribute ll 80,000

If it wants to exceed 80,000

Then prior approval by OR (Ordinary Resolu on) in General Mee ng shall be required.

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17Copper Ltd. has borrowed money from Mr. Rohit amoun ng to ` 25 lacs where as the limit imposed by special resolu on was ` 20 lacs. It was later contended that the loan is invalid. Mr. Rohit claims that he has advanced the loan in good faith. Is Mr. Rohit’s conten on correct?As the provisions of Sec on 180 of Companies Act, 2013, no debt incurred by the company in excess of the limit imposed by clause (c) of sub-sec on (i) shall be valid or eff ectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been extended .In the above case, Copper Ltd. has borrowed money from Mr. Rohit exceeding the limit imposed by special Resolu on. Mr. Rohit claims that he has advanced the loan in good faith and the loan is not invalid.

In the light of the above men oned provisions, Mr. Rohit’s conten on is correct.

18Green Pvt Ltd is a wholly owned subsidiary of Century –men Ltd. Green Pvt Ltd Invests in the Securi es of Century –men Ltd. amoun ng ` 80 Lakhs.

The Balance sheet extract of Green Pvt Ltd:

LIABILITIES ` ASSETS `

Paid up Share Capital 100 LacsSecurity Premium 20 LacsFR 10 Lacs

State the Formali es required for Green Pvt Ltd?According to Rules to Sec 186 of the Companies Act, 2013, exemp on is laid down, If the holding Company Gives Loan, guarantee or Provide Security in respect of Loan or make Investments in the Securi es of wholly owned subsidiary Companies. But if the wholly owned subsidiary Company advances Loan, or give guarantee on loan or provide Security on loan or invests in the Securi es of the Company, which is holding Company, then the Prescribed Sec on will a ract as the exemp on cannot be availed.

So, as per given case, of Green Pvt Ltd, the wholly owned subsidiary Company which invests in the holding Company,(Century-men Ltd), amounted to ` 80 lacs, subject to:

(a) 60% of 130 = ` 78 Lacs

(b) 100% of 30 = ` 30 Lacs

Higher ` 78 Lacs

Therefore when amounted invested exceeds ` 78 Lacs, Prior Special Resolu on at GM is required.

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19Century Tex les Ltd advances loan to a Joint Venture Company amounted to ` 70 Lacs, repayable in 5 years.

The Balance sheet extract of Century Tex le Ltd is:

LIABILITIES ` ASSETS `

Paid up Share Capital 60 LacsSecurity Premium 180 LacsFR 100 Lacs

Advice the formali es required to be done by Century Tex le Ltd?According to Rules to Sec 186 of the Companies Act,2013, a loan made any guarantee given or any Security Provided in respect of loan to a Joint Venture Company is exempted from the requirement of the said Sec on.

However, in case if Investment into Joint Venture Companies, Sec 186 will a ract.

So, as per given case, as Century Tex le Ltd advances Loan to Joint Venture Company amoun ng ` 70 Lacs, the said Sec on will not a ract, and Century Tex le Ltd can advance any amount of loan to JVC, without calcula ng the limits being imposed.

20A legal case is handled by the director’s rela ve for a lump sum amount of 4 lacs. Is this a case of offi ce or place of profi t? Will it require compliance u/s 188 ?It is not offi ce or place of profi t but Sec on 188 will be triggered only if value of such services availed from rela ve exceeds lower of 10% of turnover or 50 Crs.

21A company named Reliance Industries Limited enters into purchase / sale of goods with its director Anil Ambani. The value of the transac on is ` 150 cr. The turnover of the company is ` 2000 cr. What are the legal compliance that a company will have to do?As per sec on 188 of the Companies Act, 2013, when a company enters into a contract with a related party for purchase / sales of goods, then certain formali es are to be done. As Anil Ambani (director of the company) is a related party, following steps are to be done:-

Step 1 :- Audit Commi ee Approval to be obtained.

Step 2 :- Prior Board resolu on at board mee ng to be passed assuming transac on is not at arms length basis and not in ordinary course of business.

Step 3 :- Prior ordinary resolu on at general mee ng

If RPT > 10% of turnover of the company or 100 cr. [whichever is lower]

Therefore prior OR is required because RPT > 100 cr. [lower of the two].

Step 4 :- Directors Report shall contain the reason for entering such contracts.

Step 5 :- Details of such contracts must be entered in a separate register as per Sec on 189.

If RPT is in ordinary course and at arms length, then step 1 and 2 is not required. Explain material related party transac ons as per SEBI LODR.

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22What will be the addi onal points in answer if the same ques on as above is asked, where the company is a listed company, and it enters into series of transac ons with same related party.It has to obtain prior approval of audit commi ee. If the company is a listed company, it now has to undergo the following addi onal procedure. The Audit Commi ee may grant omnibus approval (valid for a period of 1 year) for RPT subject to the following condi ons:-

• Criteria for gran ng omnibus approval is in line with the policy on RPT of the company and such approval shall be applicable in respect of transac ons which are REPETITIVE in nature.

• Omnibus approval shall specify :-

(i) The name(s) of the related party, nature of transac on, period of transac on, maximum amount of transac on that can be entered into.

(ii) The indica ve, base price / current contrac ng price and the formula for varia on in the price, if any, and

(iii) Such other condi ons as the audit commi ee may deem fi t.

However, where the transac ons are not foreseen, then such omnibus approval can be given for an amount upto ` 1 Cr per transac on. Since transac on value is less than 10% of consolidated turnover, no requirement of OR by shareholders under Lis ng Agreement but OR will be taken as per Companies Act 2013.

23A company enters into a RPT with a public Company, where director of former Company is also a Director. CommentSec on 188 of the Companies Act, 2013 is a racted if a Company enters into certain transac ons with a public company in which its director does holds along with his rela ve more than 2% of the public Company’s paid up share capital then formali es for RPT transac on as per Sec on 188 of the Companies Act, 2013 is required.

24A Director of X1 Limited (Subsidiary Co.) gives a post to his rela ve in X Limited (Holding Co. of X1 Limited) with a remunera on of 3 Lacs p.m. Does the rela ve hold an offi ce or place of profi t requiring compliance under Sec on 188 ? What will be your answer if brother’s son of director is appointed?According to Sec on 188 of the Companies Act, 2013, When rela ve of a director is appointed to an offi ce of place of profi t in the same company or its subsidiary or its associate company and whose monthly remunera on is more than ` 2.5 lacs per month, then prior SR in GM in required and other formali es as per Sec 188 In the above case, the director of subsidiary company gives a post to his rela ve in holding company. Sec on 188 is not a racted. If brother’s son of a director is appointed Sec on 188 will not be applied since brother’s son is not included in the defi ni on of the term rela ve.

25A legal case is handled by the director’s rela ve for a lump sum amount of ` 4 lacs. Is this a case of offi ce or place of profi t? Will it require compliance u/s 188 ?It is not offi ce or place of profi t but Sec on 188 will be triggered only if value of such services availed from rela ve exceeds lower of 10% of turnover or ` 50 Crs.

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26Can Interested Director vote at Board Mee ng of Public Company and Private Company (Sec 184

- As per Sec 184 in a public company interested director cannot vote at Board Mee ng, but in a private Company as per MCA Circular interested director can vote. A er disclosing his interest at the Board Mee ng.

27Is Secretarial audit compulsory for every Co.?

Discuss the provision of Sec. 204.

28Discuss the func on of a CS as per 205?

29Write a short note on Separa on of the Role of CEO & Chairman as per Sec on 203?

30The company secretary of a company, having a paid up share capital of more than ` 5 crores, resigned and le the company. The company has not appointed his successor. Meanwhile, it has started incurring losses. Its sales have declined and fi nancial posi on became weak. Can it be a valid reason for not appoin ng a whole- me secretary? How long can the company delay the appointment ? What penalty can be imposed ? Will the liability extend to all the directors or only to the managing director ?Hints : According to Sec on 203 read along with Rules 8 and 8A of the Companies (Appointment and Remunera on of Managerial Personnel) Rules, 2014, a company having a paid-up share capital of ` 5 crore or more must appoint a whole- me secretary possessing the prescribed qualifi ca ons. In case the secretary resigns and leaves the company, the resul ng vacancy shall be fi lled up by the Board at a mee ng of the Board within a period of six months from the date of such vacancy [Sec on 203(4)].Therefore, the company should take all the necessary steps for the appointment of the new secretary within the s pulated ; period of six months.

Here the company has not appointed a new secretary on the ground that it has started ‘incurring losses, its sales have declined and fi nancial posi on has become weak. The ; argument may not fi nd favour with the authori es. The company shall be punishable with f fi ne which shall not be less than one lakh rupees but which may extend to fi ve lakh rupees -and every director and key managerial personnel of the company who is in default shall be punishable with fi ne which may extend to fi y thousand rupees and where the contraven on lis a con nuing one, with a further fi ne which may extend to one thousand rupees for every day a er the fi rst during which the contraven on con nues [Sec on 203(5)].

31Mr. A is Managing Director of PQR Ltd and XYZ Ltd, wants to appoint him as its Managing Director. Can XYZ Ltd do so?As per the provisions of Sec on 203 of the Companies Act,2013,a Company may appoint a person as its Managing Director , if he is the Managing Director or Manager of one , and of not more than one, other Company and such appointment or employment is made or approved by a resolu on passed at, mee ng of Board with the consent of all the Directors present at the mee ng.

Special no ce has been given to all the Directors then in India.

In the above case, Mr. A. Managing Director of PQR Ltd,is appointed as Managing Director of XYZ Ltd.

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The above appointment is valid subject to the approval by a resolu on passed at a mee ng of the Board with the consent of all the Directors present at the mee ng.

32 Can Dividend be claimed by shareholder a er being transferred to Investor Educa on and Protec on Fund ?

33 A resolu on was passed by the shareholders in an. annual general mee ng approving fi nal dividend @ 20% for the fi nancial year 2013-14- and one month later the Board of directors decided to pay further dividend @ 5% for the fi nancial year 2007-08. Comment.

Hints: It cannot declare addi onal dividend a er declara on of fi nal dividend

34 For what purpose le fund can be u lized Sec on 125(3)?

35 SKD an employee of Moreh Ltd. met with an accident and died. The accident occurred when SKD was on Company’s duty. He held one hundred shares partly paid. Normally the Company has a fi rst and paramount lien on the shares. The Board of Directors, however, relaxed the said provision with regard to the hundred shares held by SKD as a goodwill gesture on the part of the Company. Is the ac on of the Company valid?

State the reasons. Also state whether the Company’s lien can be extended to dividend payable on such shares.

A Company cannot have lien on shares unless provided in the Ar cles of Associa on. Therefore provision to this eff ect should be in the ar cles. As per Regula on 9 of Table F of the First Schedule to the Companies Act, 2013 in which standard Ar cles of Associa on of a company limited by shares are given, the company has fi rst and paramount lien on every share (which has not been fully paid up for all monies (whether presently payable or not) called or payable at a fi xed me in respect of that share and on all shares which are not fully paid up standing registered in the name of a single person, for all moneys presently payable by him or his estate to the Company. However, companies are free to frame their own Ar cles of Associa on and need not follow the Table F. The key point is that lien is permissible only on partly paid shares and only if provided in the Ar cles of the company.

The Board of Directors may, however, at any me declare any share to be wholly or in part exempt from the said lien. Hence the decision of the Board of Directors of M/s Moreh Ltd to relax the provisions of lien in respect of shares held by SKD is in order and valid.

Further, the Company’s lien is extended to all dividends payable on such shares if provided for in the Ar cles or if Table F is adopted by the company.

36 An unlisted public company whose paid up capital is ` 5 crs. Is it necessary for the unlisted public company to fi le the fi nancial statement according to XBRL format?

According to MCA circular an unlisted Public company whose turnover is equal to or more than 100 crs. rupees or the paid up capital is equal to or more than fi ve Crs. rupees shall fi le the fi nancial statement in XBRL format.

So, the unlisted public company (given in the ques on) whose paid up share capital is ̀ 5 crs. Rupees has to fi le fi nancial statement in XBRL format.

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37 Can the books of accounts be kept at any other place in India? If Yes, what procedure needs to be followed?

As per Companies Act 2013, books of accounts can be kept at any place in India.

Procedure:- The BOD shall pass a BR at BM.

within 7 days of the decision, it shall fi le with ROC a no ce in wri ng giving the full address of other place.

38 A Ltd. has a paid up share capital of ` 6 crs. It has 5 directors out of which one is a managing director. The consolidated fi nancial statement is approved at Board mee ng (BR). The company has CEO who is also a director of a company, the CFO and the CS. But the fi nancial statement is signed by two directors whereas (one is M.D) and CEO and CFO. The CS did not sign. Will the fi nancial statement considered to be authen cated as per law?

As per Sec on 134 of the Companies Act, 2013, a consolidated fi nancial statement which is approved at BR should be signed by two directors of the company where one is a managing director or the chair person of the company authorized by the Board of Directors, and the chief Execu ve offi cer who is also a director of a company, the CFO and the company secretary. CEO, CFO and CS can sign wherever they are appointed. But the fi nancial statement of A Ltd. cannot be considered to be properly authen cate.

39 What shall be penalty and who all shall be considered as offi cer-in-default for not complying with the provisions of the Sec on?

Managing Director, Whole me Director in charge of fi nance, the Chief Financial Offi cer, any other person charged by board shall be considered as offi cer-in-charge- Sec on 128(6)

Penalty:-

I. Imprisonment up to 1 year or

II. Fine minimum 50,000 to maximum 5 lacs or

III. Both

40 Explain the provision rela ng to sec 130, 131 regarding Re-opening of accounts and voluntary revision of fi nancial statements.

41 Revise the Amendments in MCA Circular rela ng to Considera on of accounts..

42 Gujarat Tex les Limited is having a foreign subsidiary company. The said Indian holding company failed to furnish par culars of its foreign subsidiary company in its Balance Sheet. Decide the liability of Gujarat Tex les Limited under the Companies Act, 2013.

Under sec on 129(3) of the Companies Act, 2013, where a company has one or more subsidiaries, it shall, in addi on to fi nancial statements provided under sub-sec on (2), prepare a consolidated fi nancial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general mee ng of the company along with the laying of its fi nancial statement under sub-sec on (2).

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Provided that the company shall also a ach along with its fi nancial statement, a separate statement containing the salient features of the fi nancial statement of its subsidiary or subsidiaries in such form as may be prescribed.

43 Explain the law laid down under the Companies Act, 2013 in respect of fi ling of annual fi nancial statements with Registrar of companies in the following two situa ons who is liable for the default

(i) Where fi nancial statements of the company are fi led with the ROC a er 10 months from its due date

(ii) Where fi nancial statements are not at all fi led by the company with the ROC

44 Can power to approve annual accounts be delegated by BOD to one or more directors?

Sec on 179 of Companies Act contains ma er which can be only discussed at Board Mee ng. One of such ma er is approval of fi nancial statements. Hence, this power cannot be delegated.

45 Is Housing fi nance Co. exempted from fi ling fi nancial statements in XBRL format?

Yes, as per recent amendment in MCA Circular

46 What are contents of DRS?

47 State about the par culars of Which employers to be men oned in directors report?

48 MCQ Pvt Ltd. decides to form CSR Commi ee but the company has only 2 directors. Should they form CSR Commi ee?

According to Sec on 135, Companies Act, 2013,

CSR commi ee: (ii) a private company having only two directors on its Board shall cons tute its CSR commi ee with the 2 Directors.

In the given cases of MCQ Pvt Ltd. they can form CSR commi ee with the 2 directors?

49 Johnson Ltd. a foreign company has 3 directors in CSR Commi ee out of 3 directors 1 director is resident and 1 is non-resident . Is composi on of CSR commi ee valid?According to Sec on 135, Companies Act, 2013,CSR commi ee: (iii) with respect to foreign company covered under the rules the CSR commi ee shall comprise of at least two persons of which one person shall be as specifi ed under clause (d) of subsec on (1) of sec on 380 of the Act and another person shall be nominated by the foreign companyIn the given case of Johnson Ltd. has 3 director 1 director is non-resident and le 2 directors are resident. So with this 2 directors CSR commi ee can be formed.

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50 Dell Ltd. fails to spend in CSR then what punishment or fi ne should be imposed on the company according to Companies Act 2013?According to Sec on 135 of Companies Act 2013, If the company fails to spend such amount, The Board shall in its report made under clause (0) of sub-sec on (3) of sec on 134, specify the reasons for not spending the amount.

COREX → COMPLY ‘OR’ EXPLAIN IN BOARD REPORT

In the given case of Dell Ltd. the board has to men on the reason of fail in the board report. Fine or imprisonment is not imposed.

51 Energy Ltd. a computer manufacturing company distributed computer to their employee and they are considering this distribu on as CSR. Explain.Corporate social responsibility rules does not consider the benefi ts extended only to employees as CSR ac vity.

CSR ACTIVITIES

The CSR ac vi es shall be undertaken by the company as per its stated CSR Policy as projects or programs or ac vi es, excluding ac vi es undertaken in pursuance of its normal course of business.

In the given case of Energy Ltd. distribu on of computer which is a normal course of business is not considered as CSR.

52 Core Ltd. decides to spend in CSR but it does not have any CSR trust of its own. So how can Core Ltd. out source CSR spending?

According to Sec on 135 of Companies Act 2013,

CSR ACTIVITIES

(i) If trust, society or company is not established by the company or its holding or subsidiary or associated company, it shall have an established track record of three years in undertaking similar programs or projects.

(ii) The company has specifi ed the project or programs to be undertaken through these en es, the modali es of u liza on of funds on such projects and programs and the monitoring and repor ng mechanism.

In the given case, Core Ltd. can follow the above given CSR ac vi es if they do not have trust to outsource CSR spending.

53 Are the following companies required to conduct internal audit as per Sec 138

(i) Unlisted Public Company with paid up capital 48 crore and turnover 250 crore

(ii) Private company with paid up capital 55 crore

(iii) Private Company whose turnover is 250 crore

54 Explain the duty of the duly of statutory auditor or secretarial audit about material fraud repor ng u/s 143?

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55 What are addi onal ma ers in audit Report to be reported as per Rules framed by Central Govt. u/s 143(3).

56 For which Companies is the rota on of audit fi rm compulsory?

57 Which Companies are Not counted in the limit of Max No. of Statutory Audits?

58 Explain the liabili es of auditor if Sec on 143/144 is contravened ?

59 Explain the procedure for Remaining of Auditor u/s 140?

60 Explain the procedure for appoin ng a new CA fi rm as auditor other than the previous auditor?

61 Men on the list of prohibited service, which an auditor cannot render and in which Cos. he is prohibited?

62Mr S. Singh opts to be appointed as Independent Director of J Ltd. J Ltd. is a Holding company of S Ltd.; where Mr S. Singh was the promoter of S Ltd. Can he be appointed ?According to Sec on 149 of the companies Act, 2013 a person who is or was a promoter of the company or its subsidiary its holding or an associate company can not become an Independent Director in that company. Its a life- me Ban.

Hence, Mr. S. Singh who was a promoter of the subsidiary co (S Ltd.) cannot become Independent Director in J Ltd..

63Mr. X had a pecuniary rela onship with a associate company of Reliance Industries Ltd. before two and half years immediately preceding the current fi nancial year. Can Mr. X be appointed as Independent Director?According to Sec on 149 of the companies Act, 2013; a Individual who has or had a pecuniary rela onship with the company, its holding, subsidiary or associate companies or (their directors) or (promoters) during the two years immediately preceding the current fi nancial year or during the current fi nancial year cannot be appointed as Independent Director in that company.

As per given case, Mr. X had a pecuniary rela onship with the associate company of Reliance Industries Ltd. before 2.5 years immediately preceding the current fi nancial year.

So. Mr. X can be appointed as a Independent Director of Reliance Industries Ltd.

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64Mr. Bhandari wants to be a Independent Director of Reliance Industries Ltd. But his brother had a pecuniary rela onship with the subsidiary company of Reliance Industries Ltd. amounted to ` 20 Lacs in the previous year preceding the current fi nancial year.

Gross Turnover of the company is ` 900 Lacs.

Total Income is ` 1400 Lacs.

Can Mr. Bhandari be appointed as a Independent Director of the Reliance Industries Ltd.?According to Sec on 149 of the companies Act, 2013; a person whose rela ve if has or had a pecuniary rela onship or transac ons with the company its holding, subsidiary or associate company or their promoters or directors not exceeding two percent or more of the gross turnover or total Income or fi y lakh Rupees whichever is lower during the two immediately preceding fi nancial year or during the current fi nancial year.So, in the given case, Mr. Bhandari can only be appointed as a Independent Director of Reliance Industries Ltd. If the transac on done does not exceed the amounts given below. Hence to fi nd whether the transac on exceed the limit or not, we have –

(i) 2% of 900 = 18 Lacs

(ii) 2% of 1400 = 28 Lacs

(iii) 50 Lacs

Lower 18 Lacs

Hence 20 Lacs > 18 Lacs.

So, Mr. Bhandari cannot be appointed as Independent Director of Reliance Industries Ltd..

65Mr. Pandey along with his son has held 3% of the total vo ng power in the Z Ltd. in the year preceding the current fi nancial year. Can Mr. Pandey be appoint ed as a Independent Director of Z Ltd.?According to Sec on 149 of the companies Act, 2013; if a person holds together with his rela ves two percent or more of the total vo ng power of the company in the current fi nancial year, he cannot be appointed as Independent Director of that company.

In the given case, although Mr. Pandey together with his son held more than two percent of the total vo ng power of Z Ltd. but the given criteria would not apply other than in current fi nancial year.

So, Mr. Pandey can be appointed as Independent Director of Z Ltd.

66Discuss about the Liabili es of Independent directors?

67X is a addi onal director later on promoted as M.D. at coming AGM his AD will come to an end. Can he con nue as MD a er AGM?Step 1 AD will vacate offi ce at AGM. If his directorship comes to an end then he cannot con nue as

MD.

Step 2 If AD is appointed as a full fl edged director in AGM a er complying with Sec 160 then he is s ll a director and can con nue as MD for remaining period.

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68Due to internal problems in the working of MIs Infi gh ng Detergents Ltd., Mr. Satyam and Mr. Shivam, a Director, have submi ed their resigna ons and decided to disassociate themselves with the working of the company. Mr. Sundram, the Managing Director, decides to refuse their resigna ons. Examine whether the Managing Director can compel Mr. Satyam and Mr. Shivam to con nue as per the provisions of the Companies Act, 2013.

OR

Mr. Raj, a director of POL Ltd., submi ed his resigna on from the post of director to the Board of Directors on 36”’ June, 2014 and obtained a receipt therefore on the same day. The Board of Directors of POL Ltd. neither accepted the resigna on nor did it fi le the required form with the Registrar of Companies. You are required to state whether Mr. Raj ceases to be the Director of POL Ltd. and if yes, since when?

Sec on 168(1) of the Companies Act, 2013 provides that a director may resign from his offi ce by giving a no ce in wri ng to the company and the Board shall on receipt of such no ce take note of the same and company shall in mate the Registrar in Form DIR-12 as prescribed in Companies (Appointment & Qualifi ca on of Directors) Rules, 2014 and shall also place the fact of such resigna on in the report of directors laid in the immediately following general mee ng by the company.

The proviso to sec on 168(1) states that a director shall also forward a copy of his resigna on along with detailed reasons for the resigna on to the Registrar within thirty days of resigna on in such manner as may be prescribed. Under the Companies (Appointment & Qualifi ca on of Directors) Rules, 2014 the director shall within 30 days of resigna on forward to the Registrar a copy of his resigna on alongwith the reasons for his resigna on in Form DIR-11 along with the prescribed fee.Further, sec on 168(2) states that the resigna on of a director shall take eff ect from the date on which the no ce is received by the company or the date, if any, specifi ed by the director in the no ce, whichever is later.The law does not give an op on to the Managing Director or the Company or the Board to reject the rejec on of a director and force him to con nue.Therefore, in the given case, the Managing Director cannot compel Mr. Satyam and Mr. Shivam to con nue as directors in view of the above provisions.Ans for 2nd part: Therefore, in the given case, the resigna on of Mr. Raj is valid and he will cease to be a director of PQL Ltd with eff ect from the date of no ce i.e. 30th June 2014 as he has obtained the receipt of the no ce on the same day.

69Whether two or more persons can be appointed as a director of the company by a single resolu on?

According to sec on 162(1) one director can be appointed by one resolu on however there is a excep on to this rule which states that some mes two or more director can be appointed by single resolu on, if resolu on is earlier passed in shareholder’s mee ng (i.e, GM) that two or more directors will be appointed by a single resolu on and no shareholder has voted against it.

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70When a person is convicted of any off ence by any law and sentenced to imprisonment for 10 years, can he become a director?As per Sec on 164 of the Companies Act, 2013 any person who is convicted of any off ence and is sentenced to imprisonment for seven years or more, that person shall not be eligible to become a director in any company for life me (life me ban). Therefore in the above case, the person can never become director in any company.

71A person was convicted 8 years before in rela on to the off ence in dealing with RPT under sec on 188. Can he become director in that company or any other company?As per Sec on 164 of the Companies Act, 2013 a person who is convicted of the off ence in dealing with RPT under sec on 188 at any me during the last preceding fi ve years, is disqualifi ed to become a director. Hence in the above case, he was convicted 8 years before, so now he can become director in the same or even in any other company.

72Under what circumstances disqualifi ca ons men oned u/s 164 (1)(d)(e) and (g) shall not take eff ect / shall be postponed?The ______ clause of 164(3) _______ for the postponement of disqualifi ca ons referred to in clause (d), (e) and (g) of sub-sec on (1) d e g court order RPTI. For 30 days from the date of convic on or order of disqualifi ca on.II. When an appeal or pe on is preferred within 30 days against the order, un l the expiry of 7

days from the date on which such appeal or pe on is disposed of.III. When future appeal or pe on is preferred then 7 days un l such further appeal or pe on is

disposed of.

73Mr. A is the director in 20 companies. Out of which 10 are public companies; two are private companies which are a subsidiary of a public company and rest are private companies. Can he hold such number of directorships? As per Sec on 165 of companies Act, 2013, no person shall hold offi ce as a director, including any alternate directorship in more than 20 companies at the same me. Provided that the maximum number of public companies, in which a person can be appointed as director shall not exceed 10. Directorships in private companies that are either holding or subsidiary of a public company shall be included.

In the above case, Mr. A shall not hold 20 directorships because he cannot hold director¬ships in 12 public companies. (10 + 2 public companies H/S) including the Pvt. companies which are holding or subsidiary of public companies.

Maximum limit = 20 companies.

Maximum limit for public. Companies = 10 including Holding / Subsidiary of public company.

Note: [However, as per SEBI LODR Mr. A can held the posi on in seven Listed Companies as Independent Director and if he is WD in any Listed company then he can be appointed as Independent Director in three other Listed Companies.]

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74Mr. A, director of AB Ltd. absents himself from all the mee ngs of the BOD. He had seeked the leave of absence of the board. But the company found out that Mr. A was a director in 10 other companies and was duly present in all the mee ngs of those companies Mr. A had seeked leave on medical grounds. Can he con nue to remain the director of AB Ltd.? As per Sec on 167 (1) (b) of the Companies Act , 2013, the offi ce of a director shall become vacant in case, he absents himself from all the mee ngs of the Board of Directors held during a (period of 12 months with or without seeking leave of absence of the Board).

In the above case, Mr. A cannot remain the director of AB Ltd. He will have to vacate his offi ce because the Act states that the director must vacate offi ce if he absents himself either with or without seeking leave of absence from all the mee ngs of the Board held during a period of twelve months.

75Mr. A is a director of AB Ltd. serves a wri en no ce to the company for his resigna on sta ng that his resigna on shall be valid from 10th January. The company received the no ce on 8th January. Will the resigna on be held eff ec ve from 10th January or not?As per Sec on 168, the resigna on of the director shall be eff ec ve from 10th January, the later of two dates. Resigna on does not require acceptance from the company as per companies Act, 2013.

76Revise MCA circular giving relaxa on to certain private companies?

7775% holding

Security Loan

S Ltd.H Ltd.

Bank

Is Sec on 185 a racted?

Excep ons to Sec on 185 of the Companies Act, 2013 as per Companies Amendment Act 2015

• Where Bank guarantee is involved

• Exemp on available even if it is not 100% subsidiary.

• Condi on : Subsidiary Companies u lise the loan for principal business ac vi es.

78What are the consequences of not complying with Sec- 185?

If any loan is advanced or guarantee is given or security is provided in contraven on of Sec on 185, then, the company shall be punishable with fi ne which shall not be less than fi ve lakh rupees but which may extend to twenty fi ve lakh rupees and the director or other person to whom loan is given or guarantee given or security provided in connec on with a loan taken by him or the other person, shall be punishable with fi ne which shall not be less that ̀ 5 lacs but which may extend to ` 25 lacs or with imprisonment for a term which may extend to six months, or both.

79What are the Powers of Search and Seizure of ROC u/s 209.

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80# What are the Powers of Search and Seizure of Inspector u/s 220.

Search & Seizure

SECTION - 209 Powers of ROC. SECTION - 220 Power of Inspector.(i) Permission from Special Court is Required.(ii) 180 days Time Limit to return the books and

papers.

(i) NO such Permission Required.(ii) NO such me limit.

81Revise Inves ga on by SF10 Sec on 212 (No fi ed)

82A majority of the Board of directors of M/s High Value Infotech Ltd. have realised that some of the business ac vi es carried out in the name of the company are not in the interest of either the company or its members. They want that the company should make an applica on to the Central Government to appoint an Inspector to carry out inves ga on and fi nd out the whole truth. Explain the steps that should be taken to achieve the purpose and dra the applica on under the Companies Act, 2013.1. According to sec on 210 (1) of the Companies Act, 2013 the Central Government may order an

inves ga on into the aff airs of the company, if it of the opinion that it is necessary to do so:

(a) on the receipt of a report of the Registrar or inspector under sec on 208;

(b) on in ma on of a special resolu on passed by a company that the aff airs of the company ought to be inves gated;

(c) in public interest.

2. According to sec on 210(3) of the Companies Act, 2013, the Central Government may appoint one or more persons as inspectors to inves gate into the aff airs of the company and to report thereon in such manner as the Central Government may direct.

In the given case, the majority of directors are already of the view that the aff airs of the company are not conducted in a manner benefi cial either to the company or to the members and want to make an applica on to the Central Government to appoint an inspector. Therefore, the steps to be carried out for the purpose will be as under:(i) Convene an Extraordinary General Mee ng of members for passing the required special

resolu on. The provisions for convening the mee ng should be complied with and the explanatory statement with the no ce of the mee ng must provide full details of the proposed special resolu on.

(ii) Once the special resolu on is passed, a copy of it along with the copy of the no ce should be fi led with the Registrar;

(iii) An applica on should be made under sec on 210 (1) to the Central Government reques ng it to appoint an inspector to inves gate the aff airs of the company.

(iv) The Central Government on receipt of such no ce will ask for informa on, documents and other suppor ng evidence and may order an inves ga on only if it is of the opinion that an inves ga on is warranted. It may appoint one or more inspectors to inves gate into the aff airs of the company and to report thereon in such manner as it may direct.

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Dra Applica on:

High Value InfoTech Ltd. (Address) Date:

The Secretary,

Ministry of Corporate Aff airs,

New Delhi

Sir,

At a mee ng of the shareholders of the company held on at the members have passed the following resolu on as a Special Resolu on:

“Resolved that the Central Government be approached to appoint one or more Inspector to carry out an inves ga on into the aff airs of the company to determine whether the ac vi es in the name of the Company are being carried on in a manner which is against the interest of either the company or its members.

Resolved further that the Board of Directors be and is hereby authorized to make necessary applica on to the Central Government for this purpose and submit the necessary documents and informa ons as may be required by the Central Government in this regard”.

The above referred special resolu on was passed at an extraordinary general mee ng of the company held on …………

It is, therefore, prayed that the Central Government be pleased to appoint as per sec on 210 of the Companies Act, 2013, an inspector to inves gate the aff airs of the company regarding the ma ers men oned in the above resolu on and communicate its decision to the company.

Yours faithfully,

For and on behalf of High Value InfoTech Ltd. Secretary.

83Examine with reference to the provisions of the Companies Act, 2013 whether the following companies can be treated as foreign companies:

a) A company incorporated outside India having a share registra on offi ce at Mumbai.

b) Indian ci zens incorporated a company in Singapore for the purpose of carrying on business there.

c) As per provisions of the Companies Act, 2013, what is the status of XYZ Ltd., a Company incorporated in London, U.K., which has a share transfer offi ce at Mumbai?

Sec on 2(42) of the Companies Act, 2013 defi nes a “foreign company” as any company or body corporate incorporated outside India which:

(a) Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) Conducts any business ac vity in India in any other manner.

Accordingly, to qualify as ‘foreign company’ a company must have both the following features:

(a) it must be incorporated outside India; and

(b) it should have a place of business in India.

(c) That place of business my be either in its own name or through an agent or may even be through the electronic mode; and

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(d) It must conduct a business ac vity of any nature in India.

(i) Therefore, a company incorporated outside India having a share registra on offi ce at Mumbai will be treated as a foreign company provided it conducts any business ac vity in India.

(ii) In the case of a company incorporated in Singapore for the purpose of carrying on business in Singapore will not fall within the defi ni on of a foreign company. Its incorpora on by Indian ci zen is immaterial. In order to be a foreign company it has to have a place of business in India and must conduct a business ac vity in India.

(iii) From the above defi ni on, the status of XYZ Ltd. will be that of a foreign company as it is incorporated outside Inida, has a place of business in India and it may be presumed that it carries on a business ac vity in India

84M/s Joel Ltd. was incorporated in London with a paid up capital of 10 million pounds. Mr. Y an Indian ci zen holds 25% of the paid up capital. M/s. X Ltd. a company registered in India holds 30% of the paid up capital of Joel Ltd. M/s. Joel Ltd. has recently established a share transfer offi ce at New Delhi. The company seeks your advice as to what formali es it should observe as a foreign company under Companies Act, 2013. State briefl y the requirements rela ng to fi ling of accounts with the Registrar of Companies by the foreign company in respect of its global business as well as Indian business.

ORDEJY as Company Limited incorporated in Singapore desires to establish a place of business at Mumbai. You being a prac sing Chartered Accountant have been appointed by the company as a liaison offi cer, for compliance of legal formali es on behalf of the company. Examining the provisions of the Companies Act, 2073, state the documents you are required to furnish on behalf of the company, on the establishment of a place of business at Mumbai.In terms of the defi ni on of a foreign company under sec on 2 (42) of the Companies Act, 2013 a

“foreign company” means any company or body corporate incorporated outside India which:

a. Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

b. Conducts any business ac vity in India in any other manner.

Further, sec on 379 states that where not less than 50% of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more ci zens of India or by one or more companies or bodies corporate incorporated in India, or by one or more ci zens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.

In the case given in the ques on, the following facts are given:

a. Joel Ltd. was incorporated in London and has a place of business (share transfer offi ce), hence, it is a foreign company.

b. Its share holding comprises of 25% held by Y who is a ci zen of India and 30% by X Ltd. which is a company registered in India. Together the two Indian shareholders hold 55% of the share capital of Joel Ltd.

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Therefore, although Joel Ltd. is a foreign company, due to the holding of more than 50% of its share capital by two Indian en es, it will be covered under sec on 379 and will be treated as a company incorporated in India or as an Indian Company.

However, it may be noted that under sec on 379, the applica on of the Companies Act, 2013 on Joel Ltd. will be only in respect of business carried by it in India and not in rela on to its business anywhere outside India.

The Companies Act, 2013 under Chapter XXII does not require a foreign company to fi le any documents in rela on to its global business.

Under sec on 380 of the Act, a foreign company is required to fi le for registra on within 30 days of the establishment of a place of business in India the following documents with the Registrar: AS PER BOOK

85What documents are to be submi ed by Foreign Company to the registrar?

86Explain the provisions rela ng to compounding of Certain off ences under Companies Act under sec on 441?

87Mr. Joseph, a member of Armaments Ltd., is aggrieved due to failure of the company to make payment of dividend declared in the AGM held in Aug,2015. He makes a complaint, in wri ng, before the court of competent jurisdic on within the prescribed period of limita on, but the court refused to take cognizance of the alleged off ence. Explain the legal posi on in this regard under the Companies Act, 2013.Also state the off ences under the Companies Act, 2013 which are cognizable and which are non-cognizable

88Explain the procedure for obtaining the status of Dormant Company sec. 455?

89Can appeal be made against the order of adjudica ng offi cer imposing penalty u/s 454?

90Write a short note Media on and on Media on & Concilia on panel u/s 442?

91What are steps for e-fi lling under MCA 21 ?

92Write a short note on front offi ce & back offi ce under MCA 21?

93Inten on the list of forms, under approval services & Interna onal services under MCA 21?

94Explain the concept of Class Ac on suits in detail u/s 245?

question & answer collect from company law vol 2 · 3 3 amit bachhawat ques ons and answer 9 l...

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