SELF-PACED ONLINE MODULE

SET – A
CORPORATE AND ECONOMIC LAWS
[RELEVANT FOR MAY, 2025 EXAMINATION AND ONWARDS]

BOOKLET ON CASE SCENARIOS

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
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 PREFACE
In the ever-evolving corporate landscape, understanding the regulatory
framework that governs businesses is essential for professionals, academics,
and practitioners alike. Corporate laws form the bedrock upon which the
corporate sector operates, ensuring transparency, accountability, and fairness
in the pursuit of economic growth. This Case Scenario Booklet, Set A:
Corporate and Economic Law, serves as a comprehensive resource for those
seeking to delve deeper into the practical application of corporate legislation.
The booklet covers a wide range of laws that are pivotal to the functioning of
modern corporations. These include:
The Companies Act, 2013 covering provisions 149 onwards along with the
significant rules therein, The SEBI Act, 1992 read with the
SEBI(LODR)Regulations 2015, the SEBI(ICDR)Regulations 2018, the
SEBI(SAST)Regulations, 2011 and the SEBI(PIT)Regulations, 2015, The FEMA,
1999, The FCRA, 2010 & The IBC, 2016.
This booklet is designed to bridge the gap between theoretical understanding
and practical application. The MCQs are crafted to simulate real-world
scenarios, allowing our students to develop analytical skills and ability to
apply the same. Some questions present “multiple correct answers”,
encouraging students to analyse scenarios comprehensively and identify all
relevant options. This approach mirrors the multifaceted integration of the
legal provisions encountered in legal context. Additionally, questions using
terms such as "most likely" or "most appropriate" require students to prioritise
and contextualise their reasoning based on the scenario provided. To further
enhance critical thinking, "NOT" MCQs are included, challenging students to
identify exceptions and sharpen their attention to detail. These questions test
the ability to distinguish between similar concepts and pinpoint deviations
from established criteria. This comprehensive approach ensures that the
assessment not only evaluates theoretical knowledge but also emphasizes the
application of concepts in practical situations.
 ii

To enhance learning, the booklet includes multiple-choice questions (MCQs)

supported by detailed reasonings. These MCQs not only test conceptual
clarity but also provide insights into the reasoning behind the correct answers,
making them an excellent tool for revision and self-assessment.
This booklet will serve as a valuable companion in your journey to mastering
corporate and economic laws and serves as a valuable resource for fostering
an engaging and practical learning experience, equipping students to excel in
their professional roles.

Best Wishes for Happy Learning!

 CASE SCENARIO 1

WRPC Limited (WRPC) is a Mumbai-based company in which the Central

Government holds 35% of the share capital while the Governments of
Maharashtra and Karnataka hold 15% and 10% of the share capital, respectively.
WRPC manufactures corrosion resistant overhead transmission and distribution
products.

The internal auditors of the company had raised serious concerns in respect of
certain internal control irregularities. During the year 2018-19, WRPC also
defaulted on complying with the statutory requirements pertaining to the filing
of its financial statements under Section 137 and its annual return under Section
92. Consequently, the company received a notice from the Registrar of
Companies, Mumbai (Maharashtra) to rectify the default.

The WPRC was also served Show Cause Notices (SCN) by the Revenue Officials
on certain GST and Income-tax related issues.

The Board of Directors of WRPC consisted of 14 directors. Due to the increased

volume of business, alleged internal control irregularities, and lack of
professional skills needed for statutory compliance, the company felt the
necessity of including some senior professionals on its board. Accordingly, it
was thought of inducting Rajan, a chartered accountant, and Sanjay, a company
secretary, as the executive directors.

Circuit Board Private Limited (CBPL), a Delhi-based company, and PISCO

Electronics Limited (PISCO Electronics), a Pune-based company, are the two
major component suppliers to WRPC. CBPL is a family-managed business with
fifty-seven shareholders, and PISCO Electronics is yet to be listed, but in near
future it intends to get listed.

As per the audited financial statements, the paid-up capital and turnover of
CBPL and PISCO Electronics were as under:
2 CORPORATE AND ECONOMIC LAWS

Paid-up Capital (` in Crore) Turnover (` in Crore)

(as on (as on (F.Y. (F.Y.
31.03.2019) 31.03.2020) 2018-19) 2019-20)
CBPL 100 100 315 350
PISCO Electronics 50 50 275 305

CBPL had four directors as of March 31, 2019, and five as of March 31, 2020. In
the case of PISCO Electronics, there were 7 directors as of March 31, 2019 and
6 as of March 31, 2020. However, none of the companies had appointed any
women directors during these two years.
Ajay Prakash is the Chairman and Managing Director (CMD) of CBPL.
Considering his age and other health-related issues, he wants to retire from the
company. Accordingly, he discussed the matter in a board meeting and also
proposed to explore the possibilities of appointing his eldest son, Pranav
Prakash (MBA from FMS, University of Delhi), as the managing director of the
company for a period of 10 years from January 1, 2021 onwards.
The board meetings of PISCO Electronics were convened five times during the
calendar year 2019. No board meeting was held in January or February 2020,
but thereafter, six board meetings were held during the remaining part of the
calendar year 2020.
Vasuki is one of the executive directors appointed by PISCO Electronics, willing
to avail loan form the company (PISCO), Board is considering his request for
loan.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is observed that WRPC had 14 directors but due
to increased volume of business, alleged internal control irregularities and
professional skills, etc., required for the statutory compliances, the
company intended to induct Rajan, a chartered accountant and Sanjay, a
company secretary, as the executive directors. Which of the following
options is best suited to such a situation:
 CASE SCENARIOS 3

(a) WRPC could appoint either Rajan or Sanjay as executive director

because in no case the statutory limit of 15 directors was to be
crossed.
(b) WRPC increased the total number of directors to 16 by passing an
ordinary resolution in a general meeting of shareholders with a view
to appoint both Rajan and Sanjay.
(c) WRPC increased the total number of directors to 16 by passing a
special resolution in a general meeting of shareholders with a view
to appoint both Rajan and Sanjay.
(d) Being a Government company, since WRPC is exempt from passing
the special resolution in a general meeting of shareholders for
increasing the number of directors to 16, it increased the total
number of directors to 16 from the existing 14 without passing a
special resolution and appointed both Rajan and Sanjay.
2. From the case scenario, it is noticed that none of the companies had
appointed any woman Director though CBPL had 4 Directors as on
31.03.2019 and 5 as on 31.03.2020 and PISCO Electronics had 7 Directors
as on 31.03.2019 and 6 as on 31.03.2020. Which of the following option is
applicable in the given situation:
(a) CBPL should appoint at least one woman Director based on audited
financial statements as on 31.03.2019.
(b) PISCO Electronics should appoint at least one woman Director
based on audited financial statements as on 31.03.2019.

(c) PISCO Electronics should appoint at least one woman Director

based on audited financial statements as on 31.03.2020.
(d) CBPL should appoint at least one woman Director based on audited
financial statements as on 31.03.2020.
3. Which of the following Whole-time Key-Managerial Personnel (KMP),
both CBPL and PISCO Electronics are mandatorily required to appoint:
(a) A Whole-time Chief Financial Officer.
(b) A Whole-time Company Secretary.
4 CORPORATE AND ECONOMIC LAWS

(c) Both the Whole-time Chief Financial Officer and Whole-time

Company Secretary.

(d) All the Whole-time Key Managerial Personnel as prescribed by the

Companies Act, 2013.
4. In view of the request for loan from Vasuki, one of the Executive Directors
of PISCO Electronics. Which of the following options is applicable in such
a situation:
(a) The company is permitted to advance the loan to Vasuki in a duly
convened Board Meeting where all the Directors present except
Vasuki must consent to the proposal.
(b) The company is permitted to advance the loan to Vasuki in a duly
convened Board Meeting where majority of the Directors present
except Vasuki must consent to the proposal.
(c) The company is permitted to advance the loan to Vasuki in a duly
convened General Meeting by passing a Special Resolution.
(d) The company shall not advance any loan to Vasuki, because Vasuki
is one of the Executive Directors of PISCO Electronic.
5. Ajay Prakash, the Chairman and Managing Director of CBPL, desiring to
retire due to his old age and health-related issues, wants to appoint his
eldest son Pranav Prakash as the Managing Director of CBPL for a period
of 10 years from 1.1.2021 onwards. From the following options, choose
the correct one:
(a) Pranav Prakash can be appointed as the Managing Director for a
term not exceeding 5 years at a time.
(b) Pranav Prakash can be appointed as the Managing Director for
maximum upto 10 years without any restrictions.
(c) Pranav Prakash can be appointed as the Managing Director for
maximum upto 15 years without any restrictions.
(d) Pranav Prakash can be appointed as the Managing Director for any
period without any restrictions since CBPL is a private company.
 CASE SCENARIOS 5

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) WRPC increased the total number of directors to 16 by passing

a special resolution in a general meeting of shareholders with a view to
appoint both Rajan and Sanjay.
Reason

First Proviso to section 149(1)

A company may appoint more than fifteen directors after passing a special
resolution.
Here it worth to note that First Proviso to section 149(1) shall not apply
to Government companies vide notification no. G.S.R. 463 (E) dated 5th
June, 2015

But notification no. G.S.R. 582 (E) dated 13th June, 2017 provides that the
exceptions mentioned above (provided through notification no. G.S.R. 463
(E) dated 5th June, 2015) shall be applicable only to those Government
Companies which has not committed a default in filing its financial
statements under section 137 of the said act or annual return under
section 92 of the said act with the registrar. Since WRPC defaulted hence
not eligible to take benefit of notification no. G.S.R. 463 (E) dated 5th June,
2015; therefore first proviso to section 149(1) is applicable.
2. Option (c) PISCO Electronics should appoint at least one woman Director
based on audited financial statements as on 31.03.2020.
Reason
Second Proviso to section 149(1) read with rule 3 of the Companies
(Appointment and Qualification of Directors) rules, 2014.
Every listed company and every other public company having paid–up
share capital of one hundred crore rupees or more; or turnover of three
hundred crore rupees or more need to appoint at least one women
director.
The turnover of PISCO Electronics cross 300 during 2019-2020 as per
audited financial statements, therefore required to appoint at least one
woman Director.
6 CORPORATE AND ECONOMIC LAWS

Since CBPL is private company, hence not required to appoint women

director.

3. Option (b) A Whole-time Company Secretary.

Reason
Section 203(1) read with rule 8 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014
Every listed company and every other public company having a paid-up
share capital of ten crore rupees or more shall have whole-time key
managerial personnel (managing director, or Chief Executive Officer or
manager and in their absence, a whole-time director; Company Secretary;
and Chief Financial Officer)

Further rule 8A of said rules prescribe that every private company which
has a paid up share capital of ten crore rupees or more shall have a whole-
time company secretary. Hence CBPL also required to appoint a whole-
time company secretary.
Therefore it is only whole-time company secretary which both the
companies (CBPL and PISCO Electronics) required to appoint.
4. Option (c) The company is permitted to alter the terms and conditions
relating to outstanding loan of Vasuki in a duly convened General Meeting
by passing a Special Resolution.
Reason
Section 185(2)
Empowers a company to advance any loan including any loan represented
by a book debt, or give any guarantee or provide any security in
connection with any loan taken by any person in whom any of the director
of the company is interested, subject to the condition that a special
resolution is passed by the company in general meeting.
Proviso to clause a to section 185(2) further provides that the explanatory
statement to the notice for the relevant general meeting shall disclose the
full particulars of the loans given, or guarantee given or security provided
and the purpose for which the loan or guarantee or security is proposed
 CASE SCENARIOS 7

to be utilised by the recipient of the loan or guarantee or security and any

other relevant fact.

5. Option (a) Pranav Prakash can be appointed as the Managing Director

for a term not exceeding 5 years at a time.
Reason

Section 196 (2)

No company shall appoint or re-appoint any person as its managing
director, whole-time director or manager for a term exceeding five years
at a time.
Right to reappointment is there, but proviso to section 196(2) provides
that no re-appointment shall be made earlier than one year before the
expiry of his term.
Here it is worth noting that section 196(2) is not applicable to Government
companies, vide notification no. G.S.R. 463 (E) dated 5th June, 2015.
8 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 2

Ullal Pharma Limited (UPL) is an unlisted company, with its Registered Office at
Baidebettu, District Udupi, Karnataka. In addition to being the market leader in
semi-synthetic penicillin, UPL has a presence in key therapeutic segments such as
neurosciences, cardiovascular, anti-retroviral, anti-diabetics, gastroenterology and
anti-biotic, among others. UPL also has three group companies.
From time to time, UPL had duly filed its annual accounts, annual returns and
other documents, if required to be filed, with the jurisdictional Registrar of
Companies (ROC).

The ROC had the whistle-blower information that the business of UPL is being
carried on for fraudulent and unlawful purposes. There was also an allegation
that some illegal secret drug dealings were being carried out by the UPL in the
disguise of pharma business. Year-wise comparison of data extracted from
annual accounts and annual returns filed by UPL indicated the possibilities of
huge diversion of funds to the related parties and related entities. Questions
were also raised within the company on the correctness of the accounts
maintained by UPL.
Consequently, UPL received a written notice from the ROC on 10.06.2020 asking
for the following information/explanations/papers. The notice required the UPL
to produce the following documents before the Registrar in his office at
Bengaluru within 30 days from the date of receiving the notice.

(a) Hard and soft copies of ‘Books of Accounts’ from the years
2017-18 onwards up to date.
(b) Ledger abstracts of all Inter-Company Accounts.
(c) All the documents relating to sales.
(d) All the ‘Bank Statements’ and ‘Cash Books’.
The Registrar duly followed all other processes to call for the information,
inspection of books and papers and conduct enquiries relating to UPL as
specified under the Companies Act 2013.
It is to be noted that Rajeev, Director (Finance) had the exclusive responsibilities
to supervise both ‘sales accounts’ and ‘inter-company transactions’. The
 CASE SCENARIOS 9

information which Rajeev shared with ROC could not, to his dismay, convince
the Registrar. He was also found to be evasive and willfully disobeying the
directions given by the ROC.
The ROC also issued separate notices to Venkatesh, ex-Whole-time Director and
Lokesh, ex-Chief Financial Officer (CFO) of the company. Both Venkatesh and
Lokesh were in the employment of the UPL only up to 15.12.2018. Both of them
through their separate representatives informed the ROC that the notice served
on them was not valid since they are no longer associated with the company
and while in service they had acted only in their capacity as the officers of the
company. It was argued by both of them that they were independent of any
obligations relating to the company and hence, not bound to furnish any
information/explanations to the ROC.
The accounts of UPL were outsourced and maintained by a Chartered
Accountant firm M/s Ajay Jyotsana & Co. The accounts were maintained in Tally
system by three staff members under the supervision of Ajay. The ‘Reports’ were
periodically submitted to Rajeev in the required formats. Rajeev, in turn,
submitted the requisite information to the Board of Directors of UPL.
Based on the information in his possession, the Registrar had reasonable
ground to believe that the books and papers relating to UPL were likely to be
either destroyed, mutilated, altered, falsified or secreted.
Accordingly, the ROC decided to enter into the premises of M/s Ajay Jyotsana
& Co. with the required assistance and seized the books and papers which he
considered necessary for inspection. However, before seizure, ROC allowed the
CA firm to take copies of such books and papers.
The Registrar retained all the required books and papers for a period of 110
days from the date of seizure and ensured the necessary inspection. Before
returning the said books and papers, ROC took copies of them and placed
necessary identification marks on some of the papers.
After the inspection of the books of accounts and other books and papers of
UPL and after the requisite inquiries, ROC submitted a report in writing to the
Central Government along with the necessary documents and
recommendations.
10 CORPORATE AND ECONOMIC LAWS

Consequently, the necessary actions were taken. Rajeev, Director (Finance) was
convicted and punished with imprisonment for a period of six months and also
with fine of ` 70,000 under Section 207 (4) (i). It may be noted that Rajeev was
also holding Directorships in two more companies as on that date.

MULTIPLE CHOICE QUESTIONS

1 From the case scenario, it is noticed that the concerned Registrar of

Companies (ROC) issued separate notices to Venkatesh, ex-Whole-Time
Director and Lokesh, ex-Chief Financial Officer (CFO) of UPL. Both
Venkatesh and Lokesh through their separate representatives presented
that they were in employment of UPL only up to 15.12.2018 and therefore,
the notice issued to them was not valid since they are no longer
associated with UPL and while in service they had acted only in their
capacity as the officers of the Company. It was argued by both of them
that they were independent of any obligations relating to the Company
and hence, not bound to furnish any information/explanation to the ROC.
(a) Contention of both Venkatesh and Lokesh is valid since both of
them are no longer associated with UPL.

(b) Venkatesh and Lokesh can only voluntarily furnish

information/explanations to the ROC, but they are under no legal
obligation to do so.
(c) Venkatesh and Lokesh are under legal obligation to furnish to the
best of their knowledge the required information or explanation as
asked by the ROC through respective notices.

(d) Venkatesh and Lokesh being the past employees of UPL shall furnish
information or explanation only through UPL after obtaining written
consent of the Company to respond to the Registrar and not directly
to the ROC.
2. According to the case scenario, Rajeev, the Director (Finance) of UPL, was
convicted and punished with imprisonment for a period of six months and
with fine of ` 70,000 under 207(4) (i). It is further informed that Rajeev was
also holding Directorships in two more other companies as on that date.
 CASE SCENARIOS 11

From the following options, choose the correct one which suitably applies
to the given situation:

(a) Rajeev can continue to hold the office of Director (Finance) of UPL,
since he has acted as per the instructions of the company and he
can also continue Directorships in other two companies of which he
is currently Director.
(b) Rajeev shall be deemed to have vacated the office of Director
(Finance) of UPL from the date he is so convicted, but can continue
as a Director in the other two companies.
(c) Rajeev can continue to hold the office of Director (Finance) of UPL,
but shall be disqualified from holding Directorship in any other
company.
(d) Rajeev shall be deemed to have vacated the office of Directorship
of UPL from the date he is so convicted and on such vacation of
office, shall also be disqualified from holding an office in any other
company.
3. From the case scenario, it is revealed that the Registrar, on the basis of
information in his possession, had reasonable ground to believe that the
books and papers relating to UPL were likely to be either destroyed,
mutilated, altered, falsified or secreted. Accordingly, ROC entered the
premises of M/s Ajay Jyotsana & Co. with the required assistance and
seized such books and papers as he considered necessary. Which of the
following options best suits the given situation:
(a) The Registrar had to obtain an order from the Central Government
before seizure of the books and papers.
(b) The Registrar had to obtain an order from the Special Court before
seizure of the books and papers.
(c) The Registrar can suo motu proceeded with search and seizure of
the books and papers.

(d) The Registrar had to obtain an order of a Civil Court before seizure
of the books and papers.
12 CORPORATE AND ECONOMIC LAWS

4. From the case scenario, it is observed that the Registrar seized the books
and papers of UPL from the premises of M/s Ajay Jyotsana & Co. and
retained them for a period of 110 days from the date of seizure and
returned them thereafter. What is the maximum time limit within which
the Registrar is required to return the seized books and papers?
(a) The Registrar is required to return the seized books and papers
maximum within 120 days from the date of seizure.
(b) The Registrar is required to return the seized books and papers
maximum within 150 days from the date of seizure.
(c) The Registrar is required to return the seized books and papers
maximum within 180 days from the date of seizure.
(d) The Registrar is required to return the seized books and papers
maximum within 270 days from the date of seizure.
5. The above case scenario states that the Registrar, after the inspection of
the books of accounts and other books and papers of UPL and after the
requisite inquiries, submitted a report in writing to the Central
Government along with the necessary documents and recommendations.
What action is contemplated under Section 210 of the Companies Act,
2013 that the Central Government may initiate in such a situation?
(a) On receipt of a report of the Registrar, the Central Government may
order an investigation into the affairs of the company by the Serious
Fraud Investigation Office (SFIO).
(b) On receipt of a report of the Registrar, the Central Government may
order an investigation into the affairs of the company by the
Inspectors appointed by it.
(c) On receipt of a report of the Registrar, the Central Government may
order an investigation into the affairs of the Company by a Criminal
Court.
(d) On receipt of a report of the Registrar, the Central Government may
order an investigation into the affairs of the Company by the
jurisdictional Tribunal.
 CASE SCENARIOS 13

6. The case scenario states that the Registrar retained all the required accounts
and papers for a period of 110 days from the date of seizure, ensured the
necessary inspection and returned them to the UPL. After so return, if the
Registrar again calls for the books and papers, then for maximum how many
days he can retain them.
(a) The Registrar cannot call for the books and papers once again since
he has already returned them after seizure.
(b) If the Registrar again calls for the books and papers, then he can
retain them maximum for a period of 120 days.
(c) If the Registrar again calls for the books and papers, then he can
retain them maximum for a period of 180 days.
(d) If the Registrar again calls for the books and papers, then he can
retain them maximum for a period of 210 days.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) Venkatesh and Lokesh are under legal obligation to furnish to
the best of their knowledge the required information or explanation as
asked by the ROC through respective notices.

Reason

Proviso to Section 206(2)

Provides that where such information or explanation relates to any past

period, the officers who had been in the employment of the company for
such period, if so called upon by the Registrar through a notice served on
them in writing, shall also furnish such information or explanation to the
best of their knowledge.

2. Option (d) Rajeev shall be deemed to have vacated the office of

Directorship of UPL from the date he is so convicted and on such vacation
of office, shall also be disqualified from holding an office in any other
company.
14 CORPORATE AND ECONOMIC LAWS

Reason

Section 207(4)(ii)

If a director or an officer of the company has been convicted of an offence

under this section, the director or the officer shall, on and from the date
on which he is so convicted, be deemed to have vacated his office as such
and on such vacation of office, shall be disqualified from holding an office
in any company.

Here it is also worth noting that section 167(1) (f) also provides that the
office of a director shall become vacant in case he is convicted by a court
of any offence, whether involving moral turpitude or otherwise and
sentenced in respect thereof to imprisonment for not less than six months.
Here the punishment is of 6 months.

3. Option (b) The Registrar had obtained an order from the Special Court
before seizure of the books and papers.

Reason

Section 209 (1)

Where, upon information in his possession or otherwise, the Registrar or

inspector has reasonable ground to believe that the books and papers of
a company, or relating to the key managerial personnel or any director or
auditor or company secretary in practice if the company has not
appointed a Company Secretary, are likely to be destroyed, mutilated,
altered, falsified or secreted, he may, after obtaining an order from the
Special Court for the seizure of such books and papers,

Enter, with such assistance as may be required, and search, the place or
places where such books or papers are kept; and

Seize such books and papers as he considers necessary after allowing the
company to take copies of, or extracts from, such books or papers at its
cost.
 CASE SCENARIOS 15

4. Option (c) The Registrar is required to return the seized books and
papers maximum within 180 days from the date of seizure.

Reason

Section 209 (2)

The Registrar or inspector required to return the books and papers seized
under subsection (1), as soon as may be, and in any case not later than
one hundred and eightieth day after such seizure, to the company from
whose custody or power such books or papers were seized.

It is worth noting that the books and papers may be called for by the
Registrar or inspector for a further period of one hundred and eighty days
by an order in writing if they are needed again.

5. Option (b) On receipt of a report of the Registrar, the Central

Government may order an investigation into the affairs of the company
by the Inspectors appointed by it.

Reason

Section 210 (1)

Where the Central Government is of the opinion, that it is necessary to

investigate into the affairs of a company, on the receipt of a report of the
Registrar or inspector under section 208; it may order an investigation
into the affairs of the company.

Further sub-section (3) to section 210 empowers the Central Government

to appoint one or more persons as inspectors to investigate into the
affairs of the company and to report thereon in such manner as the
Central Government may direct.

6. Option (c) If the Registrar again calls for the books and papers, then he
can retain them maximum for a period of 180 days.

Reason

First proviso to section 209 (2)

16 CORPORATE AND ECONOMIC LAWS

The Books and papers may be called for by the Registrar or inspector for
a further period of one hundred and eighty days by an order in writing if
they are needed again.

It is worth noting that, second proviso to section 209(2) empowers the

registrar or inspector, take copies of, or extracts from them or place
identification marks on them or any part thereof or deal with the same in
such other manner as he considers necessary; before returning such
books and papers (when first seized).
 CASE SCENARIOS 17

CASE SCENARIO 3

Based at Shivamogga, Karnataka, Lotus Switchgears Limited (LSL) is a noted

manufacturer, exporter and supplier of electrical products like Miniature Circuit
Breakers (MCBs), Molded Case Circuit Breakers (MCCBs), Residual Current
Circuit Breakers (RCCBs), Electric Leakage Circuit Breakers (ELCBs), Solar water
Pumping Systems, Wires and Cables, etc. and has a good network of factories
and distribution channels. The business grew by leaps and bounds due to the
sincere and dedicated efforts of founding directors, Arjun, Ramakrishnan, Ravi
Bhatt, Ramesh and Ripudaman. However, the company is facing some difficult
times for the past four years or so. Arjun is the Managing Director while Ramesh
and Ripudaman are the Whole-time Directors.
In a quest to overcome the difficulties faced by the company, Raghuram, a
visionary, was appointed as the Executive Director at the EGM held on
12th January, 2018.
Shruthi Components Private Limited (SCPL) is one of the subsidiaries of LSL. The
Board of Directors of LSL wished to exercise the power to dispose of its whole
investment in SCPL. Accordingly, Mahadevan, whole-time Company Secretary
of the company was directed to ascertain the procedure for disposing of
company’s investment in SCPL.
Following data was extracted from the Audited Financial Statements of LSL for
the year ending 31.03.2021:

S. Description Amount
No (` in Crore)
1 Paid -up Capital 50
2 General Reserves 54
3 Securities Premium Account 5
4 Accumulated Losses 7
5 Revaluation Reserves created out of revaluation of assets 30
6 Deferred Revenue Expenditure & Miscellaneous 2
Expenditure not written off
7 Investment in SCPL 25
18 CORPORATE AND ECONOMIC LAWS

Based on the above data and considering Section 2 (57) 1 of the Companies Act,
2013, Mahadevan calculated the ‘net worth’ of LSL as under:

Particulars Amount (` in
Crores)
Paid-up Capital 50
Add: General Reserves 54
Add: Securities Premium Account 5
Less: Accumulated Losses 7
Less: Deferred Revenue Expenditure & Miscellaneous 2
Expenditure not written off
Net Worth 100

In view of the ‘net worth’ of ` 100 crore, Mahadevan informed the Board that
as per the relevant provisions SCPL was an undertaking of LSL.
Earlier during April, 2020, in the course of normal business, LSL entered into a
contract for the continuous supply of some consumables and components with
Swastik Supplies Private Limited (SSPL) for a period of 3 years to be renewed
with mutual consent thereafter. Ramesh, the Whole-time Director of LSL, was
not an interested party at the time of entering into this Supply Contract with
SSPL. However, during the second year of the Supply Contract, Rajesh, son of
Ramesh, purchased about 30% of the equity shares of SSPL through one of his
family owned business entities and also lent ` 25 lakh as unsecured loan to
SSPL. Ramesh did not inform LSL or the Board of Directors regarding the new
developments since he was of the opinion that there was no need for such
disclosure. However, the Company Secretary and the Board had their own
reservations, after the matter came to their knowledge from a third party.

1
According to Section 2 (57) of the Companies Act, 2013, ‘Net Worth’ means the aggregate
value of the paid-up share capital and all reserves created out of the profits, securities
premium account and debit or credit balance of profit and loss account, after deducting
the aggregate value of the accumulated losses, deferred expenditure and miscellaneous
expenditure not written off, as per the audited balance sheet, but does not include
reserves created out of revaluation of assets, write-back of depreciation and
amalgamation.
 CASE SCENARIOS 19

During the statutory audit for the F.Y. 2020-21, while verifying the earlier years’
documents in connection with certain matter, the newly appointed auditors
observed that the appointment of Raghuram as an Executive Director was
invalid by reason of certain defects and also disqualification. During the month
of August, 2021, the statutory auditors discussed the issue of irregular
appointment with the Board of Directors of LSL.
The Board apprised the auditors that since his appointment as Executive
Director of the company, Raghuram had participated in several Board Meetings
and assented to various decisions, which had both pecuniary and operational
impact. In addition, the Board had also passed several resolutions during that
period. Accordingly, the Board, in one of its meetings, decided by passing a
resolution that the wrongfully appointed Director Raghuram shall make good
the losses, if any, for the period he remained Executive Director but all the
resolutions passed during his period shall be valid and stand good.
One of the investors, Raman had invested substantially in the equity shares of
Lotus Switchgears Limited. However, he was quite worried about his investment
after going through the latest audited financial statements of 2020-21, for he
found that there was continuous downward trend in earning per share (EPS). He
was of the opinion that the Directors of LSL have been getting exorbitant
remuneration, resulting in lesser profits for the company.
Accordingly, he approached the Registered Office of the company at
Shivamogga and requested for inspection of the copies of the recent Service
Contracts of Arjun, the Managing Director as well as Ramesh and Ripudaman,
the Whole-time Directors of the company. He was utterly surprised when he
was informed by the official concerned that the Service Contracts with Arjun,
Ramesh and Ripudaman were not in writing and therefore, could not be
produced for inspection. However, he was also informed that only copies of the
written Memorandum setting out the terms and conditions of the service could
be provided for inspection. Raman was not convinced and thought it to be a
fraudulent practice for which the company and every defaulting officer of the
company must be punished.
LSL, after complying with the required legal formalities, had made some political
contributions and had incurred certain expenses during the financial year
2020-21. The details are as under:
20 CORPORATE AND ECONOMIC LAWS

(a) Payment of ` 10,00,000 as contributions to LMS party.

(b) Donation of ` 2,00,000 for a public function and a dance program of Ravi
Shankar, a film star and it can be reasonably presumed that his activities
support Janta Welfare Party.
(c) Publication cost of ` 1,00,000 incurred for inserting an advertisement in
the Souvenir published on behalf of Janta Welfare Party.
(d) Publication of pamphlets costing ` 1,00,000 though not meant for any
political party but incurred for promoting a candidate of political party
who is going to contest in upcoming elections.
LSL disclosed in its financial statements ` 11,00,000 as political contributions
and ` 3,00,000 as ‘Advertisement and Business Promotion Expenses’.

MULTIPLE CHOICE QUESTIONS

1. Raman, who had invested substantially in LSL, was informed that only
copies of the written Memorandum setting out the terms and conditions
of the service could be provided for inspection as no written Service
Contracts with Arjun (Managing Director) as well as Ramesh and
Ripudaman (Whole-time Directors) were available. Raman was not
convinced and thought it to be a fraudulent practice for which the
company and every defaulting officer of the company must be punished.
From the following options, choose the most appropriate one:

(a) The Company shall be liable to a penalty of ` 25,000 and every

officer of the Company, who is in default, shall be liable to a penalty
of ` 5000 for each default for non-production of Service Contracts
for inspection.
(b) It shall be in order, if the Company provides copies of the written
Memorandum setting out the terms and conditions of the services
for inspection.
(c) The Company shall be liable to a penalty of ` 50,000 and every
officer of the Company, who is in default, shall be liable to a penalty
of ` 10,000 for each default for non-production of Service Contracts
for inspection.
 CASE SCENARIOS 21

(d) The Company shall be liable to a penalty of ` 1,00,000 and every

officer of the Company, who is in default, shall be liable to a penalty
of ` 25,000 for each default for non-production of Service Contracts
for inspection.
2. According to Mahadevan, whole-time Company Secretary, SCPL was an
undertaking of LSL. If the Board of Directors of LSL decided to dispose of
its investment in SCPL, considering SCPL as an undertaking of LSL, which
of the following options shall be applicable:

(a) The Board of Directors of LSL shall exercise the power of disposing
of its investment in SCPL, considering SCPL as an undertaking of LSL,
by means of a Board Resolution assented to by all the Directors
present at a duly convened Board Meeting.
(b) The Board of Directors of LSL shall exercise the power of disposing
of its investment in SCPL, considering SCPL as an undertaking of LSL,
only with the consent of the company by an Ordinary Resolution.
(c) The Board of Directors of LSL shall exercise the power of disposing
of its investment in SCPL, considering SCPL as an undertaking of LSL,
only with the consent of the company by a Special Resolution and
thereafter, by seeking approval of the jurisdictional Registrar of
Companies.
(d) The Board of Directors of LSL shall exercise the power of disposing
of its investment in SCPL, considering SCPL as an undertaking of LSL,
only with the consent of the company by a Special Resolution.
3. According to the case scenario, the Board of Directors of LSL stated that
since January, 2018 Raghuram had participated in several Board Meetings
and assented to various decisions, which had both pecuniary and
operational impact. In addition, the Board had passed several resolutions
during that period. Accordingly, the Board, in one of its meetings, decided
by passing a resolution that the wrongfully appointed Director Raghuram
shall make good the losses, if any, over the period he remained Executive
Director and all the resolutions passed during his period and assented to
by him shall be valid and stand good.
22 CORPORATE AND ECONOMIC LAWS

(a) The decision of the Board is correct because no act done by a person
as a Director shall be deemed to be invalid if it was subsequently
noticed that his appointment was invalid by reason of any defect or
disqualification, etc.
(b) The Board is required to get all the resolutions passed during the
tenure of Raghuram and assented by him, ratified by an Ordinary
Resolution at a General Meeting of the shareholders.
(c) The Board is required to get all the resolutions passed during the
tenure of Raghuram and assented by him, ratified by a Special
Resolution at a General Meeting of the shareholders.
(d) The Board is required to cancel all the resolutions passed during the
tenure of Raghuram and assented by him since they were void and
inoperative ab-initio.
4. The case scenario states that LSL, after complying with the required legal
formalities, made some political contributions and incurred some
expenses during the financial year 2019-20. LSL showed in its financial
statements ` 11,00,000 as political contributions and ` 3,00,000 as
‘Advertisement and Business Promotion Expenses’. From the following
options choose the correct one:
(a) The disclosure made by LSL in its financial statements showing
` 11,00,000 as political contributions and ` 3,00,000 as
‘Advertisement and Business Promotion Expenses’ is correct.
(b) LSL was required to disclose ` 10,00,000 as political contributions
and `4,00,000 as ‘Advertisement and Business Promotion Expenses’.
(c) LSL was required to disclose all the sums totaling ` 14,00,000 as
political contributions.

(d) LSL was required to disclose `12,00,000 as political contributions

and ` 2,00,000 as ‘Advertisement and Business Promotion Expenses’.
 CASE SCENARIOS 23

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) It shall be in order, if the Company provides copies of the

written Memorandum setting out the terms and conditions of the services
for inspection.

Reason

Section 190 (1)

Every company shall keep at its registered office a contract of service with
a managing or whole-time director is in writing, a copy of the contract;
and where such a contract is not in writing, a written memorandum setting
out its terms.

It is worth noting that the copies of the contract or the memorandum kept
under sub-section (1) shall be open to inspection by any member of the
company without payment of fee.

2. Option (d) The Board of Directors of LSL shall exercise the power of
disposing of its investment in SCPL, considering SCPL as an undertaking
of LSL, only with the consent of the company by a Special Resolution.

Reason

Section 180(1)(a)

The Board of Directors of a company shall exercise the powers to sell,

lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company or where the company owns more than one
undertaking, of the whole or substantially the whole of any of such
undertakings only with the consent of the company by a special
resolution.

3. Option (a) The decision of the Board is correct because no act done by a
person as a Director shall be deemed to be invalid if it was subsequently
noticed that his appointment was invalid by reason of any defect or
disqualification, etc.
24 CORPORATE AND ECONOMIC LAWS

Reason
Section 176
No act done by a person as a director shall be deemed to be invalid,
notwithstanding that it was subsequently noticed that his appointment
was invalid by reason of any defect or disqualification or had terminated
by virtue of any provision contained in this Act or in the articles of the
company.
4. Option (c) LSL was required to disclose all the sums totaling
` 14,00,000 as political contributions.
Reason
Section 182 (2)

Political Contribution shall include a donation or subscription or payment

caused to be given by a company on its behalf or on its account to a
person who, to its knowledge, is carrying on any activity which, at the time
at which such donation or subscription or payment was given or made,
can reasonably be regarded as likely to affect public support for a political
party shall also be deemed to be contribution of the amount of such
donation, subscription or payment to such person for a political purpose;
or/and
The amount of expenditure incurred, directly or indirectly, by a company
on an advertisement in any publication, being a publication in the nature
of a souvenir, brochure, tract, pamphlet or the like, shall also be deemed,
where such publication is by or on behalf of a political party, and where
such publication is not by or on behalf of, but for the advantage of a
political party.
 CASE SCENARIOS 25

CASE SCENARIO 4

Kumar Beverages Limited (KBL), a 10-year old listed company, is a leading

beverage manufacturer and trader. All the brands under aegis of KBL are
popular household names in India, Middle East, Europe and Africa. Being a fast-
growing company, the turnover of KBL was ` 300 crore during the financial year
2019-20. The Registered Office and manufacturing plants of KBL are situated at
Kolluru, Karnataka.
Akshay Beverages Limited (ABL), an 18-year old unlisted company, is one
among the leading competitors of KBL and has market presence mainly in South
Asia, South East Asia, Japan as well as Australia. It had turnover of ` 700 crore
during the financial year 2019-20. The Registered Office of ABL is in Kundapura
and manufacturing units are in Hattiangadi, Karnataka.
Considering various factors like elimination of competition, scaling up of
operations for competitive advantages, economies of large-scale business,
increase in market share, cost reduction by reducing overheads, increasing the
efficiencies of operations, tax benefits, access to foreign markets etc., both the
companies have been in negotiation for the last several months and a proposal
to merge KBL with ABL is in the waiting.
It is proposed that KBL shall transfer all of its assets and liabilities to ABL. It is
estimated that around 95% of equity shareholders of KBL shall become
shareholders of ABL Further, purchase consideration shall be discharged wholly
by issuing equity shares of ABL. The beverage business shall continue as earlier.
The assets and liabilities taken over from KBL shall be recorded at existing
carrying amounts except where adjustment is required to ensure uniformity of
Accounting Policies.
The ‘object clauses’ contained in the Memorandums of Association of ABL and
KBL empower both the companies to undergo merger. All the required
Institutional and statutory approvals were taken for merger. A Draft Scheme of
merger was approved in the Board Meetings of both the companies.
Both ABL and KBL filed an Application for merger in the form of petition along
with the necessary documents and information as required under the
Companies Act 2013 read with the relevant Rules, with the jurisdictional
26 CORPORATE AND ECONOMIC LAWS

National Company Law Tribunal (NCLT) [in short ‘Tribunal’] for the purpose of
sanctioning the Scheme of Merger.

The Tribunal ordered for the required meeting and gave such directions as it
felt necessary for conducting the meeting. For the purposes of the meeting,
merging companies also circulated some additional documents/information, as
required under the Companies Act 2013.
The Tribunal satisfied itself with the procedure followed including filing of the
Auditor’s Certificate on accounting treatment proposed in the Scheme of
Merger certifying that it was in conformity with the prescribed Accounting
Standards.
The Tribunal by Order sanctioned the arrangement leading to merger and made
provisions for all the required matters which, inter-alia, included valuation of
shares and payment to such shareholders of KBL, who decided to opt out of the
transferee company ABL.

A certified copy of the Order was also filed with the Registrar of Companies for
registration within the due date. One of the earlier Directors of KBL, contended
that the Scheme shall be effective from the date the certified copy is registered
by the Registrar of Companies. However, the Scheme had indicated an
‘appointed date’ being the completion of 15 days from the date of receipt of
the certified copy of the Order of the Tribunal, from which the merger shall be
effective.
It is expected that the actual implementation of the Scheme of merger is going
to take some time. The Board of Directors of ABL wanted to understand the
implementation monitoring procedure by the authorities and the Company
Secretary was directed to explain the same.
It was decided that once the required implementation procedure of merger is
completed, the manner of disposing of the books and papers of KBL shall be
discussed.
It came to light that Neelesh, one of the Directors of KBL, had committed various
offences by contravening different provisions of the Companies Act, 2013. On
merger with ABL, it was contended by Neelesh that the wrongful acts were
committed before the merger and therefore, he should be relieved from all the
liabilities, punishments and penalties for the offences earlier committed.
 CASE SCENARIOS 27

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is observed that KBL, a listed company is being
merged with ABL which is an unlisted company and under the scheme of
merger, the KBL shall transfer all of its assets and liabilities to ABL. From
the following four options, choose the one which indicates as to when the
ABL shall become a listed company after KBL is merged with it.
(a) ABL shall remain an unlisted company until it on its own becomes a
listed company.

(b) ABL shall immediately become a listed company after merger since
KBL, a listed company is being merged with it.
(c) ABL shall become a listed company after merger of KBL, a listed
company, with it once the certified copy of the merger is registered
with ROC.
(d) ABL shall become a listed company once the application for
sanctioning the merger is filed with the Tribunal since the merger is
proposed with KBL, a listed company.
2. According to the case scenario, the Tribunal by Order sanctioned the
arrangement leading to merger and made provisions for all the required
matters which, inter-alia, included valuation of shares and payment to
such shareholders of KBL, who decided to opt out of the transferee
company ABL. From the following options choose the appropriate one:
(a) Amount of payment or valuation for any share shall not be less than
what has been specified by the Registrar of Companies.
(b) Amount of payment or valuation for any share shall not be less than
what has been specified by the Reserve Bank of India (RBI).
(c) Amount of payment or valuation for any share shall not be less than
what has been specified by the Securities and Exchange Board of
India (SEBI).
(d) Amount of payment or valuation for any share shall not be less than
what has been specified in the Valuation Report of the Registered
Valuer.
28 CORPORATE AND ECONOMIC LAWS

3. According to the contention of one of the earlier Directors of KBL, the

Merger Scheme shall be effective from the date the certified copy is
registered by the Registrar of Companies. From the following options you
are required to choose the one which indicates the correct ‘effective date’:
(a) The Merger Scheme shall be deemed to be effective from the date
of passing of an Order by the Tribunal.
(b) The Merger Scheme shall be deemed to be effective from the date
of receipt by ABL the certified copy of the Order as passed by the
Tribunal.
(c) The Merger Scheme, as contended by an earlier Director of KBL,
shall be deemed to effective from the date the certified copy is
registered by the Registrar of Companies.
(d) The scheme shall be deemed to be effective from the ‘appointed
date’ being the completion of 15 days from the date of receipt of
the certified copy of the Order of the Tribunal.
4. It is expected that the actual implementation of the Scheme of merger is
going to take some time. The Board of Directors of ABL wanted to
understand the implementation monitoring procedure by the authorities
and the Company Secretary was directed to explain the same. Which of
the following options, do you think, the Company Secretary might have
suggested:
(a) ABL shall, until the completion of the scheme, file a statement in
such form and within such time as may be prescribed, with the
Tribunal every year, duly certified by a Chartered Accountant or a
Cost Accountant or a Company Secretary in practice indicating
whether the scheme is being complied with in accordance with the
orders of the Tribunal or not
(b) ABL shall, until the completion of the scheme, file a statement in
such form and within such time as may be prescribed, with the
Registrar every year duly certified by a Chartered Accountant or a
Cost Accountant or a Company Secretary in practice indicating
whether the scheme is being complied with in accordance with the
orders of the Tribunal or not
 CASE SCENARIOS 29

(c) ABL shall, only on completion of the implementation of the scheme,

file a statement in such form and within such time as may be
prescribed, with the Registrar, duly certified by a Chartered
Accountant or a Cost Accountant or a Company Secretary in
practice indicating whether the implementation of the scheme is
complied with in accordance with the orders of the Tribunal or not
(d) ABL shall, only on completion of the implementation of the scheme,
file a statement in such form and within such time as may be
prescribed, with the Tribunal, duly certified by a Chartered
Accountant or a Cost Accountant or a Company Secretary in
practice indicating whether the implementation of the scheme is
complied with in accordance with the orders of the Tribunal or not.
5. According to the case scenario, Neelesh, one of the Directors of KBL, had
committed various offences by contravening different provisions of the
Companies Act, 2013. On merger with ABL, it was contended by Neelesh
that the wrongful acts were committed before the merger and therefore,
he should be relieved from all the liabilities, punishments and penalties
for the offences earlier committed. From the following options choose the
correct one:
(a) The contention of Neelesh is not correct since the liability in respect
of offences committed under the Companies Act 2013 by the
officers in default, of the transferor company prior to its merger,
amalgamation or acquisition shall continue after such merger,
amalgamation or acquisition.
(b) The contention of Neelesh is correct since the liability in respect of
offences committed under the Companies Act 2013 by the officers
in default, of the transferor company prior to its merger,
amalgamation or acquisition shall not be continued after such
merger, amalgamation or acquisition.
(c) The contention of Neelesh is partially correct since he is liable only
for the wrongful acts which have a bearing on the merger.
(d) The Board of Directors of ABL are permitted to relieve Neelesh from
the liabilities in respect of offences committed earlier in KBL by
30 CORPORATE AND ECONOMIC LAWS

passing a Board Resolution with the consent of all the Directors

present at a duly convened Board Meeting.

6. According to the case scenario, once the required implementation

procedure of merger is complete, the manner of disposing of the books
and papers of KBL shall be discussed. From the given options, choose the
appropriate one:
(a) The books and papers of KBL can be disposed of immediately on
merger of KBL with ABL.
(b) The books and papers of KBL can be disposed of not earlier than 8
years from the financial year to which they relate.
(c) The books and papers of KBL can be disposed of only after obtaining
permission from the Central Government.
(d) The books and papers of KBL can be disposed of only after obtaining
permission from the Tribunal, which had sanctioned the merger.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) ABL shall remain an unlisted company until it on its own
becomes a listed company.
Reason
Section 232(3)(h)(A)
Where the transferor company is a listed company and the transferee
company is an unlisted company, the transferee company shall remain an
unlisted company until it becomes a listed company.
2. Option (c) Amount of payment or valuation for any share shall not be less
than what has been specified by the Securities and Exchange Board of
India (SEBI).
Reason

Proviso to section 232(3)(h)(B)

Where the transferor company is a listed company and the transferee
company is an unlisted company, and if shareholders of the transferor
 CASE SCENARIOS 31

company decide to opt out of the transferee company, provision shall be

made for payment of the value of shares held by them and other benefits
in accordance with a pre-determined price formula or after a valuation is
made, and the arrangements under this provision may be made by the
Tribunal.
The proviso further provided that the amount of payment or valuation
under this clause for any share shall not be less than what has been
specified by the Securities and Exchange Board under any regulations
framed by it.
3. Option (d) The scheme shall be deemed to be effective from the
‘appointed date’ being the completion of 15 days from the date of receipt
of the certified copy of the Order of the Tribunal.
Reason
Section 232(6)
The scheme under section 232 (i.e. Merger and amalgamation of
companies) shall clearly indicate an appointed date from which it shall be
effective and the scheme shall be deemed to be effective from such date
and not at a date subsequent to the appointed date.
4. Option (b) ABL shall, until the completion of the scheme, file a statement
in such form and within such time as may be prescribed, with the Registrar
every year duly certified by a Chartered Accountant or a Cost Accountant
or a Company Secretary in practice indicating whether the scheme is
being complied with in accordance with the orders of the Tribunal or not
Reason
Section 232(7)
Every company in relation to which the order is made shall, until the
completion of the scheme, file a statement in such form and within such
time as may be prescribed in Rule 21 of Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 with the Registrar every
year duly certified by a chartered accountant or a cost accountant or a
company secretary in practice indicating whether the scheme is being
complied with in accordance with the orders of the Tribunal or not.
32 CORPORATE AND ECONOMIC LAWS

It is worth noting Rule 21 provides the statement shall be filled in Form

No. CAA.8 along with such fee as specified in the Companies (Registration
Offices and Fees) Rules, 2014 within two hundred and ten days from the
end of each financial year.
5. Option (a) The contention of Neelesh is not correct since the liability
in respect of offences committed under the Companies Act 2013 by the
officers in default, of the transferor company prior to its merger,
amalgamation or acquisition shall continue after such merger,
amalgamation or acquisition.
Reason
Section 240
Section 240 deals with Liability of officers in respect of offences
committed prior to merger, amalgamation, etc. and provides
Notwithstanding anything in any other law for the time being in force, the
liability in respect of offences committed under this Act by the officers in
default, of the transferor company prior to its merger, amalgamation or
acquisition shall continue after such merger, amalgamation or acquisition.
4. Option (c) The books and papers of KBL can be disposed of only after
obtaining permission from the Central Government.
Reason

Section 239
The books and papers of a company which has been amalgamated with,
or whose shares have been acquired by, another company under this
Chapter shall not be disposed of without the prior permission of the
Central Government.
It worth noting that before granting such permission, that Government
may appoint a person to examine the books and papers or any of them
for the purpose of ascertaining whether they contain any evidence of the
commission of an offence in connection with the promotion or formation,
or the management of the affairs, of the transferor company or its
amalgamation or the acquisition of its shares.
 CASE SCENARIOS 33

CASE SCENARIO 5

Lagus Transport Services Limited (LTSL) is operating in the domain of logistics

and public transport. The company has pan-India presence. As per its Articles
of Association, the company can appoint a maximum of 15 Directors and all of
them shall be rotational Directors. Presently, the company has a strength of 14
Directors, of which 9 are executive Directors and the remaining 5 are non-
executive Directors.
Following information was extracted from the audited financial statements as
on 31st March, 2020:

S. Particulars Amount (` in
No. Crores)
1. Authorised Share Capital (15,00,00,000 Equity 15.00
Shares of ` 1 each)
2. Paid-up Share Capital 8.42
3. Turnover 84.00
4. Outstanding Loans, Debentures and Deposits (in 42.00
aggregate)

In the Annual General Meeting (AGM), held on 20th August, 2020, Anil, Badal,
Chanchal and Damodar were appointed as Directors in place of Mohan, Navin,
Om and Prasad by passing a single resolution with simple majority. It is to be
noted that earlier, a motion authorising the appointment of Anil, Badal,
Chanchal and Damodar by a single resolution was passed in the meeting and
not a single vote was cast against such motion.
Based on the audited financial statements as on 31st March, 2021, following
information emerged:

S. Particulars Amount
No. (` in Crores)
1. Authorised Share Capital (15,00,00,000 Equity Shares of 15.00
` 1 each)
2. Paid-up Share Capital 8.42
34 CORPORATE AND ECONOMIC LAWS

3. Turnover 120.52
4. Outstanding Loans, Debentures and Deposits (in 40.00
aggregate)

It is noteworthy that due to the increased turnover there arose the requirement
of appointing two independent Directors.

Since the company was required to appoint two independent Directors, the
total strength of the Board with such appointments would go up to 16 Directors
from the present 14 whereas according to the Articles, the company can have a
maximum of 15 Directors. Accordingly, the Articles were altered and the total
strength was increased to 20 Directors.
After altering the Articles, the company proceeded to appoint four independent
Directors instead of the mandatorily required two since it was felt that such step
would strengthen the corporate governance to the maximum extent. The
independent Directors were:
(i) Mrs. Eekam, who is considered ‘influencer’ on supply chain management
and has a lot of expertise in the logistics field;
(ii) Mrs. Prajna who is a marketing expert;

(iii) Mrs. Ruchita, who is MBA (Finance and Accounting) from IIM, Ahmedabad;
and
(iv) Mr. Amit, who is skilled in developing customised software.

Subsequent to the above developments, the time to hold Annual General

Meeting (AGM) approached and it was conducted on 12th August, 2021
through video conferencing after complying with applicable provisions of the
Companies Act, 2013 read with General Circular 20/2020, dated 05-05-2020,
issued by MCA.

MULTIPLE CHOICE QUESTIONS

1. In this case scenario, Anil, Badal, Chanchal and Damodar were appointed
as Directors by passing a single resolution at the AGM. Is such
appointment valid?
 CASE SCENARIOS 35

(a) The appointment of Anil, Badal, Chanchal and Damodar by a single

resolution is valid because beforehand, a motion authorising their
appointment by a single resolution was passed in the meeting and
not a single vote was cast against such motion.
(b) The appointment of Anil, Badal, Chanchal and Damodar by a single
resolution is not valid because passing of resolution by simple
majority indicates that it was not passed unanimously.
(c) The appointment of Anil, Badal, Chanchal and Damodar by a single
resolution with simple majority is not valid because such resolution
is required to be passed as a special resolution.
(d) The appointment of Anil, Badal, Chanchal and Damodar by a single
resolution is not valid because in no case more than one Director
can be appointed by passing a single resolution.
2. In the given case scenario, according to the Articles all the Directors are
rotational. Had this been not the case, how many Directors were required
to retire at the AGM which was held on 20th August, 2020?
(a) Five Directors
(b) Four Directors
(c) Three Directors
(d) Two Directors
3. In the given case scenario, if it is presumed that as on 31st March, 2021,
the turnover of the company is ` 87.00 crores and the paid-up share
capital is ` 12.00 crores, would the company be still mandatorily required
to appoint two independent Directors?
(a) There is no need to appoint two independent Directors since the
aggregate of turnover and paid-up share capital has not crossed the
threshold of ` 100 crore.
(b) Instead of appointing two independent Directors, the company is
required to appoint only one independent Director since the
aggregate of turnover and paid-up share capital is above ` 90 crores
but less than ` 100 crores.
(c) The company is required to appoint minimum two independent
Directors since the paid-up share capital is ` 12 crore.
36 CORPORATE AND ECONOMIC LAWS

(d) The company is required to appoint only one independent Director

since the paid-up share capital is below ` 15 crore.
4. According to the case scenario, the company altered its Articles of
Association so as to increase the total strength of Directors up to 20 from
the present 15 Directors. Which of the following options is applicable in
such a case of alteration:
(a) The articles were altered by passing an ordinary resolution.
(b) The articles were altered by passing an ordinary resolution followed
by approval sought from the jurisdictional Registrar of Companies.
(c) The articles were altered by passing a Board Resolution with more
than seventy-five percent majority.
(d) The articles were altered by passing a special resolution.
5. As on 12th August, 2021, when the AGM of LTSL was held, the total
strength of Directors reached to 18 due to the appointment of four
independent Directors. When all the Directors are rotational, how many
Directors would have got retired at this AGM?
(a) Six Directors
(b) Five Directors
(c) Four Directors
(d) Two Directors

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) The appointment of Anil, Badal, Chanchal and Damodar

by a single resolution is valid because beforehand, a motion authorising
their appointment by a single resolution was passed in the meeting and
not a single vote was cast against such motion.
Reason
Section 162
At a general meeting of a company, a motion for the appointment of two
or more persons as directors of the company by a single resolution shall
 CASE SCENARIOS 37

not be moved unless a proposal to move such a motion has first been
agreed to at the meeting without any vote being cast against it.

Since in given case, a motion authorising appointment of Anil, Badal,

Chanchal and Damodar by a single resolution was passed in the meeting
and not a single vote was cast against such motion, Hence their
appointment by a single resolution is valid.
2. Option (c) Three Directors
Reason
Section 152(6)
Number of directors retiring by rotation shall be not less than 2/3 of total
numbers of directors i.e. 2/3rd of 14 which comes out to 9.33, but shall be
round off (round up) to 10, because at least 2/3 shall be retiring by
rotation.
Out of such directors who are retiring by rotation (10 in this case), at each
AGM 1/3rd shall retire. Note if number of director retiring by rotation is
neither three nor a multiple of three, then, the number nearest to one-
third, shall retire from office.

In this case 1/3rd of 10 that comes out to be 3.33 shall be round off to
nearest i.e. 3 (three).
3. Option (c) The company is required to appoint minimum two
independent Directors since the paid-up share capital is ` 12 crores.
Reason
Section 149(4) read with Rule 4 of the Companies (Appointment and
Qualification of Directors) rules, 2014.
Said rule provides that the following class or classes of companies shall
have at least two directors as independent directors;

(i) the Public Companies having paid up share capital of ten crore
rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees
or more; or
38 CORPORATE AND ECONOMIC LAWS

(iii) the Public Companies which have, in aggregate, outstanding loans,

debentures and deposits, exceeding fifty crore rupees.

4. Option (d) The articles were altered by passing a special resolution.

Reason
First Proviso to section 149(1)

A company may appoint more than fifteen directors after passing a special
resolution.
Here it worth to note that First Proviso to section 149(1) shall not apply
to Government and section 8 companies vide notification no. G.S.R. 463
(E) and G.S.R. 466 (E), respectively; both dated 5th June, 2015
5. Option (b) Five Directors
Reason
Section 152(6) read with Section 149(13)
Section 152(6) deals with retirement of directors by rotation, but as per
section 149(13) the provisions of section 152(6) shall not be applicable to
appointment of independent directors.
Hence for purpose of 152(6) total strength despite being 18 shall be
considered 14 (i.e. excluding 4 independent directors).
It is specified in fact of concerned MCQ and case that all the directors are
retiring by rotation i.e. all 14.
As per section 152(6)(c), out of such directors who are retiring by rotation
(14 in this case), at each AGM 1/3rd shall retire. Further it provides if their
number is neither three nor a multiple of three (like 14 in case), then, the
number nearest to one-third, shall retire from office.
In this case 1/3rd of 14 that comes out to be 4.66 shall be round off to
nearest i.e. 5 (Five).
 CASE SCENARIOS 39

CASE SCENARIO 6

Sheetal Chemicals Limited (SCL) is a listed company dealing in petrochemicals

which are used in numerous household products like wax, detergents, dyes,
carpeting, safety glasses, etc. As per the latest audited balance sheet as at 31st
March, 2021, its paid-up capital stood at ` 40.00 crores against its Authorised
Capital of ` 50.00 crore. The turnover for the FY 2020-21 was to the tune of `
300.00 crore.
The company has thirteen Directors on its Board namely, A1, B2, C3, D4, E5, F6,
G7, H8, I9, J10, K11, L12 and M13 of which A1, B2, C3, D4 and E5 are the
Independent Directors. The Articles of Association of the company restrict the
maximum number of Directors to fifteen.
SCL remains ever-conscious to corporate governance and ensures compliance
to legal provisions in both letter and spirit. L12 is the Managing Director of the
company whereas M13 is the only woman Director on the board of SCL. The
company has constituted requisite committees as per the requirements of law.
The Audit Committee consists of seven Directors as members i.e. A1, B2, C3, D4,
E5, I9 and J10.
Earlier, for the financial year ending 31st March, 2020, the company successfully
convened and held Annual General Meeting (AGM) on 25th September, 2020 at
its registered office at Pune. On the fateful day of AGM, while returning to
Mumbai from Pune by road after her re-appointment at AGM, a fatal accident
claimed the life of M13 thus snatching an efficient and trustworthy Director
from the hands of the company. Later on, a Board Meeting was held on 09-01-
2021 and N14, a finance professional and daughter of deceased woman
Director M13 was appointed as Director to fill the vacancy of woman Director
so created due to the death of her mother M13. It may be noted that before
09-01-2021, a Board Meeting was held on 15-09-2020.

SCL is a growing company which wants to diversify its business into the sphere
of agrochemicals also and therefore, desires to bring on its Board O15 who is a
chemical engineer with hands-on experience of about twenty years post his
qualification in the field of agrochemicals and other petroleum products.
Besides production, he is well versed in marketing of agrochemicals both in
India and abroad. It is hoped that he shall prove to be a valuable asset to the
40 CORPORATE AND ECONOMIC LAWS

company. Accordingly, a Board Meeting was held on 6th April, 2021 to appoint
O15 as additional Director. As the total strength of Directors was well within the
limit prescribed by the Articles, there was no need to alter the Articles.

MULTIPLE CHOICE QUESTIONS

1. After the appointment of O15 as additional Director on 06-04-2021,

another Board Meeting of SCL was held on 17-08-2021 through video
conferencing 2. From the given options, choose the correct one which
indicates the quorum for the current Board Meeting.

(a) Nine Directors

(b) Five Directors
(c) Four Directors

(d) Two Directors

2. For the purpose of meeting of the Audit Committee of SCL, how many
members should be present at such meeting in order to constitute the
quorum.
(a) All the seven members.
(b) Only five members of which minimum two should be independent
members.
(c) Only three members of which minimum two should be independent
members.

2
In view of the difficulties arising due to resurgence of COVID-19, General Circular
No. 08/2021, dated 03-05-2021 issued by MCA states that the requirement of
holding meetings of the Board of the companies within the intervals provided in
section 173 of the Companies Act, 2013 (120 days) stands extended by a period of
60 days for the first two quarters of Financial Year 2021-22. Accordingly, the gap
between two consecutive meetings of the Board may extend to 180 days during the
Quarter – April to June 2021 and Quarter – July to September, 2021, instead of 120
days. This amendment is given to make you understand the given situation in a
realistic manner under practical scenario.
 CASE SCENARIOS 41

(d) Only two members of which minimum one should be independent

member.

3. From the case scenario, it is observed that after the death of M13, her
daughter N14 was appointed at a Board Meeting held on 09-01-2021 to
fill the vacancy of woman Director. Is the appointment of N14 on 09-01-
2021 justified?
(a) No. The appointment of N14 should have been made within three
months from 25-09-2020.

(b) No. The appointment of N14 should have been made within two
months from 25-09-2020.
(c) No. The appointment of N14 should have been made within one
month from 25-09-2020.
(d) Yes. The appointment of N14 made at the Board Meeting held on
09-01-2021 is justified.
4. In the above case scenario, L12 is the Managing Director of SCL. If it is
assumed that there is no managing or Whole-Time Director, then in such a
situation, how much remuneration the company can pay to all the Directors
for the Financial Year 2020-21.
(a) 11% of the net profits available for the Financial Year 2020-21.
(b) 5% of the net profits available for the Financial Year 2020-21.
(c) 3% of the net profits available for the Financial Year 2020-21.
(d) 1% of the net profits available for the Financial Year 2020-21.
5. In this case scenario, the Audit Committee formed by SCL contains seven
members. If there are only six members in the Audit Committee then out
of such six members, minimum how many shall be the independent
members?
(a) Five
(b) Four
(c) Three
(d) Two
42 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) Five Directors

Reason
Section 174
The quorum for a meeting of the Board of Directors of a company shall
be one third of its total strength or two directors, whichever is higher, and
the participation of the directors by video conferencing or by other audio
visual means shall also be counted for the purposes of quorum under this
sub-section.
One third of 15 come out to be 5 which is higher than 2. Hence quorum
for broad meeting shall be of 5 (five) directors.
2. Option (c) Only three members of which minimum two should be
independent members.
Reason
Regulation 18(2)(b) of the SEBI (LODR) Regulations, 2015
Note – SCL is listed company.
The quorum for audit committee meeting shall either be two members or
one third of the members of the audit committee, whichever is greater,
with at least two independent directors.
3. Option (d) Yes. The appointment of N14 made at the Board Meeting
held on 09-01-2021 is justified.
Reason
Second proviso to Section 149(1) read with second proviso to Rule 3 of
the Companies (Appointment and Qualification of Directors) rules, 2014.
Any intermittent vacancy of a woman director shall be filled-up by the
Board at the earliest but not later than immediate next Board meeting or
three months from the date of such vacancy whichever is later.
 CASE SCENARIOS 43

Since immediate next meeting held on 09-01-2021, in which N14 was

appointed to fill vacancy caused by death of M13; hence the appointment
of N14 is justified.
4. Option (c) 3% of the net profits available for the Financial Year 2020-21
Reason
Second proviso to section 197(1)
The remuneration payable to directors who are neither managing
directors nor whole-time directors shall not exceed, three percent of the
net profits; if there is neither a managing nor whole-time director and nor
even manager
Note - If there is a either of managing or whole-time director or manager,
then the maximum remuneration can be one percent of the net profits of
the company
5. Option (b) Four
Reason
Regulation 18(1)(b) of LODR 2015
Note – SCL is listed company, hence abide by LODR 2015
At least Two-thirds of the members of audit committee shall be
independent directors. 2/3 of 6 comes out to be 4 (four).
It worth noting that, in case of a listed entity having outstanding superior
right equity shares, the audit committee shall only comprise of
independent directors.
Student also advised to take note that as per section 177(2) the Audit
Committee shall consist of a minimum of three directors with
independent directors forming a majority; even in that case also majority
number of 6 shall be 4.
44 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 7

Global Trade and Securities (India) Limited (GTSIL) is a listed company having
been listed at BSE and NSE. It was incorporated way back in June, 2019 and has
its registered office at Connaught Place, New Delhi. The authorised and paid-
up share capital of the company is ` 30.00 crore. GTSIL is profit making entity.
GTSIL is duly registered with the Securities and Exchange Board of India (SEBI)
for providing merchant banking services. The company offers a varied range of
services including issue management, handling of buy-back of shares, debt and
equity syndication, mergers and acquisitions, listing and delisting, etc. GTSIL is
a well-established and reputed name among the regulatory authorities,
Government Agencies, law firms, share-brokers, mutual funds, banks and other
prominent organisations.
The company is being managed by nine directors out of which three are
independent directors. Of the other non-independent six directors, two are
non-executive. The four executive directors i.e. Skand, Srishti, Rina and Rohan
are energetic, self-driven, and dynamic professionals with vast experience in the
field of merchant banking. In the current financial year 2021-22, a chance
scrutiny of accounts revealed that during the last financial year, by oversight,
Rohan, who heads the new issue division of the company, had drawn
remuneration in excess of the limit provided by the relevant statutory
provisions.
The shareholding base of the company is quite wide, and therefore, the number
of small shareholders having a stake in the company is substantial. It so
happened that some of them wished to appoint Mukund, a seasoned finance
professional, as a small shareholders’ director on the board of the company.
After due process, Mukund was appointed by the company as a director to
represent small shareholders.
It is a proven fact that STEEPLE analysis3 (i.e. analysis of social, technological,
economic, environmental, political, legal, and ethical factors affecting

3
STEEPLE is a tool for businesses to scan the external environment. It helps to
understand phenomena and imagine new opportunities as well as identifying new
threats.
 CASE SCENARIOS 45

organisations) has always been a critical aspect for the success of any
organisation. Keeping this crucial fact in view, the Directors of the company
desiring to improve political understanding, after following the due procedure
of law in this respect, made one-time political contribution of certain amount
in the current Financial Year to Janta Vikassheel Dal which is one of the
prominent political parties of the country duly registered under Section 29A of
the Representation of the People Act, 1951.

MULTIPLE CHOICE QUESTIONS

1. According to the case scenario, small shareholders got appointed

Mukund as small shareholders’ Director on the Board of the company. Out
of the following four options, choose the one which correctly indicates
the minimum number of small shareholders who might have assembled
together to get Mukund appointed as Director to represent them.
(a) The minimum number of small shareholders must have been not
less than one thousand or one-tenth of the total number of such
shareholders whichever is lower.
(b) The minimum number of small shareholders must have been not
less than one thousand or one-tenth of the total number of such
shareholders whichever is higher.
(c) The minimum number of small shareholders must have been not
less than one thousand or one-fifth of the total number of such
shareholders whichever is lower.
(d) The minimum number of small shareholders must have been not
less than one thousand or one-fifth of the total number of such
shareholders whichever is higher.
2. From the case scenario it is evident that the company made political
contributions of certain amount to Janta Vikassheel Dal, a prominent
political party of the country. As the company is in existence for less than
five years, how much amount it might have contributed to the political
party in question.
(a) Any amount as approved by the Directors.
46 CORPORATE AND ECONOMIC LAWS

(b) Any amount within the limit of 5% of the average net profits of the
last three years.

(c) Any amount within the limit of 7.5% of the average net profits of the
last three years.
(d) Political contribution made by the company is invalid as it is yet to
complete five years of its existence.
3. The above case scenario states that Mukund was appointed as small
shareholders’ Director on the Board of the company. To be a Director of
the small shareholders, what is the nominal value of shares which such
Director is required to own:
(a) Such Director is required to own shares of the nominal value of
` 20,000 in the company prior to his appointment as small
shareholders’ Director.
(b) Such Director is required to own shares of the nominal value of at
least ` 10,000 in the company prior to his appointment as small
shareholders’ Director.
(c) Such Director is required to own shares of the nominal value of at
least ` 5,000 prior to his appointment as small shareholders’
Director.
(d) Such Director is not required to own shares of any nominal value in
the company prior to his appointment as small shareholders’
Director.
4. For a board meeting to be conducted after appointment of Mr. Mukund
as small shareholder’s director, than what is the number of quorum for
the board meeting:
(a) Two

(b) Three
(c) Four
(d) Five
 CASE SCENARIOS 47

5. The above case scenario reveals that Rohan, one of the Directors, had
drawn remuneration in excess of the limit prescribed by the relevant
provisions. As regards recovery of the excess remuneration drawn by him,
which of the following options is applicable:
(a) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within one year from the
date the sum becomes refundable.
(b) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within two years from the
date the sum becomes refundable.
(c) The company shall not waive recovery of excess remuneration paid
unless approved by the Central Government.
(d) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within three years from the
date the sum becomes refundable.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) The minimum number of small shareholders must have been
not less than one thousand or one-tenth of the total number of such
shareholders whichever is lower.
Reason

Section 151 read with Rule 7(1) of the Companies (Appointment and
Qualification of Directors) Rules,2014
A listed company, may upon notice of not less than one thousand small
shareholders or one-tenth of the total number of such shareholders,
whichever is lower, have a small shareholders’ director elected by the
small shareholders.
2. Option (a) Any amount as approved by the Directors.
Reason
Section 182 (1)
48 CORPORATE AND ECONOMIC LAWS

A company, other than a Government company and a company which has

been in existence for less than three financial year, may contribute any
amount directly or indirectly to any political party.
Note – Section 182 has overriding effect over act as sections starts with
words ‘Notwithstanding anything contained in any other provision of this
Act’.
Provided further, that no such contribution shall be made by a company
unless a resolution authorising the making of such contribution is passed
at a meeting of the Board of Directors and such resolution shall, subject
to the other provisions of this section, be deemed to be justification in
law for the making and the acceptance of the contribution authorised by
it.
3. Option (d) Such Director is not required to own shares of any nominal
value in the company prior to his appointment as small shareholders’
Director.
Reason
No such requirement specified by Section 151 read with Rule 7(1) of the
Companies (Appointment and Qualification of Directors) Rules,2014
Note – Since the correct answer/option for this MCQ is negative
statement i.e. stating anything that is not required/specified by the law;
hence legal provisions as reason can’t quoted
4. Option (b) Four Directors
Reason

Section 174
The quorum for a meeting of the Board of Directors of a company shall
be one third of its total strength or two directors, whichever is higher, and
the participation of the directors by video conferencing or by other audio
visual means shall also be counted for the purposes of quorum under this
sub-section.
Note – Any fraction shall be rounded off as 1
 CASE SCENARIOS 49

One third of 10 (Nine existing directors + Mr. Mukund) come out to be

3.33 which shall be round up to 4. Higher 4 and 2 is 4, hence quorum for
broad meeting shall be of 4 (four) directors.
5. Option (b) The company shall not waive recovery of excess remuneration
paid unless approved by a special resolution within two years from
the date the sum becomes refundable.
Reason
Section 197 (10)
The company shall not waive the recovery of any sum refundable to it
(excess remuneration paid), unless approved by the company by special
resolution within two years from the date the sum becomes refundable.

Note – Prior to 03.01.2018 the approval of central government was

required.
50 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 8

Hibiscus Powergear Limited (HPL), an unlisted company, is “One Stop Shop” for
all the custom-built electrical switchboards, battery chargers and bus ducts. It
manufactures comprehensive range of products from small industrial
distribution boards to the large state-of-the-art intelligent motor and power
control centers. The Registered Office of the company is located in Belthangadi
and two manufacturing plants are situated at Dabaspet Industrial Area near
Bengaluru.
PL has been incurring huge losses for the last three years. There were
accumulated losses to the extent of ` 19 Crores as on 31.03.2020. The Board of
Directors had been evaluating all the possible options to bring the company
back on the track. One of the options considered was Corporate Debt
Restructuring (CDR) with the creditors, through Compromise.
Following data was extracted from the latest Audited Financial Statements of
HPL as on 31.03.2020:

S. Particulars Amount
No. (` in Crores)
1. Secured Creditors
(a) 8% Debentures (Secured by creating Charge on 20.00
Freehold Property)
(b) Accrued Interest on 8% Debentures 1.60
(c) Cash Credit (availed from National Commercial 15.00
Bank against hypothecation of stocks and book
debts)
2. Unsecured Creditors
Loans from Directors @ 8% p.a. 30.00
Trade Payables 18.00
Other creditors 0.40
Total Outstanding Debt payable by HPL 85.00
 CASE SCENARIOS 51

After deliberations, a Scheme of Corporate Debt Restructuring was consented

by 78% of the secured creditors and all other stake holders. Brief outlines of the
Scheme are given below:
(a) 8% Debenture-holders were to take over the Freehold Property at the
current valuation of ` 12 Crores (book value ` 8 Crores) in part payment
of their dues and to provide additional `10 Crores @ 9% p.a. secured by
a floating charge on the assets of HPL. Interest accrued on Debentures
was to be paid immediately.

(b) National Commercial Bank agreed to reduce interest rate from 11% p.a.
to 8% p.a. on Cash Credit till next one year. It also in-principle agreed to
provide ` 3 Crores as non-fund based limits for a period of two years.
(c) Directors were to waive off all the outstanding interest payable to them
upto 31.3.2020 and also had no objection if interest rate on their loans
was reduced to 6% p.a.
(d) Suppliers and other creditors consented to waiving off their debts to the
extent of all the amounts outstanding for a period beyond 2 years as on
31.03.2020. In essence, HPL was required to pay only for the last 2 years
to the suppliers and other creditors.
(e) Patents and goodwill were to be written off to the extent of
` 0.50 Crores. Value of obsolete items in the inventory was quantified to
` 0.80 Crores and was to be written off.
(f) Bad debts identified to the extent of ` 0.75 Crores were to be written off.
(g) Remaining Freehold property worth ` 15 Crores was revalued at ` 23
crore.
After the above exercise, an application for the Compromise was filed by HPL
with the jurisdictional National Company Law Tribunal (hereinafter referred to
as ‘Tribunal’) and made the necessary disclosures by filing an Affidavit. The
disclosures contained all the material facts in respect of HPL, a copy of the
Scheme of Corporate Debt Structuring as consented to by the creditors,
methodology on the basis of which creditors had been identified, creditors’
responsibility statement in the prescribed form, safeguards for the protection
of other secured and unsecured creditors, Auditor’s Report, Valuation Report,
etc.
52 CORPORATE AND ECONOMIC LAWS

After hearing the Application, the Tribunal gave necessary directions in respect
of conducting of the meeting of the creditors, fixed the date and place of the
meeting, gave directions for the appointment of the Chairperson and
scrutinizer, fixed the quorum, stated the procedure to be followed at the
meeting including methodology of voting which could be either in person or
by proxy or by postal ballot or by voting through electronic means, the time
within which the Chairperson was required to report the result of the meeting
to the Tribunal, etc.

To ensure transparency that may facilitate all the stakeholders to take proper
decisions, extensive disclosures were made by HPL along with the Notice for
the Meeting and then the company, as per the directions of the Tribunal, sent
Notices to all the creditors and to all those who were entitled to receive it.
Further, it was also sent to all the relevant Regulators seeking their
representations. In addition, the Notice was advertised in English in Times of
India and in the local Kannada Newspaper Udayavani in Kannada language. The
company also published the Notice on its website.
It is worth noting that United Belts Private Limited (UBPL), supplying some of
the components to HPL, had raised objections to the proposed Scheme of
Compromise after receiving the Notice. As on 31.03.2020, HPL was required to
pay ` 0.80 Crores to UBPL for the supply of various components.
The Meeting was duly convened and the majority representing 78% of the value
of creditors agreed to the Scheme of Compromise. The Tribunal provided for
the protection of minority creditors and by an Order sanctioned the Scheme of
Compromise relating to Corporate Debt Structuring (CDR), after considering the
Certificate issued by the Auditor of HPL. The order of the Tribunal was filed with
the Registrar by HPL within the specified period of the receipt of the order.
However, in the due course of time, HPL faced many practical hurdles in the
implementation of the Scheme of Compromise sanctioned by the Tribunal.

MULTIPLE CHOICE QUESTIONS

1. The case scenario states that an Application for Compromise was filed by
HPL with the jurisdictional National Company Law Tribunal (NCLT) along
with all the necessary documents including Auditor’s Report. From the
 CASE SCENARIOS 53

following options, choose the one which the auditor must include in the
Auditor’s Report when the Application for Compromise relates to the
Scheme of Corporate Debt Restructuring (CDR):
(a) That all the Fixed Assets of HPL have been properly revalued by the
Registered Valuer for the purpose of Compromise and the Valuation
Report being submitted to the Tribunal is true and correct;
(b) That the total value of creditors shown in the financial statements
of HPL as on 31.03.2020 is true and correct and there are no material
discrepancies.
(c) That the fund requirements of HPL after the corporate debt
restructuring as approved shall conform to the liquidity test, based
upon the estimates provided to the auditor by the Board of HPL.
(d) That all the contents of the Application and other documents
submitted to the Tribunal are true and correct to the best of his
knowledge and belief and reflect a true and fair position of HPL as
on the date of submission of Application to the Tribunal.
2. According to the case scenario, with a view to ensure transparency that
might facilitate all the stakeholders to take proper decisions, extensive
disclosures were made by HPL along with the Notice for the Meeting and
the notices were sent to all the creditors and all those who were entitled
to receive it. As regards the adoption of the Compromise, the Notice
needs to provide that the persons to whom the notice is sent may vote in
the meeting either themselves or through proxies or by postal ballot:
(a) Within 21 days from the date of receipt of such Notice.
(b) Within one month from the date of receipt of such Notice.
(c) Within 14 days from the date of receipt of such Notice.

(d) Within 7 days from the date of receipt of such Notice.

3. It is stated in the case scenario that United Belts Private Limited (UBPL),
supplying some of the components to HPL, had raised objections to the
proposed Scheme of Compromise. For raising any objection to the
Scheme of Compromise, the value of UBPL as trade creditor in the books
of HPL must be:
54 CORPORATE AND ECONOMIC LAWS

(a) Not less than 5% of the total outstanding debt as per the audited
financial statements as on 31.03.2020 of HPL.

(b) Not less than 10% of the total outstanding debt as per the audited
financial statements as on 31.03.2020 of HPL.
(c) Not less than ` 1 Crore as per the audited financial statements as
on 31.03.2020 of HPL.
(d) Not less than 25% of the total outstanding debt as per the audited
financial statements as on 31.03.2020 of HPL.

4. The Notice was also sent to all the relevant Regulators seeking their
representations which was to be made within the specified period from
the date of receipt of such notice. From the following options, choose the
one which specifies the correct time period for making representations:
(a) Representation needs to be made within 10 days from the date of
receipt of notice.
(b) Representation needs to be made within 15 days from the date of
receipt of notice.
(c) Representation needs to be made within 30 days from the date of
receipt of notice.
(d) Representation needs to be made within 45 days from the date of
receipt of notice.
5. According to the case scenario, the Tribunal while providing for the
protection of minority creditors, sanctioned by an order the Scheme of
Compromise relating to Corporate Debt Structuring (CDR), after
considering the Certificate issued by the Auditor of HPL. The Auditor’s
Certificate at the Sanctioning stage shall be to the effect that:
(a) HPL has duly followed all the procedure required for the
Compromise as required under the Companies Act 2013 and the
relevant Rules thereunder.
(b) All the documents submitted by HPL to the Tribunal for the purpose
of Compromise are true and correct and the Auditors have duly
verified them.
 CASE SCENARIOS 55

(c) The accounting treatment, if any, proposed in the Scheme of

Compromise by HPL is in conformity with the prescribed accounting
standards.
(d) The Auditors have reasonable grounds to believe that HPL will
continue its business as a going concern after the implementation
of Compromise.
6. The given case scenario states that in due course of time, HPL faced many
practical hurdles in the implementation of the Scheme of Compromise
sanctioned by the Tribunal. Which of the following options is applicable,
if the Tribunal is satisfied that the sanctioned Compromise cannot be
implemented satisfactorily with or without modifications, and the
company is unable to pay its debts as per the Scheme:
(a) HPL and every officer of HPL who was in default shall be liable for
fine of minimum ` one lac and maximum of ` ten lacs.

(b) The Tribunal may make an order for winding up of HPL.

(c) The company shall be liable to pay fine of ` twenty-five lacs and
every Director and the defaulting officers of HPL shall be liable for
imprisonment ranging between one year and 5 years and also fine
not exceeding ` five lacs.
(d) The Tribunal may order for confiscation and sale of properties of
HPL to settle the debts to the creditors.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) That the fund requirements of HPL after the corporate debt
restructuring as approved shall conform to the liquidity test, based upon
the estimates provided to the auditor by the Board of HPL.
Reason

230(2)(c)(iii)
The company or any other person, by whom an application is made under
sub section(1) for compromise or arrangement, shall disclose to the
Tribunal by affidavit any scheme of corporate debt restructuring
56 CORPORATE AND ECONOMIC LAWS

consented to by not less than 75% of the secured creditors in value,

including a report by the auditor that the fund requirements of the
company after the corporate debt restructuring as approved shall
conform to the liquidity test based upon the estimates provided to them
by the Board.
2. Option (b) Within one month from the date of receipt of such Notice.
Reason
230(4)
A notice under sub-section (3) shall provide that the persons to whom the
notice is sent may vote in the meeting either themselves or through
proxies or by postal ballot to the adoption of the compromise or
arrangement within one month from the date of receipt of such notice.
3. Option (a) Not less than 5% of the total outstanding debt as per the
audited financial statements as on 31.03.2020 of HPL
Reason
Proviso to Section 230(4)
Provided that any objection to the compromise or arrangement shall be
made only by persons holding not less than 10% of the shareholding or
having outstanding debt amounting to not less than 5% of the total
outstanding debt as per the latest audited financial statement
4. Option (c) Representation needs to be made within 30 days from the
date of receipt of notice.
Reason

Section 230(5)
A notice under sub-section (3) along with all the documents in such form
as may be prescribed shall also be sent to the Central Government, the
income-tax authorities, the RBI, the SEBI, the Registrar, the respective
stock exchanges, the Official Liquidator, the CCI, if necessary, and such
other sectoral regulators or authorities which are likely to be affected by
the compromise or arrangement and shall require that representations, if
any, to be made by them shall be made within a period of thirty days from
 CASE SCENARIOS 57

the date of receipt of such notice, failing which, it shall be presumed that
they have no representations to make on the proposals.

5. Option (c) The accounting treatment, if any, proposed in the Scheme of

Compromise by HPL is in conformity with the prescribed accounting
standards.

Reason
Proviso to section 230(7)
Sub-section 7 deals with order of tribunal for compromise and
arrangements. It is provided that no compromise or arrangement shall be
sanctioned by the Tribunal unless a certificate by the company’s auditor
has been filed with the Tribunal to the effect that the accounting
treatment, if any, proposed in the scheme of compromise or arrangement
is in conformity with the accounting standards prescribed under section
133.

6. Option (b) The Tribunal may make an order for winding up of HPL.
Reason
Section 231(2)
If the Tribunal is satisfied that the compromise or arrangement sanctioned
under section 230 cannot be implemented satisfactorily with or without
modifications, and the company is unable to pay its debts as per the
scheme, it may make an order for winding up the company and such an
order shall be deemed to be an order made under section 273.
58 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 9

Blessed with both artistic and business approach, Deb, Debosmita and
Divyanshi, putting their best foot forward entered India’s ` 2,000 crore
fragrance market by floating Daffodils Perfumes and Scent Limited (DPSL) in
the year 2009 with an Authorised Capital of ` 30.00 crore. Along with them,
there were ten other family members who became subscribers to the
Memorandum of Association. It goes without saying that the trio were the first
Directors of the company. Having Registered Office at Kannauj, the perfume
capital of India, Uttar Pradesh, DPSL focused on natural fragrances and made
perfumes from flowers, camphor, saffron and other aromatic substances.
In the very next year, during April, 2010, Anirudh, a qualified Chartered
Accountant and financial advisor was appointed to head the Finance
Department of the company. After the promulgation of the Companies Act,
2013, his appointment was regularised as Chief Financial Officer (CFO) under
the relevant provisions requiring appointment of Key Managerial Personnel
(KMP).
Knowing the fact that perfumes have emerged as an essential product, driven
by growing trend of personal care and forming part of everyone’s pride as well
as confidence, they roped in Devpriya, a smart market analyst, and Divya, an IT
Professional, as Directors at the time of conducting Annual General Meeting
(AGM) on 25th September, 2011. The company was doing well and its yearly
turnover was increasing gradually.
As on 31-03-2020, DPSL, yet to be listed, had paid-up share capital of ` 15.00
crore with 355 shareholders and its free reserves as on that date were ` 12.00
crore. DPSL also had secured and unsecured debts aggregating to ` 2.00 crore.
Its turnover for the financial year 2019-20 was ` 85.00 crore. Based on the
audited financial statements as on 31-03-2020 when paid-up capital exceeded
the threshold limit, four independent Directors, namely, Rajan, Rahul, Ranjit and
Raima were appointed in April, 2020.
Prior to the above development, Anirudh, the CFO of the company took early
retirement in December, 2019. However, in one of the Board Meetings held on
25th June, 2020, Deb expressed his desire to again engage Anirudh by
appointing him as independent Director during the current year 2020, in
 CASE SCENARIOS 59

addition to the already appointed four independent Directors. As of now, the

Articles of Association provide for the payment of sitting fee of ` 40,000 to each
of the non-independent Directors of the company for attending every Board or
Committee Meeting.
The Audited financial results as on 31-03-2020 also required constitution of an
Audit Committee. Accordingly, an Audit Committee was constituted which
comprised Deb and Debosmita as non-independent Directors besides certain
independent Directors.

It came to light that the company was sitting on crore of rupees in terms of cash
and bank balance. Due to the pandemic COVID-19 and subsequent lockdown in
the country, the production almost came to a standstill and the demand dived
southwards. As there was not much to invest in terms of any new projects, the
Board of Directors thought to provide investors an opportunity to exit from their
investment in the company. Accordingly, in a duly convened Board Meeting
which was held on 25-03-2021, the Directors proposed buy-back of equity shares
keeping in view the relevant clause of the Articles providing for the said buy-
back.

MULTIPLE CHOICE QUESTIONS

1. According to the case scenario, Deb expressed his desire to again engage
Anirudh by appointing him as independent Director during the current
year 2020. Which of the following options is applicable with respect to the
appointment of Anirudh as an independent Director of DPSL in the year
2020:

(a) Anirudh can be appointed as an independent Director of DPSL at a

Board Meeting where all the Directors present at the meeting agree
to such appointment.
(b) Anirudh cannot be appointed as an independent Director of DPSL.
(c) Anirudh can be appointed as an independent Director of DPSL by
passing an ordinary resolution at a meeting of the shareholders.

(d) Anirudh can be appointed as an independent Director of DPSL by

passing a special resolution at a meeting of the shareholders.
60 CORPORATE AND ECONOMIC LAWS

2. It is observed from the case scenario that the non-independent Directors

are being paid sitting fee of ` 40,000 for attending every
Board/Committee Meeting. From the following options, choose the one
which indicates the sitting fee payable to the independent Directors for
attending a Board or Committee Meeting:
(a) Sitting fees payable to independent Directors per meeting shall not
be less than ` 40,000.
(b) Sitting fees payable to independent Directors per meeting shall not
be less than 75% of ` 40,000.
(c) Sitting fees payable to independent Directors per meeting shall not
be less than 60% of ` 40,000.
(d) Sitting fees payable to independent Directors per meeting shall not
be less than 50% of ` 40,000.
3. The case scenario states that in a duly convened Board Meeting which was
held on 25-03-2021, the Directors of DPSL proposed buy-back of equity
shares keeping in view the relevant clause of the Articles providing for the
said buy-back. In case the Articles of the company did not contain any
clause providing for buy-back, then which of the following options is
applicable in such a situation:
(a) The Articles of DPSL are required to be altered for including a clause
which authorises buy-back.
(b) There is no need to alter the Articles to provide for buy-back if any
two Directors attending the related Board Meeting vote in favour of
buy-back.
(c) There is no need to alter the Articles to provide for buy-back if any
three Directors attending the related Board Meeting vote in favour
of buy-back.
(d) There is no need to alter the Articles to provide for buy-back if all
the Directors attending the related Board Meeting vote in favour of
buy-back.
 CASE SCENARIOS 61

4. According to the case scenario, the Audit Committee constituted at DPSL

comprises Deb and Debosmita as non-independent Directors besides
certain independent Directors. Minimum how many independent
Directors might have been included in the Audit Committee if there were
two non-independent Directors in it.
(a) One independent Director.
(b) Two independent Directors.
(c) Three independent Directors.
(d) Four independent Directors.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) Anirudh cannot be appointed as an independent Director

of DPSL.
Reason
Section 149(6)(e)

Sub-clause i to clause e of section 149(6) while explaining who can/can’t

be independent director provides;
Who, neither himself nor any of his relatives holds or has held the position
of a key managerial personnel or is or has been employee of the company
or its holding, subsidiary or associate company in any of the three
financial years immediately preceding the financial year in which he is
proposed to be appointed.
2. Option (a) Sitting fees payable to independent Directors per meeting
shall not be less than ` 40,000.

Reason
section 197(5) read with the rule 4 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014

A company may pay a sitting fee to a director for attending meetings of

the Board or committees thereof, such sum as may be decided by the
Board of directors thereof (in this case prescribed in AOA @ 40,000/- per
62 CORPORATE AND ECONOMIC LAWS

meeting) which shall not exceed one lakh rupees per meeting of the Board
or committee thereof: Provided that for Independent Directors and
Women Directors, the sitting fee shall not be less than the sitting fee
payable to other directors.
3. Option (a) The Articles of DPSL are required to be altered for
including a clause which authorises buy-back.
Reason
Section 179(3)(b) read with Section 68(2)(a)
Undoubtedly section 179(3)(b) empower the board of Directors of a
company to exercise the following powers on behalf of the company by
means of resolutions passed at meetings of the Board, namely to
authorise buy-back of securities under section 68; but clause (a) to sub-
section 2 to Section 68 prohibits the buy-back if not authorised by articles.
It provides no company shall purchase its own shares or other specified
securities under sub-section (1), unless the buy-back is authorised by its
articles.
4. Option (c) Three independent Directors.

Reason
Section 177(2)
The Audit Committee shall consist of a minimum of three directors with
independent directors forming a majority.
Since already two non-independent directors are there at audit
committee, hence to form majority of independent directs at-least 3 such
independent directors shall be appointed to audit committee.
 CASE SCENARIOS 63

CASE SCENARIO 10

XYZ Auto Limited, an unlisted Company is engaged in the manufacturing of

auto components and spare parts. Its Registered Office is situated in Chennai,
Tamil Nadu and its branches are located in Metropolitan cities i.e. Delhi,
Mumbai and Kolkata. Following information is available from its audited
financial statements:

Particulars FY 2018-19 (` FY 2019-20 (` FY 2020-21 (`

in Lakhs) in Lakhs) in Lakhs)
Paid-up Share Capital 1,500 1,500 1,500
Turnover 8,000 9,000 9,500
Outstanding Loans 1,500 1,300 1,100
Debentures 1,200 1,100 1,000

ABC Transporters Limited, an unlisted company, is engaged in the business of

transport and logistics and has its Registered Office in Mumbai. ABC
Transporters Limited purchased all the shares of XYZ Auto Limited in February,
2020 and became its holding company. It is to be noted that ABC Transporters
Limited has 900 shareholders and 400 debenture-holders.
Following information is available from the audited financial statements of ABC
Transporters Limited:

Particulars FY 2018-19 FY 2019-20 FY 2020-21

(` in Lakhs) (` in Lakhs) (` in Lakhs)
Paid-up Share Capital 5,000 5,000 5,000
Turnover 35,000 40,000 45,000
Secured Loans from Super 3,500 4,000 4,500
Commercial Bank and Other
Unsecured Loans
Debentures 1,000 1,000 1,000

Sumit and Sumedh, the Directors of ABC Transporters Limited also happened
to be the Directors of EFG Lights Limited, an unlisted company. However, in
June, 2020, they exited from EFG Lights Limited as Directors. The turnover of
EFG Lights Limited amounted to ` 110 crore, ` 99 Crores, ` 95 Crores and ` 91
64 CORPORATE AND ECONOMIC LAWS

Crores respectively in FY 2017-18, FY 2018-19, FY 2019-20 and FY 2020-21. The

gradual decline in turnover is on account of inadequate marketing of the
products and improper campaigning. Employees’ unrest from time to time is
also responsible for falling turnover. The aggregate, outstanding loans,
debentures and deposits mounting to ` 42.54 crore at end of FY 2020-21. The
total paid- up share capital of the EFG Lights Limited is ` 9.50 crore throughout
the period. EFG Lights Limited is continuing with an Audit Committee which was
constituted earlier.

MULTIPLE CHOICE QUESTIONS

1. In respect of constitution of Audit Committee by XYZ Auto Limited, out of

the following options, which one is applicable?
(a) XYZ Auto Limited, being not a private company, is required to
constitute an Audit Committee.
(b) Having paid-up share capital above the threshold limit, XYZ Auto
Limited is required to constitute an Audit committee.
(c) Based on the threshold limits, since ABC Transporters Limited has
constituted its Audit Committee, XYZ Auto Limited, being wholly
owned subsidiary of ABC Transporters Limited, is not required to
constitute an Audit Committee.
(d) In view of the average turnover and paid-up share capital of last
three financial years exceeding the threshold limit, XYZ Auto Limited
is required to constitute an Audit committee.
2. Is it permissible for EFG Lights Limited to discontinue its Audit Committee
in the FY 2021-22?
(a) Yes. EFG Lights Limited can discontinue its Audit Committee in the
FY 2021-22, since both the Directors of ABC Limited have left the
Directorship in EFG Limited.
(b) Yes. EFG Lights Limited can discontinue its Audit Committee in the
FY 2021-22, since it did not exceed the threshold limit.
 CASE SCENARIOS 65

(c) No. EFG Lights Limited cannot discontinue its Audit Committee in
the FY 2021-22, since its aggregate turnover in the last three
financial years exceeds ` 100 crore.
(d) No. EFG Lights Limited cannot discontinue its Audit Committee in
the FY 2021-22, since its paid-up share capital is more than ` 5.00
crore.
3. Suppose ABC Transporters Limited did not constitute Vigil Mechanism as
required by Section 177 (9) of the Companies Act, 2013. Out of the
following four options, which one correctly states the penalty that is
leviable on the company for contravening this provision?
(a) The company is liable to pay minimum fine of ` 50,000 and
maximum of ` 1,00,000.
(b) The company is liable to pay minimum fine of ` 1,00,000 and
maximum of ` 5,00,000.
(c) The company is liable to pay fine of ` 5,00,000.
(d) The company is liable to pay fine of ` 1,00,000.
4. As regards Stakeholders Relationship Committee, whether ABC
Transporters Limited is required to form such a Committee as per the
relevant provisions of the Companies Act, 2013:
(a) No. ABC Limited is not required to form a Stakeholders Relationship
Committee since its shareholders are limited to 900.
(b) No. ABC Limited is not required to form a Stakeholders Relationship
Committee since its debenture-holders are limited to 400.
(c) Yes. ABC Limited is required to form a Stakeholders Relationship
Committee since its shareholders and debenture-holders total upto
1300.
(d) No. ABC Limited is not required to form a Stakeholders Relationship
Committee since the combined strength of its shareholders and
debenture-holders does not exceed 1500.
66 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) Based on the threshold limits, since ABC Transporters Limited
has constituted its Audit Committee, XYZ Auto Limited, being wholly
owned subsidiary of ABC Transporters Limited, is not required to
constitute an Audit Committee.
Reason
Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014
read with Rule 4 of the Companies (Appointment and Qualification of
Directors) Rules, 2014.
Rule 6 says the Board of directors of every listed public company and a
company covered under rule 4 of the Companies (Appointment and
Qualification of Directors) Rules, 2014 shall constitute an ‘Audit
Committee’ and a ‘Nomination and Remuneration Committee of the
Board.
Whereas Rule 4 (1) covers those public companies
(i) having paid up share capital of ten crore rupees or more; or
(ii) having turnover of one hundred crore rupees or more; or
(iii) which have, in aggregate, outstanding loans, debentures and
deposits, exceeding fifty crore rupees
But Rule 4(2) specifically exclude the following classes of unlisted public
company from scope of rule 4(1), namely:-
(a) a joint venture
(b) a wholly owned subsidiary; and

(c) a dormant company as defined under section 455 of the Act

Therefore, ABC Transporters Limited has constituted its Audit Committee,
XYZ Auto Limited, being wholly owned subsidiary of ABC Transporters
Limited, is not required to constitute an Audit Committee.
 CASE SCENARIOS 67

2. Option (b) Yes. EFG Lights Limited can discontinue its Audit
Committee in the FY 2021-22, since it did not exceed the threshold limit.
Reason
Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014
read with Rule 4 of the Companies (Appointment and Qualification of
Directors) Rules, 2014.
Turnover (INRs 91 crore for FY 2020-21) and Paid-up share capital (INRs
9.5 crore, through-out, in FY 2020-21 too), while aggregate, outstanding
loans, debentures and deposits is INRs 42.54 crores at end of FY 2020-21)
3. Option (c) The company is liable to pay fine of ` 5,00,000.
Reason
Section 178(8)
In case of any contravention of the provisions of section 177 (i.e. Audit
Committee and Vigil Mechanism) and this section, the company shall be
liable to a penalty of five lakh rupees and every officer of the company
who is in default shall be liable to a penalty of one lakh rupees
4. Option (c) Yes. ABC Transporters Limited is required to form a
Stakeholders Relationship Committee since its shareholders and
debenture-holders total upto 1300.
Reason
Section 178(5)
The Board of Directors of a company which consists of more than one
thousand shareholders, debenture -holders, deposit-holders and any
other security holders at any time during a financial year shall constitute
a Stakeholders Relationship Committee consisting of a chairperson who
shall be a non-executive director and such other members as may be
decided by the Board.
68 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 11

Shri Hari Textiles Limited was incorporated in the year 2010. Its Registered
Office is situated in Connaught Place, New Delhi. It filed its audited annual
financial statements for the financial year 2020-21 well within time with the
jurisdictional Registrar of Companies. The Registrar inspected the statements
and after reviewing them, felt the need to seek clarifications on certain matters.
Accordingly, a written notice was sent by the Registrar to the company and its
officials directing them to comply with the notice within thirty days of its receipt.
However, the company and its officials failed to reply within the time specified
in the notice.
The Registrar initiated the inquiry and proceeded further for inspecting all the
documents of the company. While conducting the inquiry, the Registrar on
prudent grounds believed that some of the documents and other vital
information in relation to the company would be destroyed or altered by the
official of the company. With a view to safeguard the documents, the Registrar
obtained an order from the Special Court and thereafter, seized all such
material.
While inspecting some of the documents the Registrar came to know that the
Board of Directors had passed a resolution in a Board Meeting held on 10-07-
2020 and thereby, increased the remuneration payable to the Directors
including two whole-time Directors and Managing Director to 12℅ of the net
profits of the company which was a sharp increase of 5% from the preceding
financial year.
Prior to the inquiry, two Directors of the company, namely, Mr. Alex and Mr.
Disouza got retired. The Registrar found from the inspection of the documents
that they were involved in certain dealings which included selling of the assets
of the company. On the basis of such information gathered from the inspected
documents, the Registrar sought some clarifications from both of them
regarding the dubious transactions. However, both Mr. Alex and Mr. Disouza
refused to appear before him showing their non-availability in the town and
also represented through a common representative that they were no more a
part of the Board of Directors of Shri Hari Textiles Limited.
 CASE SCENARIOS 69

After the completion of inspection and inquiry, the Registrar submitted a

written report to the Central Government in respect of his findings against the
company. The reports mentioned that there were major discrepancies in the
assets and liabilities as well as profit and loss statements filed by the company.
On receipt of report from the Registrar, the Central Government considered it
necessary to investigate the affairs of the company by the Serious Fraud
Investigation Office (SFIO). Accordingly, by an order SFIO was directed to
conduct the investigation of Shri Hari Textiles Limited and submit its report
within the stipulated time. As instructed by the Central Government, SFIO
authorised some of its inspectors to investigate the affairs of the company. The
team deputed by the SFIO included experts in the field of cost accounting,
financial accounting, taxation, law and forensic auditing.
While inspecting the company, the team of SFIO came to know that the Income-
tax authorities had already initiated investigation against Shri Hari Textiles
Limited.

MULTIPLE CHOICE QUESTIONS

1. Shri Hari Textiles Limited and its officials failed to submit any reply to the
written notice issued by the Registrar within the time specified in the
notice. How much fine can be imposed for such failure?
(a) The Company and every defaulting officer shall be punishable with
a fine up to ` 1,00,000 and in case of continuing failure, with an
additional fine up to ` 500 for every day after the first during which
the failure continues.

(b) The Company and every defaulting officer shall be punishable with a
fine up to ` 1,50,000 and in case of continuing failure, with an
additional fine up to ` 1,000 for every day after the first during which
the failure continues.
(c) The Company and every defaulting officer shall be punishable with
a fine up to ` 1,00,000 and in case of continuing failure, with an
additional fine up to ` 5,000 for every day after the first during which
the failure continues.
70 CORPORATE AND ECONOMIC LAWS

(d) The Company and every defaulting officer shall be punishable with
a fine up to ` 2,00,000 and in case of continuing failure, with an
additional fine up to ` 5,000 for every day after the first during which
the failure continues.
2. From the case scenario, it is observed that the Registrar seized certain
important documents in the course of inquiry. After inspection what
procedure is to follow pertaining to such documents?
(a) The Registrar is required to submit such documents in the Special
Court which permitted seizure.
(b) The Registrar is required to forward all such documents along with
the inquiry report to the Central Government.
(c) The Registrar is required to return such documents back to the
company after making, if considered necessary, the copies of them.
(d) The Registrar is required to retain such documents till instructed
further by the Special Court.
3. From the case scenario, it is noticed that the Board of Directors of Shri
Hari Textiles Limited had passed a resolution in a Board Meeting held on 10-
07-2020 increasing the remuneration payable to the Directors including two
whole-time Directors and Managing Director to 12% of the net profits of the
company. What is the requirement for increasing the remuneration of
Directors including Whole-Time Directors and Managing Director to the
extent of 12% so that the increased remuneration shall be in accordance with
the relevant provisions of the Companies, Act, 2013?

(a) Board Resolution increasing the remuneration to 12% needs to be

authorised at the General Meeting and thereafter, duly sanctioned
by the ROC.

(b) Board Resolution increasing the remuneration to 12% needs to be

authorised at the General Meeting and thereafter, duly sanctioned
by the Tribunal.

(c) Board Resolution increasing the remuneration to 12% needs to be

authorised at the General Meeting subject to Schedule V.
 CASE SCENARIOS 71

(d) Board Resolution increasing the remuneration to 12% needs to be

authorised at the General Meeting and thereafter, duly sanctioned
by the Central Government through Regional Director.
4. The case scenario states that the Registrar of Companies had called ex-
Directors of Shri Hari Textiles Limited i.e. Mr. Alex and Mr. Disouza for
examining them during the inquiry. Regarding power of the Registrar to
call the ex-Directors and requirement of ex-directors to respond. Find the
correct statement.

(a) The ex-Directors of Shri Hari Textiles Limited i.e. Mr. Alex and
Mr. Disouza, is not bound to response to Registrar; in case.
(b) The ex-Directors of Shri Hari Textiles Limited i.e. Mr. Alex and
Mr. Disouza bond to response to notice issued by registrar, call the
for seeking the requisite information.
(c) The ex-Directors of Shri Hari Textiles Limited i.e. Mr. Alex and
Mr. Disouza bond to response only in case the Registrar is
appointed by the Central Government to conduct investigation,
even then only registrar can call requisite information from ex-
Directors of Shri Hari Textiles Limited.
(d) Except the Tribunal, no other authority is empowered to call ex-
Directors of a company for any examination.
5. According to the case scenario, while inspecting the company, the team
of SFIO came to know that the Income-tax authorities had already
initiated investigation against the company. From the given options,
choose the correct one that indicates as to how amidst such a situation
SFIO will be continuing with the investigation.
(a) SFIO has to put its investigation on hold so long as the company is
being investigated by Income-tax authorities.
(b) SFIO will proceed with its investigation on the basis of report
submitted by Income-tax authorities.

(c) SFIO will proceed with its investigation while Income-tax authorities
shall keep on hold its investigation.
72 CORPORATE AND ECONOMIC LAWS

(d) SFIO will simultaneously continue its investigation along with the
Income-tax authorities.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) The Company and every defaulting officer shall be

punishable with a fine up to ` 1,00,000 and in case of continuing failure,
with an additional fine up to ` 500 for every day after the first during
which the failure continues.
Reason
Section 206(7)
No explanation is required, as penalty provision is self- explanatory.
2. Option (c) The Registrar is required to return such documents back to the
company after making, if considered necessary, the copies of them.
Reason
Section 209(2)
The Registrar or inspector shall return the books and papers seized under
subsection(1), as soon as may be, and in any case not later than one
hundred and eightieth day after such seizure, to the company from whose
custody or power such books or papers were seized.
First proviso empowers registrar or inspector to call (recall) the books and
papers for a further period of one hundred and eighty days by an order
in writing if they are needed again.
While second proviso gives power to the registrar or inspector that s/he
may, before returning such books and papers as aforesaid, take copies of,
or extracts from them or place identification marks on them or any part
thereof or deal with the same in such other manner as he considers
necessary.
3. Option (c) Board Resolution increasing the remuneration to 12% needs
to be authorised at the General Meeting subject to Schedule V.
Reason
First Proviso to Section 197(1)
 CASE SCENARIOS 73

It is provided that the company in general meeting may, authorise the

payment of remuneration exceeding eleven per cent. of the net profits of
the company, subject to the provisions of Schedule V.
4. Option (b) The Registrar may, by issuing a notice, call the ex-
Directors of Shri Hari Textiles Limited i.e. Mr. Alex and Mr. Disouza for
seeking the requisite information.
Reason
Section 206(1) and Proviso to section 206(2)
Section 206(1) empowers registrar to call for information and
explanations,
Whereas proviso to section 206(2) provides where such information or
explanation seek by registrar relates to any past period, the officers who
had been in the employment of the company for such period, if so called
upon by the Registrar through a notice served on them in writing, shall
also furnish such information or explanation to the best of their
knowledge.
5. Option (c) SFIO will proceed with its investigation while Income-tax
authorities shall keep on hold its investigation.
Reason
Section 212(2)
Where any case has been assigned by the Central Government to the
Serious Fraud Investigation Office for investigation under this Act, no
other investigating agency of Central Government or any State
Government shall proceed with investigation in such case in respect of
any offence under this Act and in case any such investigation has already
been initiated, it shall not be proceeded further with and the concerned
agency shall transfer the relevant documents and records in respect of
such offences under this Act to Serious Fraud Investigation Office.
74 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 12

Sunshine Software Private Limited having its Registered Office at Hyderabad

was incorporated on 28th May, 2018 with Authorised Capital of ` 10,00,000
divided into 1,00,000 equity shares of ` 10 each. The main object of the
company is to develop customised business software and provide software
consulting services to various business houses.
Mr. Sumit, Mr. Samadhan, Mr. Saumitra and Mr. Aniket, the subscribers to the
Memorandum of Association are also the Directors of the company. The
company allotted the shares to the subscribers within the stipulated time. It is
worth noting that the Directors are part of the core team for development of
the software. However, due to some internal misunderstanding among all the
Directors, more particularly serious disagreement in relation to working
schedules, the company could not start its working since incorporation and
therefore, no revenue was generated from operations. In fact, the Directors
were busy pursuing their own business interests and seemingly, had no
intention to devote any time for the company.
Following information has been extracted from the financial statements of the
Sunshine Software Private Limited from the date of its incorporation:

Particulars 2018-19 2019-20

(Amount in `) (Amount in `)
Paid-up Share Capital 10,00,000 10,00,000
Revenue from Operations Nil Nil
Expenses incurred towards fulfilment 55,000 65,000
of various legal obligations

The company did not recruit even a single employee and therefore, no expenses
on account of salary or on other material transactions were incurred. However,
the company has complied with all the filing requirements under the Companies
Act, 2013 and the Income Tax Act, 1961 since its incorporation. It incurred the
following expenses:
(a) Payment of fees to the Registrar.
 CASE SCENARIOS 75

(b) Payments made to fulfil the requirements of the Companies Act, 2013 and
any other applicable laws.

(c) Some payments were made for maintenance of office and records.
Mr. Saumitra also holds Directorship in Surya Energy Private Limited against
which National Company Law Tribunal had passed an order under Section 420
of the Companies Act, 2013. After receipt of the order of Tribunal, Surya Energy
is contemplating to file an appeal with National Company Law Appellate
Tribunal (NCLAT).

MULTIPLE CHOICE QUESTIONS

1. On the basis of the facts mentioned in the case scenario, determine the
status of the Sunshine Software Private Limited.
(a) It is an inactive company since no significant accounting
transactions have been undertaken for the last two financial years.
(b) It is a defunct company since no significant accounting transactions
have been undertaken for the last two financial years.
(c) It is an active company since it makes regular payments to ROC.
(d) None of the above.
2. In which form application shall be made by a ‘Dormant Company’ for
obtaining the status of an ‘active company’.
(a) MSC- 1

(b) MSC- 2
(c) MSC- 3
(d) MSC- 4

3. Choose from the following options, the number of minimum Directors

which a dormant company shall have, if it is a public limited company.
(a) Seven

(b) Two
(c) Three
76 CORPORATE AND ECONOMIC LAWS

(d) One
4. Assuming that the ROC issued a certificate to Sunshine Software Private
Limited allowing it the status of a ‘dormant company’ w.e.f. 1st October,
2020, then what will be the date after which ROC is empowered to initiate
the process of striking off the name of the company if it continues to
remain as a dormant company.
(a) After 30th September, 2021.
(b) After 30th September, 2022.

(c) After 30th September, 2024.

(d) After 30th September, 2025.
5. From the case scenario, it is observed that Surya Energy Private Limited,
aggrieved by the order of the Tribunal, wants to file an appeal with NCLAT.
Within how much time from the date of receipt of the order of Tribunal it
can file such appeal with NCLAT:
(a) Surya Energy Private Limited can file an appeal with NCLAT within a
period of 15 days from the date of the receipt of the order of
Tribunal.
(b) Surya Energy Private Limited can file an appeal with NCLAT within a
period of 30 days from the date of the receipt of the order of
Tribunal.

(c) Surya Energy Private Limited can file an appeal with NCLAT within a
period of 45 days from the date of the receipt of the order of
Tribunal.
(d) Surya Energy Private Limited can file an appeal with NCLAT within a
period of 60 days from the date of the receipt of the order of
Tribunal.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) It is an inactive company since no significant accounting

transactions have been undertaken for the last two financial years.
 CASE SCENARIOS 77

Reason
Explanations to section 455
Explanation i defines inactive company as a company which has not been
carrying on any business or operation, or has not made any significant
accounting transaction during the last two financial years , or has not
filed financial statement and annual returns during the last two financial
years;
Further explanation ii defines significant accounting transaction means
any transaction other than;
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any
other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records
2. Option (d) MSC- 4
Reason
Section 355 (5) read with Rule 8 of Companies (Miscellaneous) Rules, 2014
Section 355 (5) read as a dormant company may become an active
company on an application made in this behalf accompanied by such
documents and fee as may be prescribed.
Further rule 8 (1) of Companies (Miscellaneous) Rules, 2014, says an
application, under sub-section (5) of section 455, for obtaining the status
of an active company shall be made in Form MSC-4 along with fees as
provided in the Companies (Registration Offices and Fees) Rules, 2014
and shall be accompanied by a return in Form MSC-3 in respect of the
financial year in which the application for obtaining the status of an active
company is being filed.
It is worth here to note that registrar shall initiate the process of striking
off the name of the company if the company remains as a dormant
company for a period of consecutive five years. Hence application shall
be filled before 5 years for obtaining active status.
78 CORPORATE AND ECONOMIC LAWS

3. Option (c) Three

Reason
Section 355 (5) read with Section 149(1) Section 355(5) provides a
dormant company shall have such minimum number of directors, file such
documents and pay such annual fee as may be prescribed to the Registrar
to retain its dormant status in the register.
Since section 149(1) prescribe minimum of 3 directors in case of public
company, hence to retain status dormant company (basically to comply
with 355(5) it shall have at least three directors.
4. Option (d) After 30th September, 2025.
Reason
Rule 8 of Companies (Miscellaneous) Rules, 2014
Proviso to rule 8 (1) of Companies (Miscellaneous) Rules, 2014, provides
registrar shall initiate the process of striking off the name of the company
if the company remains as a dormant company for a period of
consecutive five years.
Here it is worth to refer section 355 (6) as well, The Registrar shall strike
off the name of a dormant company from the register of dormant
companies, which has failed to comply with the requirements of section
355.
5. Option (c) Surya Energy Private Limited can file an appeal with
NCLAT within a period of 45 days from the date of the receipt of the order
of Tribunal.
Reason
Sub-section (1) of section 421 read with Sub-section (3).
Sub-section 1 empower any person who is aggrieved by an order of the
Tribunal may prefer an appeal to the Appellate Tribunal.
Further sub-section 3 requires that every appeal under sub-section (1)
shall be filed within a period of forty-five days from the date on which
a copy of the order of the Tribunal is made available to the person
aggrieved and shall be in such form, and accompanied by such fees, as
may be prescribed.
 CASE SCENARIOS 79

CASE SCENARIO 13

Paavan Nidhi Limited having its Registered Office at Karol Bagh, New Delhi, has
been declared as Nidhi by notification published in the Official Gazette. The
company is incorporated with the object of cultivating the habit of thrift and
savings among its members, receiving deposit from, and lending to, its
members only, for their mutual benefit.
Paavan Nidhi Limited has six Directors, namely, Padam, Prakash, Puneet,
Pratima, Poorva and Piyush and two hundred fifty members. All the Directors
are shrewd businessmen having full dedication to the cause of the company.
They are committed to run the company in accordance with the Nidhi Rules,
2014 and being law-abiding persons shall not do anything which is not
permitted in case of a Nidhi like carrying on the business of chit fund or hire-
purchase finance or leasing finance or insurance, etc. Padam is the senior-most
Director with vast experience in the field of finance and therefore, he has been
honoured by the company to hold Directorship for a term up to ten consecutive
years.
The company offers following services for the benefit of its members:
1. Fixed Deposit Plans of different maturities;
2. Recurring Deposit Plans for members who do not wish to deposit lump-
sum;
3. Opening of Savings Accounts in the name of members;

4. Gold Loans to the needy members on easy terms;

5. Mortgage Loans, etc.
PQR Traders Private Limited, having its Registered Office at Munirka, New Delhi,
was incorporated last year. It had a chance to go through the operations of
Paavan Nidhi Limited and finding them to be on sound footing, it applied for
becoming its member. The Nidhi company is analysing the proposals received.

During the current year, Mr. Kshitij, a member of Paavan Nidhi Limited deposited
` 1,00,000 in the name of his minor son Rudra who is of 12 years of age. Mr. Kshitij
also desires that Rudra becomes a member of Paavan Nidhi and for that purpose
he is negotiating with the company. As regards the validity of this matter, Piyush,
80 CORPORATE AND ECONOMIC LAWS

one of the Directors has raised certain objections. The company wants to sort out
the issue amicably.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is observed that PQR Traders Private Limited
has applied for becoming a member of Paavan Nidhi Limited. From the
following options, choose the one which is applicable in such a situation:
(a) PQR Traders Private Limited cannot become a member of Paavan
Nidhi Limited.

(b) PQR Traders Private Limited can become a member of Paavan Nidhi
Limited by investing minimum ` 5,00,000 as capital.
(c) PQR Traders Private Limited can become a member of Paavan Nidhi
Limited by including a clause in its Articles of Association which
permits it to become a member of a Nidhi company.
(d) PQR Traders Private Limited must be in existence for a minimum
period of three years to be eligible for becoming member of a Nidhi
company.
2. Piyush, one of the Directors of Paavan Nidhi Limited has raised objection
on acceptance of deposit amounting to ` 1,00,000 in the name of Rudra,
a minor, and negotiations initiated by his father Mr. Kshitij to make him a
member of the Paavan Nidhi. From the following options choose the one
which is applicable in the given situation:
(a) Paavan Nidhi Limited can neither accept deposit in the name of
Rudra, a minor, nor can make him a member.
(b) Paavan Nidhi Limited may accept deposit in the name of Rudra, a
minor, since it is made by Mr. Kshitij, a member and the father of
Rudra but being minor, he cannot be made a member.
(c) Paavan Nidhi Limited cannot accept deposit in the name of Rudra
exceeding ` 25,000 but he can become a member by contributing
minimum amount.
 CASE SCENARIOS 81

(d) Paavan Nidhi Limited can accept deposit in the name of Rudra up
to ` 2,00,000 and he can become a member of the company.

3. From the case scenario, it is evident that Padam, the senior-most Director,
has been honoured by Paavan Nidhi Limited to hold Directorship for a
term up to ten consecutive years. After relinquishing his office as Director
at the expiry of ten years, when can Padam be re-appointed as Director
of the company.
(a) Padam shall be eligible for re-appointment only after the expiry of
two years of ceasing to be a Director.
(b) Padam shall be eligible for re-appointment only after the expiry of
one year of ceasing to be a Director.
(c) Padam shall be eligible for re-appointment only after the expiry of
six months of ceasing to be a Director.
(d) Padam shall not be eligible for re-appointment once he ceases to
be a Director.
4. If M/s A & A Associates, a firm of auditors, has been appointed as auditors
of Paavan Nidhi Limited for a term of five years commencing from FY
2016-17 to FY 2020-21 and if the company is desirous of re-appointing
the said firm of auditors for another term of five years commencing from
FY 2021-22, then which of the following options is applicable in such an
eventuality:
(a) M/s A & A Associates cannot be re-appointed as auditors for
another term of five years since no Nidhi company shall appoint or
reappoint any auditing firm for two terms of five consecutive years.
(b) M/s A & A Associates can be re-appointed as auditors for another
term of five years since a Nidhi company is permitted to appoint
or reappoint any auditing firm for two terms of five consecutive
years.
(c) M/s A & A Associates cannot be re-appointed as auditors for
another term of five years since no Nidhi company is permitted to
re-appoint any auditing firm before the expiry of two years if an
82 CORPORATE AND ECONOMIC LAWS

auditing firm ceases to be its auditors after completion of the term

of five years.

(d) M/s A & A Associates cannot be re-appointed as auditors for

another term of five years since no Nidhi company is permitted to
re-appoint any auditing firm before the expiry of one year if an
auditing firm ceases to be its auditors after completion of the term
of five years.
5. The rate of interest charged on loan given by Nidhi can be;

(a) Five per cent above the highest rate of interest offered on deposits
by Nidhi and shall be calculated on reducing balance method.
(b) Five per cent above the highest rate of interest offered on deposits
by Nidhi and shall be calculated on as flat rate basis.
(c) Seven and half per cent above the highest rate of interest offered
on deposits by Nidhi and shall be calculated on reducing balance
method.
(d) Seven and half per cent above the highest rate of interest offered
on deposits by Nidhi and shall be calculated on as flat rate basis.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) PQR Traders Private Limited cannot become a member of

Paavan Nidhi Limited.
Reason
Rule 8 (1) of Nidhi Rules 2014
A Nidhi shall not admit a body corporate or trust as a member. Therefore
PQR Traders Private Limited (being body corporate) cannot become a
member of Paavan Nidhi Limited.
2. Option (b) Paavan Nidhi Limited may accept deposit in the name of
Rudra, a minor, since it is made by Mr. Kshitij, a member and the father of
Rudra but being minor, he cannot be made a member.
Reason
 CASE SCENARIOS 83

Rule 8 (3) of Nidhi Rules 2014

A minor shall not be admitted as a member of Nidhi.
Further proviso to said rule suggests that deposits may be accepted in the
name of a minor, if they are made by the natural or legal guardian who is
a member of Nidhi.

3 Option (a) Padam shall be eligible for re-appointment only after the
expiry of two years of ceasing to be a Director.
Reason

Rule 17 (3) of Nidhi Rules 2014

The Director of Nidhi shall be eligible for re-appointment only after the
expiration of two years of ceasing to be a Director.
4. Option (b) M/s A & A Associates can be re-appointed as auditors for
another term of five years since a Nidhi company is permitted to appoint
or reappoint any auditing firm for two terms of five consecutive years.
Reason
Rule 19 (2) of Nidhi Rules 2014
No Nidhi shall appoint or re-appoint an audit firm as auditor for more
than two terms of five consecutive years.
It is worth noting that an auditor (whether an individual or an audit firm)
shall be eligible for subsequent appointment after the expiration of two
years from the completion of his or its term.
5. Option (c) Seven and half per cent above the highest rate of interest
offered on deposits by Nidhi and shall be calculated on reducing balance
method.
Reason
Rule 16 of Nidhi Rules 2014

The rate of interest to be charged on any loan given by a Nidhi shall not
exceed seven and half per cent above the highest rate of interest offered
on deposits by Nidhi and shall be calculated on reducing balance method.
84 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 14

Yash, Yuvraj, Yatharth and Yatin are the Directors of Yukta Developers Limited
(YDL), an Agra based unlisted company having significant insight in
constructing apartments, residencies and malls in Agra, Kanpur and Bareilly for
the last ten years. Its latest project was to develop Sky Snow Residency at a
prominent place in Dehradun, Uttarakhand. The blue print of the project
contained construction of luxurious 3/4 BHK villas with the latest amenities.
As on 31st March, 2021, YDL had paid-up share capital of ` 60.00 crore and free
reserves of ` 25.00 crore. Its turnover for the F.Y. 2020-21 was ` 450.00 crore
and the borrowings aggregated to ` 45.00 crore. Included in the list of total
assets of the company were investments made in other companies and loans
advanced to the extent of ` 40.00 crore. The proposal to advance a loan of
` 15.00 crore to Srilekha Engineering Private Limited is under the active
consideration of YDL.
YDL, with a view to expand its network decided to show its presence in New
Delhi, the capital city of the country. Keeping in mind the influx of challenging
responsibilities, Mr. Vikalp Kumar and Mr. Ravindra were appointed as Director
on 07-08-2020.
As regards holding of Board Meetings by the Directors of YDL, there were six
such meetings held from 01-08-2020 to 31-03-2021. Yash, due to some
extraneous reasons, took leave of absence for the first three meetings and in
case of next three meetings he did not even inform the Board regarding his
absence.
Yatharth thought of assigning his office of Directorship to Janeesh, Vice
President (Operations) for his absence for a period of four months starting from
01-09-2020 as he was to go to Singapore to acquire higher technical expertise
in connection with the upcoming Sky Snow Residency project in Dehradun.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is observed that YDL has not appointed any
woman Director. Is it necessary for YDL to appoint a woman Director?
 CASE SCENARIOS 85

(a) YDL is not required to appoint a woman Director because it is an

unlisted company.

(b) YDL is required to appoint a woman Director since its paid-up share
capital is ` 60 crore.
(c) YDL is required to appoint a woman Director since its turnover is
` 450 crore.
(d) YDL is required to appoint a woman Director since its combined
paid-up share capital and turnover is more than ` 500 crore.

2. According to the case scenario, Yatharth thought of assigning his office

of Directorship to Janeesh, Vice President (Operations) for his absence for
a period of four months starting from 1.09.2020 as he was to go to
Singapore to acquire higher technical expertise in connection with the
upcoming Sky Snow residency project in Dehradun. From the following
options, choose the correct one:

(a) Yatharth is authorised to assign his office of Directorship to Janeesh,

Vice President (Operations) for his absence for a period of four
months starting from 01.09.2020.

(b) Yatharth is not authorised to assign his office of Directorship to

Janeesh, Vice President (Operations) for his absence for a period of
four months starting from 01.09.2020.

(c) Yatharth himself can appoint an alternate Director for his absence
for a period of four months starting from 01.09.2020.
(d) Yatharth can instruct Yatin, another Director who is junior to him in
age, to attend Board Meetings on his behalf besides himself
whenever a meeting is held during his absence starting from
01.09.2020.

3. As per the case scenario, Yash did not attend six Board Meetings
consecutively which were held from 01-08-2020 to 31-03-2021. He took
leave of absence for the first three meetings and in case of next three
meetings he did not even inform the Board regarding his absence. Out of
the following four options, which one is applicable in such a situation?
86 CORPORATE AND ECONOMIC LAWS

(a) Yash is required to vacate his office as Director since without

seeking leave of absence from the Board he absented himself from
the last three Board Meetings consecutively.
(b) Yash is required to vacate his office as Director since he did not
attend six Board Meetings consecutively and it is immaterial
whether he took leave of absence or not from the Board.
(c) Yash is not required to vacate his office as Director since he has not
absented himself from the Board Meetings for a continuous period
of twelve months yet.
(d) Yash is required to vacate his office as Director since he did not
attend Board Meetings consecutively for more than six months.
4. The case scenario states that a proposal to advance a loan of
` 15.00 crore to Srilekha Engineering Private Limited is under the active
consideration of YDL. In this respect, which of the following options is
best applicable:
(a) YDL can advance a loan of ` 15.00 crore to Srilekha Engineering
Private Limited by passing a board resolution.

(b) YDL can advance a loan of ` 15.00 crore to Srilekha Engineering

Private Limited but only after passing an ordinary resolution.
(c) YDL can advance a loan of ` 15.00 crore to Srilekha Engineering
Private Limited but only after passing a special resolution.
(d) YDL cannot advance a loan of ` 15.00 crore to Srilekha Engineering
Private Limited since it has already made investments in other
companies and has advanced loans to the extent of ` 40.00 crore.
5. After appointment of Mr. Vikalpa and Mr. Ravindra what shall be quorum
for the board meeting?
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors

(d) 5 Directors
 CASE SCENARIOS 87

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) YDL is required to appoint a woman Director since its turnover
is ` 450 crore.
Reason
Second Proviso to section 149(1) read with rule 3 of the Companies
(Appointment and Qualification of Directors) rules,2014
At least one woman director shall be appointed by every listed company
and those public companies that have
Paid–up share capital of one hundred crore rupees or more; or
Turnover of three hundred crore rupees or more:
2. Option (b) Yatharth is not authorised to assign his office of
Directorship to Janeesh, Vice President (Operations) for his absence for a
period of four months starting from 01.09.2020.
Reason
Section 166(6)
A director of a company shall not assign his office and any assignment so
made shall be void.
3. Option (c) Yash is not required to vacate his office as Director since he
has not absented himself from the Board Meetings for a continuous
period of twelve months yet.

Reason
Section 167(1)(b)
The office of a director shall become vacant in case he absents himself
from all the meetings of the Board of Directors held during a period of
twelve months with or without seeking leave of absence of the Board;
4. Option (c) YDL can advance a loan of ` 15.00 crore to Srilekha
Engineering Private Limited but only after passing a special resolution.
Reason
Sub-section 2 to section 186 read with sub-section 3.
88 CORPORATE AND ECONOMIC LAWS

Sub-section 2 put a limit by providing no company shall directly or

indirectly give any loan, guarantee or provide security; and acquire by way
of subscription, purchase or otherwise, the securities of any other body
corporate, exceeding;
60% of its paid-up share capital, free reserves, and securities premium
account (51 crores in this case as 60% of 60+25 crores) or
100% of its free reserves and securities premium account (25 crores in this
case),
Whichever is more (i.e. 51 crores)
Note – Since loan of INRs 40 crores already made hence further loan of
INRs 11 crores (instead of INRs 15 crores) can only be advanced.

But sub-section 3 provides where the aggregate of the loans and

investment so far made, the amount for which guarantee or security so
far provided to or in all other bodies corporate along with the investment,
loan, guarantee or security proposed to be made or given by the Board,
exceed the limits specified under sub-section (2), no investment or loan
shall be made or guarantee shall be given or security shall be provided
unless previously authorised by a special resolution passed in a general
meeting.
5. Option (a) 2 Directors

Reason
Section 174(1)
The quorum for a meeting of the Board of Directors of a company shall
be one third of its total strength or two directors, whichever is higher, and
the participation of the directors by video conferencing or by other audio
visual means shall also be counted for the purposes of quorum under this
sub-section.
After appoint of Vikalpa and Ravindra the total strength reach to 6, 1/3rd
of same amounts to 2; therefore 2 directors shall form quorum for board
meeting.
 CASE SCENARIOS 89

CASE SCENARIO 15

Shree Ram Garments Limited, a listed public company, was incorporated in the
year 2001 under the Companies Act, 1956. Its Registered Office is situated in
Statesman House at Connaught place, New Delhi. As on 31st March, 2021, the
company had 12 Directors as under:

1. Mr. Amit Managing Director

2. Mr. Rohan Whole-time Director
3. Mr. Rohit Whole-time Director
4. Mr. Sudarshan Director
5. Mr. Bharat Director
6. Mrs. Anisha Woman Director
7. Mr. Kapil Director
8. Mr. Anup Director
9. Mr. Farhan Director
10. Mr. Pritam Independent Director
11. Mr. Anuj Independent Director
12. Mr. Anil Independent Director

During the current year, Mr. Sunil was also appointed as the independent
Director of the company.
The Articles of Association of Shree Ram Garments Limited provide that the
maximum number of Directors in the company shall not exceed twenty. After
the appointment Mr. Sunil as Independent Director the total number of
directors in the company has increased to thirteen. However, keeping in view
the excessive workload, the Board of Directors is contemplating to increase the
number of Directors to seventeen. A meeting of the Board of Directors was held
to discuss the same.
Shree Ram Garments Limited, at present, is having 1000 small shareholders who
are desirous of appointing Mr. Parag as their Director on the Board of Directors.
Mr. Parag held 500 equity shares of ` 10 each in the said company. According
to the provisions of the Companies Act, 2013, a listed company may have one
90 CORPORATE AND ECONOMIC LAWS

Director elected by such small shareholders in such manner and on such terms
and conditions as may be prescribed. Hence, Mr. Parag was appointed as a small
shareholders’ Director by the company.
An urgent meeting of the Board was called on 2nd December, 2021, by the
company at its Registered Office at 4 P.M., to discuss certain matters pertaining
to buying of sophisticated machineries. A three days’ prior notice was issued to
each Director for attending the meeting. Mr. Anil, due to his surgery, was
advised full time rest by his surgeon and even his attendance through video
conferencing was not allowed. Accordingly, he informed the Company Secretary
Mrs. Shyamala beforehand. Mr. Anuj, Mr. Sudarshan and Mr. Pritam were out of
station for the last one week and due to poor connectivity at their respective
places, they were unable to attend the meeting even through video
conferencing. Mr. Farhan was extremely busy due to his son's marriage. Mr.
Anup was also held up because his grandmother had suddenly developed
respiratory problem and therefore, was to be hospitalised for further check-up.
In addition, her doctor wanted her to remain admitted in the hospital for next
two days for thorough check-up. On the day of the meeting, while coming to
the meeting venue, Mr. Bharat met with an accident and was to be hospitalised.
Mr. Rohit and Mr. Kapil had gone to their native places and were sure of
attending the meeting since they expected to reach Delhi much before the time
of meeting but their flight got delayed unexpectedly due to which they were
unable to come to Delhi at the scheduled time. Mrs. Anisha’s daughter Mehak
called her to visit her at Chandigarh urgently and therefore, she was also not
available for attending the meeting. Since only three directors Mr. Amit, Mr.
Rohan and Mr. Sunil could reach the Registered Office for attending the
meeting, it could not be held for want of quorum and was to be adjourned. This
adjourned Board Meeting was again held on 9th December, 2021, at the
Registered Office at 4 P.M. to discuss the pending issue of buying the
sophisticated machineries.

Another Board Meeting was held on 12th January, 2022, at the Registered Office
at 3 P.M. The agenda of the Board Meeting was to increase the sitting fees of
Directors and sale of one of the undertakings of the company. The Board of
Directors of the company decided to raise the payment of sitting fees for each
meeting of Board of Directors to a maximum of ` 40,000 by altering its Articles
of Association.
 CASE SCENARIOS 91

The Articles of Association of Shree Ram Garments Limited contain a provision

by which Directors are empowered to sell or otherwise deal with the
property/undertaking of the company. The Board was of the view that the sale
consideration received from selling the undertaking would be used to clear off
the part of existing term loan availed from Super Commercial Bank Limited.
However, except Mr. Rohit and Mr. Anil who objected to the selling of
company's undertaking, all other directors were in favour of said sale.

MULTIPLE CHOICE QUESTIONS

1. Mr. Sunil was recently appointed as independent Director of Shree Ram

Garments Limited. Select the correct alternative from those given below
regarding giving of declaration by Mr. Sunil as to his independence under
the applicable provisions of the Companies Act, 2013, after assuming his
position as an independent Director?
(a) Mr. Sunil is required to give declaration as to his independence on
the first day of attending his office.
(b) Mr. Sunil is required to give declaration as to his independence at
the first Board Meeting in which he participates as independent
Director.
(c) Mr. Sunil is required to give declaration as to his independence at
the first Annual General Meeting of Shree Ram Garments Limited.
(d) Mr. Sunil is required to give declaration as to his independence at
the first meeting of Audit Committee in which he participates as
independent Director.
2. According to the case scenario, Shree Ram Garments Limited, at present,
has thirteen Directors on its Board. In case the company desires to
increase the strength of number of Directors from thirteen to seventeen,
what is the way out through which number of Directors can be increased
to the desired seventeen?
(a) Shree Ram Garments Limited can increase the number of directors
from present thirteen to seventeen by passing an Ordinary
Resolution at any General Meeting of the shareholders.
92 CORPORATE AND ECONOMIC LAWS

(b) Shree Ram Garments Limited can increase the number of directors
from present thirteen to seventeen by passing a Special Resolution
at a General Meeting of the shareholders.
(c) Shree Ram Garments Limited can increase the number of directors
from present thirteen to seventeen by passing a board resolution by
2/3rd majority of Directors attending the meeting.
(d) Shree Ram Garments Limited can increase the number of directors
from present thirteen to seventeen by passing a board resolution by
3/4th majority of Directors attending the meeting.
3. The small shareholders of Shree Ram Garments Limited want to appoint
Mr. Parag as their Director. Choose the correct option from those stated
below as to minimum how many small shareholders are required to give
notice to the company for appointment of their Director and also what is
the minimum time period of giving such notice before the meeting where
the issue of appointment of small shareholders’ Director shall be
considered:
(a) Minimum 100 small shareholders of Shree Ram Garments Limited
are required to give notice to the company for appointment of
Parag as their Director and such notice needs to be given minimum
14 days before the meeting where the issue of appointment of small
shareholders’ Director shall be considered.
(b) Minimum 200 small shareholders of Shree Ram Garments Limited
are required to give notice to the company for appointment of
Parag as their Director and such notice needs to be given minimum
15 days before the meeting where the issue of appointment of small
shareholders’ Director shall be considered.
(c) Minimum 150 small shareholders of Shree Ram Garments Limited
are required to give notice to the company for appointment of
Parag as their Director and such notice needs to be given minimum
21 days before the meeting where the issue of appointment of small
shareholders’ Director shall be considered.
(d) Minimum 300 small shareholders of Shree Ram Garments Limited
are required to give notice to the company for appointment of
Parag as their Director and such notice needs to be given minimum
 CASE SCENARIOS 93

30 days before the meeting where the issue of appointment of small

shareholders’ Director shall be considered.
4. The Board of Directors of Shree Ram Garments Limited decided to raise
the sitting fees payable to the Directors for each meeting of the Board of
Directors upto ` 40,000. In case, the company desires to increase sitting
fees of independent Directors as well as woman Director from the existing
` 40,000 per meeting, whether it can do so. Choose the correct answer
from the following given options:
(a) The proposal of giving sitting fees to independent Directors as well
as woman Director in excess of ` 40,000 can be accepted by Shree
Ram Garments Limited but such fees cannot exceed the maximum
limit of ` 50,000 per meeting for each such Director.
(b) The proposal of giving sitting fees to independent Directors as well
as woman Director in excess of ` 40,000 cannot be accepted by
Shree Ram Garments Limited because all the Directors are eligible
for equal sitting fees per meeting and that too maximum upto
` 50,000.
(c) The proposal of giving sitting fees to independent Directors as well
as woman Director in excess of ` 40,000 can be accepted by Shree
Ram Garments Limited but such fees cannot exceed the maximum
limit of ` 1,00,000 per meeting for each such Director.
(d) Since women Directors unlike other independent Directors are not
eligible for higher sitting fees per meeting, only independent
Directors are eligible to be paid sitting fees in excess of ` 40,000 but
maximum upto ` 50,000 per meeting.
5. The Board of Directors of Shree Ram Garments Limited decided to sell
one of the undertakings of the company. Choose the correct alternative
from those stated below as to the procedure which is required to be
followed before selling the undertaking to some other interested party:
(a) The Board of Directors of Shree Ram Garments Limited can sell the
undertaking with the consent of 3/4 th majority of the Directors
present at the Board Meeting.
(b) The Board of Directors of Shree Ram Garments Limited can sell the
undertaking but the proposal needs to be approved by a special
resolution passed at a General Meeting of the company.
94 CORPORATE AND ECONOMIC LAWS

(c) The Board of Directors of Shree Ram Garments Limited can sell the
undertaking but only with the unanimous consent of all the
Directors of the company and thereafter, seeking the approval of
the shareholders through passing an ordinary resolution at a
General Meeting.
(d) The Board of Directors of Shree Ram Garments Limited can sell the
undertaking but only after seeking the approval of the shareholders
through passing an ordinary resolution at a General Meeting and
thereafter, obtaining the permission of the jurisdictional Registrar
of Companies.
6. The case scenario states that an urgent Board Meeting was called on
2nd December, 2021, by Shree Ram Garments Limited at its Registered Office
at 4 P.M. to discuss certain matters pertaining to buying of sophisticated
machineries but the same could not held for want of quorum. What is the
required quorum in this case:
(a) The required quorum in this case is participation of minimum seven
directors in the Board Meeting.
(b) The required quorum in this case is participation of minimum six
directors in the Board Meeting.
(c) The required quorum in this case is participation of minimum five
directors in the Board Meeting.
(d) The required quorum in this case is participation of minimum four
directors in the Board Meeting.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) Mr. Sunil is required to give declaration as to his

independence at the first Board Meeting in which he participates as
independent Director.
Reason

Section 149(7)
Every independent director shall at the first meeting of the Board in which
he participates as a director and thereafter at the first meeting of the
Board in every financial year or whenever there is any change in the
 CASE SCENARIOS 95

circumstances which may affect his status as an independent director, give

a declaration that he meets the criteria of independence as provided in
sub-section (6).
Since the company in given case is listed hence required to comply with
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,
regulation 25(8) provides every independent director shall, at the first
meeting of the board in which he/she participates as a director and
thereafter at the first meeting of the board in every financial year or
whenever there is any change in the circumstances which may affect
his/her status as an independent director, submit a declaration that he
meets the criteria of independence as provided in clause (b) of sub-
regulation (1) of regulation 16 and that he is not aware of any
circumstance or situation, which exist or may be reasonably anticipated,
that could impair or impact his/her ability to discharge his/her duties with
an objective independent judgment and without any external influence.
2. Option (b) Shree Ram Garments Limited can increase the number of
directors from present thirteen to seventeen by passing a Special
Resolution at a General Meeting of the shareholders.
Reason
First Proviso to Section 149(1)
A company may appoint more than fifteen directors after passing a special
resolution:
3. Option (a) Minimum 100 small shareholders of Shree Ram Garments
Limited are required to give notice to the company for appointment of
Parag as their Director and such notice needs to be given minimum 14
days before the meeting where the issue of appointment of small
shareholders’ Director shall be considered.
Reason
Rule 7 of Companies (Appointment and Qualification of Directors) Rules,
2014
Sub-rule 1 provides a listed company, may upon notice of not less than
one thousand small shareholders or one-tenth of the total number of such
96 CORPORATE AND ECONOMIC LAWS

shareholders, whichever is lower (in this case 1/10th comes to 100; hence
notice by 100 SSH fulfill the requirement), have a small shareholders’
director elected by the small shareholders:
Further sub-rule 2 the small shareholders intending to propose a person
as a candidate for the post of small shareholders’ director shall leave a
notice of their intention with the company at least fourteen days before
the meeting under their signatures specifying the name, address, shares
held and folio number of the person whose name is being proposed for
the post of director and of the small shareholders who are proposing such
person for the office of director: Provided that if the person being
proposed does not hold any shares in the company, the details of shares
held and folio number need not be specified in the notice:
4. Option (c) The proposal of giving sitting fees to independent Directors
as well as woman Director in excess of ` 40,000 can be accepted by Shree
Ram Garments Limited but such fees cannot exceed the maximum limit of
` 1,00,000 per meeting for each such Director.
Reason
Section 197(5) read with Rule 4 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014
Sub-section 5 to section provides that A director may receive
remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be
decided by the Board. Further first proviso to said sub-section provides
that the amount of such fees shall not exceed the amount as may be
prescribed in Rule 4 of the Companies (Appointment and Remuneration
of Managerial Personnel) Rules, 2014

Rule 4 says a company may pay a sitting fee to a director for attending
meetings of the Board or committees thereof, such sum as may be
decided by the Board of directors thereof which shall not exceed one lakh
rupees per meeting of the Board or committee thereof.
It is also provided that for Independent Directors and Women Directors,
the sitting fee shall not be less than the sitting fee payable to other
directors.
 CASE SCENARIOS 97

5. Option (b) The Board of Directors of Shree Ram Garments Limited

can sell the undertaking but the proposal needs to be approved by a
special resolution passed at a General Meeting of the company.
Reason
Section 180(1)

The Board of Directors of a company shall sell, lease or otherwise dispose

of the whole or substantially the whole of the undertaking of the company
or where the company owns more than one undertaking, of the whole or
substantially the whole of any of such undertakings only with the consent
of the company by a special resolution.
6. Option (c) The required quorum in this case is participation of minimum
five directors in the Board Meeting.
Reason
Section 174(1)
The quorum for a meeting of the Board of Directors of a company shall
be one third of its total strength or two directors, whichever is higher, and
the participation of the directors by video conferencing or by other audio
visual means shall also be counted for the purposes of quorum under this
sub-section.
After appointment of Mr. Sunil the total strength reach to 13, 1/3rd of
same amounts to 4.33 that shall be round off to 5, which is more than 2;
therefore 5 directors shall form quorum for board meeting.
It is worth noting, as per Regulation 17(2A) of the SEBI (LODR) Regulation,
2015 in case of listed companies (in given case also, the company is listed
one) the quorum for every meeting of the board of directors of the top
2000 listed entities shall be one-third of its total strength or three
directors, whichever is higher, including at least one independent director.
98 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 16

Listed with BSE Limited and National Stock Exchange of India Limited, Superfast
Motors Limited is a top player in the category of car dealers. The company,
established in 2016 at New Delhi, always endeavored to achieve highest level
of customer satisfaction and improving the buyers’ experience for its customers.
The company not only sells cars manufactured by Metro Motors Limited but
also deals in used cars, insurance and finance. The company has showrooms in
ten major cities of India. In addition, Superfast Motors Limited is also a leading
original equipment manufacturer (OEM) offering an extensive range of
integrated, smart and e-mobility solutions.
Superfast Motors Limited was planning for expansion in India and overseas.
Accordingly, it negotiated with Jupiter Mauritius Auto Limited, a company
registered in Mauritius, for merger with itself. Further, it also proposed a merger
plan with Mars Ltd. of Kolkata, a company engaged in the business of
manufacturing and distribution of tyre and auto accessories. Mars Ltd. is listed
with BSE Limited and National Stock Exchange of India Limited and has a paid-
up share capital of ` 40 crores. Superfast Motors Limited called a Board Meeting
to draft the agreements for the merger of the aforesaid Jupiter Mauritius Auto
Limited and Mars Ltd.
The paid-up share capital of Superfast Motors Limited is ` 90 crores consisting
of 9000 members. As per the order of the National Company Law Tribunal
(NCLT), the company called the general meeting of the members for the merger
of Mars Ltd. with itself. The meeting was attended by 4400 members in person
while 600 members appointed proxies in place of themselves to attend the said
general meeting. Remaining 4000 members holding ` 15.00 crores worth of
shares remained absent.
It is noteworthy that 3200 members representing shares of the value of ` 50.40
crores and 600 proxies representing shares of the value of ` 7.00 crores who
attended the meeting, voted in favor of the scheme of merger. Thereafter, Mars
Ltd. was successfully merged with Superfast Motors Limited as per the
applicable laws. However, 3,000 absentee members of Superfast Motors Limited
wanted the merger to be annulled because it was not valid. There was, however,
not much resistance exerted by the members of Mars Ltd. against the merger
 CASE SCENARIOS 99

and it was approved by 93% of majority of members holding shares 94% in

value.

A number of directors, officers and employees of Mars Ltd. lost their

assignments after the merger of Mars Ltd. with Superfast Motors Limited. Mr.
Ramneek the Managing Director, Mr. Lokesh, the Whole-time Director, Mr.
Botham and Mr. Srikant, the other two non-executive directors of Mars Ltd.
approached the company for compensation due to the loss of their respective
offices. However, the company denied compensation but in case of Mr. Lokesh
who, on the basis of his outstanding record, was given appointment as Manager
in Superfast Motors Limited. Certain members of Mars Ltd. were of the opinion
that transfer of funds and assets of the company would be affecting their
interest. Accordingly, members numbering 110 out of 2000 members decided
to file an application before NCLT.
Mr. Rakesh, one of the Directors of Superfast Motors Limited, in a Board
Meeting pointed out that Mr. Bhaskar, another Director, was holding
directorships in 21 companies, out of which 11 were private companies
including Bright Cycles Pvt. Ltd. which was subsidiary of Zeta Mechanical
Products Limited and 10 other public companies. The Board asked
Mr. Bhaskar to resign from his office of directorship either in Superfast Motors
Limited or any other company of his choice since the number of directorships
in his case was exceeding the maximum limit.
In response to the direction given by the Board to resign from directorship, Mr.
Bhaskar averred that he had not violated the provisions relating to holding of
maximum number of directorships. In fact, out of 10 public companies in which
he was holding the office of directorships, one was a dormant company. Further,
in one of the companies out of 11 private companies, he was appointed as an
alternate Director. So far as his knowledge was concerned, directorship in
dormant company as well as alternate directorship were not includible while
counting the maximum number of directorships. Rather, he was eligible to hold
directorship in one more company because he held effective directorships in
only 19 companies. Therefore, in no way, he had violated the provisions relating
to holding of maximum number of 20 directorships in different companies. In
view of the above facts, he stressed that he would not tender resignation in any
company including Superfast Motors Limited and if the Board still wanted him
100 CORPORATE AND ECONOMIC LAWS

to remove from the office of director, it was at liberty to do so. The Board of
Directors of Superfast Motors Limited agreed with the averments advanced by
Mr. Bhaskar and dropped the idea of asking him to resign or moving a
resolution for his removal from holding the office of director.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is noticed that the Board of Directors of

Superfast Motors Limited agreed with the averments advanced by Mr.
Bhaskar and dropped the idea of asking him to resign or moving a
resolution for his removal from holding the office of director. Whether the
decision of the Board is valid? Choose the correct option from those
stated hereunder:
(a) The decision of the Board of Directors of Superfast Motors Limited
to drop the idea of asking Mr. Bhaskar to resign or to move a
resolution for his removal is valid because alternate directorship is
not includible while counting the number of 20 companies.
(b) The decision of the Board of Directors of Superfast Motors Limited
to drop the idea of asking Mr. Bhaskar to resign or to move a
resolution for his removal is valid because directorship in a dormant
company is not includible while counting the number of 20
companies.
(c) The decision of the Board of Directors of Superfast Motors Limited
to drop the idea of asking Mr. Bhaskar to resign or to move a
resolution for his removal is not valid because while counting the
number of 10 public companies, directorship in a private company
which is subsidiary of a public company is also includible.
(d) The decision of the Board of Directors of Superfast Motors Limited
to drop the idea of asking Mr. Bhaskar to resign or to move a
resolution for his removal is valid because he holds effective
directorships in only 19 companies after excluding alternate
directorship and directorship in a dormant company.
 CASE SCENARIOS 101

2. In response to demand for compensation made by Mr. Ramneek, Mr.

Lokesh, Mr. Botham and Mr. Srikant, Mars Ltd. was not keen to
compensate them. Whether such denial by Mars Ltd. is valid? Select the
correct answer from the following options:
(a) Denial for compensation by Mars Ltd. is valid because compensation
for loss of office is not available in case of merger or amalgamation.
(b) Absolute denial for compensation by Mars Ltd. is not valid because
Mr. Ramneek and Mr. Lokesh are eligible for compensation for loss
of office as Managing Director and Whole-time director
respectively.
(c) Absolute denial for compensation by Mars Ltd. is not valid in case
of Mr. Ramneek since only he is eligible for compensation for loss
of office as Managing Director.
(d) Absolute denial for compensation by Mars Ltd. is not valid because
Mr. Ramneek, Mr. Botham and Mr. Srikant are eligible for
compensation for loss of office as Managing Director and non-
executive directors respectively.
3. Choose the correct statement from those stated below:
(a) Jupiter Mauritius Auto Limited can get merged with Superfast
Motors Limited but only after obtaining prior approval of Reserve
bank of India (RBI).
(b) Jupiter Mauritius Auto Limited can get merged with Superfast
Motors Limited but only after obtaining prior approval of Securities
and Exchange Board of India (SEBI).
(c) Jupiter Mauritius Auto Limited can get merged with Superfast
Motors Limited but only after obtaining prior approval of National
Company Law Tribunal (NCLT).
(d) Jupiter Mauritius Auto Limited can get merged with Superfast
Motors Limited but only obtaining prior approval of Ministry of
Finance.
102 CORPORATE AND ECONOMIC LAWS

4. The case scenario states that Mars Ltd. was merged with Superfast Motors
Limited. However, 3,000 absentee members of Superfast Motors Limited
wanted the merger to be annulled because it was not valid. You are
required to advise these members whether the approval accorded by the
members of Superfast Motors Limited for the merger was valid or not.
Select the correct alternative from those given hereunder:
(a) The approval accorded by the members of Superfast Motors Limited
for the merger was valid because the majority of members
representing requisite value of shareholding voted in favour of the
scheme of merger.
(b) The approval accorded by the members of Superfast Motors Limited
for the merger was not valid because the majority of the members
who voted in favour of the scheme of merger must hold 80% or
more worth of shares in value considering the total value of shares
held by the members who attended the general meeting.
(c) The approval accorded by the members of Superfast Motors Limited
for the merger was not valid because the majority of the members
who voted in favour of the scheme of merger must hold 90% or
more worth of shares in value considering the total value of shares
held by the members who attended the general meeting.
(d) The approval accorded by the members of Superfast Motors Limited
for the merger was not valid because only 3800 members out of
total 9000 members voted in favour of the scheme of merger and it
was not a majority.
5. Whether the petition filed by 110 members of Mars Ltd. with National
Company Law Tribunal (NCLT) would be maintainable assuming the
proposal made by Superfast Motors Limited to Mars Ltd. was a takeover
offer and not a merger offer? Choose the correct option from the
following alternatives.

(a) Petition filed by 110 members of Mars Ltd. with National Company
Law Tribunal (NCLT) would be maintainable because more than 100
members can apply for relief against oppression and
mismanagement prevailing in a company.
 CASE SCENARIOS 103

(b) Petition filed by 110 members of Mars Ltd. with National Company
Law Tribunal (NCLT) would not be maintainable because less than
1/10th of total number of members have applied for relief against
oppression and mismanagement.
(c) Petition filed by 110 members of Mars Ltd. with National Company
Law Tribunal (NCLT) would be maintainable because 100 members
or 1/10th of total number of members, whichever is lower, can apply
for relief against oppression and mismanagement.

(d) Petition filed by 110 members of Mars Ltd. with National Company
Law Tribunal (NCLT) would not be maintainable because these
members cannot file a case for redressal of their grievances to NCLT
in case of takeover offer.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) The decision of the Board of Directors of Superfast Motors

Limited to drop the idea of asking Mr. Bhaskar to resign or to move a
resolution for his removal is valid because directorship in a dormant
company is not includible while counting the number of 20 companies.

Reason
Section 165(1)
No person, shall hold office as a director, including any alternate
directorship, in more than twenty companies at the same time
Further it provided that the maximum number of public companies in
which a person can be appointed as a director shall not exceed ten.

Explanation I also says for reckoning the limit of public companies in

which a person can be appointed as director, directorship in private
companies that are either holding or subsidiary company of a public
company shall be included.
While explanation II provides that for reckoning the limit of directorships
of twenty companies, the directorship in a dormant company shall not be
included.
104 CORPORATE AND ECONOMIC LAWS

Directorship at dormant company not to be included, but directorship at

private company that is subsidiary of public company shall considered for
threshold hence directorship in public company counts to 10 (i.e. 10+1-
1), while Mr. Bhaskar is director in 10 private companies (i.e. 11-1 because
subsidiary considered as public, hence excluded from here; but alternate
directorship which is already including in 11 continue to be included);
hence total amounts to 20, with public company count at 10.
It worth to note (because company specified in the given case is listed
entity) that as per Regulation 17A of LODR 2015, a person shall not be a
director in more than eight listed entities with effect from April 1, 2019
and in not more than seven listed entities with effect from April 1, 2020.
2. Option (c) Absolute denial for compensation by Mars Ltd. is not valid in
case of Mr. Ramneek since only he is eligible for compensation for loss of
office as Managing Director.
Reason
Section 191(2)
Payment made by a company to a managing director or whole-time
director or manager of the company by way of compensation for loss of
office or as consideration for retirement from office or in connection with
such loss or retirement subject to limits or priorities, as may be prescribed
in Rule 17 of Companies (Meetings of Board and its Powers) Rules, 2014.
3. Option (a) Jupiter Mauritius Auto Limited can get merged with
Superfast Motors Limited but only after obtaining prior approval of
Reserve bank of India (RBI).
Reason
Section 234 read with rule 25A of the Companies (Compromises,
Arrangements and Amalgamations) Amendment Rules, 2017
Sub-rule 1 to rule 25A provides a foreign company incorporated outside
India may merge with an Indian company after obtaining prior approval
of Reserve Bank of India and after complying with the provisions of
sections 230 to 232 of the Act and these rules.
 CASE SCENARIOS 105

4. Option (a) The approval accorded by the members of Superfast

Motors Limited for the merger was valid because the majority of members
representing requisite value of shareholding voted in favour of the
scheme of merger.
Reason

Section 232 (1)(b) read with Section 230(6)

Where, at a meeting held, majority of persons representing three-fourths
in value members or class of members, voting in person or by proxy or by
postal ballot, agree to any compromise or arrangement and if such
compromise or arrangement is sanctioned by the Tribunal by an order,
the same shall be binding on the company, all the creditors, or class of
creditors or members or class of members, as the case may be, or, in case
of a company being wound up, on the liquidator appointed under this Act
or under the Insolvency and Bankruptcy Code, 2016, as the case may be,
and the contributories of the company.
Note - Majority in number representing 3/4th of value shall be of
shareholders present and voted.
In given case, 3800 members holding shares of value INRs 57.40 crore
voted in favour out of total of 5000 members holding shares of value INRs
75 crore (i.e. 90 crore – 15 crore) who attended the meeting either
themselves or through proxy.
Therefore scheme of merge approved 76% members holding shares of
76.53% in value terms.

5. Option (d) Petition filed by 110 members of Mars Ltd. with National
Company Law Tribunal (NCLT) would not be maintainable because these
members cannot file a case for redressal of their grievances to NCLT in
case of takeover offer.
Reason
Section 230 (12)
An aggrieved party may make an application to the Tribunal in the event
of any grievances with respect to the takeover offer of companies other
106 CORPORATE AND ECONOMIC LAWS

than listed companies in such manner as may be prescribed and the

Tribunal may, on application, pass such order as it may deem fit.

Note - Mars limited is listed entity.

It worth to note that for listed companies, the Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 ("SEBI Takeover Regulations") are applicable which sets
out the process for a takeover offer of shares of a listed company and,
inter alia, requires an acquirer to make an open offer to acquire the shares
of the company if the acquirer acquires shares of the company (whether
by way of a primary infusion or a secondary acquisition) above a specified
percentage.
 CASE SCENARIOS 107

CASE SCENARIO 17

SportsPoint Manufacturers and Traders Limited, having registered office at

Meerut, Uttar Pradesh, was incorporated under the Companies Act, 1956, in the
month of August, 1990. The company manufactures sports coaching
equipments like bags, clipboards, pinnies, referee uniforms, whistles of different
types, etc., and game equipments like goals, posts, nets, etc., of the finest
quality and sells its products to various schools, colleges, clubs and other
institutions pan India directly as well as through its dealers.
The issued, subscribed and paid-up equity share capital of SportsPoint
Manufacturers and Traders Limited as on 31st March, 2021 is ` 25 crores,
consisting of 2.50 crores equity shares of the face value of ` 10 each. These
shares are listed both on the BSE Limited and National Stock Exchange of India
Limited.
The company planned to issue bonus debentures to its shareholders as a reward
since it is a known fact that the shareholders invariably welcome bonus
debentures wholeheartedly simply because of the reason that they get regular
interest during the tenure of the debentures.
Accordingly, after following the due procedure, SportsPoint Manufacturers and
Traders Limited filed a scheme of arrangement before the jurisdictional National
Company Law Tribunal (NCLT) for issue of secured, non-convertible and
redeemable fully paid-up 9%Debentures by way of bonus to its members as on
the record date out of the accumulated profits lying to the credit of Profit &
Loss Account under Sections 230 to 232 and other applicable provisions of the
Companies Act, 2013.

The scheme of arrangement filed by SportsPoint Manufacturers and Traders

Limited with the National Company Law Tribunal (NCLT) stipulates for issue and
allotment by way of bonus, one fully paid-up 9%Debenture of the face value of
` 150 each by utilizing its accumulated profits, for every one fully paid-up equity
share of face value of ` 10 each held by total 1,25,000 members as on the record
date. The 9%Debentures shall be redeemed after ten years from the date of
allotment. As regards payment of interest on debentures, the same shall be paid
at intervals of twelve months from the date of allotment.
108 CORPORATE AND ECONOMIC LAWS

Pursuant to the order, dated 14th July, 2021, passed by the Hon’ble National
Company Law Tribunal (NCLT), a meeting of the equity shareholders of
SportsPoint Manufacturers and Traders Limited was convened at the registered
office of the company at Meerut, on Monday, August 23, 2021, at 1:00 P.M.
In accordance with the provisions of Sections 230 to 232 of the Companies Act,
2013, the scheme was agreed to by a requisite majority of shareholders who
had required value of shareholding. The equity shareholders either voted
themselves or through proxies or by postal ballot or through electronic means.

MULTIPLE CHOICE QUESTIONS

1. What is the amount, which SportsPoint Manufacturers and Traders

Limited intends to utilise out of accumulated profits for issue of bonus
debentures?
(a) SportsPoint Manufacturers and Traders Limited intends to utilise
accumulated profits to the extent of ` 150 crores for issue of bonus
debentures.
(b) SportsPoint Manufacturers and Traders Limited intends to utilise
accumulated profits to the extent of ` 200 crores for issue of bonus
debentures.
(c) SportsPoint Manufacturers and Traders Limited intends to utilise
accumulated profits to the extent of ` 375 crores for issue of bonus
debentures.
(d) SportsPoint Manufacturers and Traders Limited intends to utilise
accumulated profits to the extent of ` 250 crores for issue of bonus
debentures.
2. The case scenario states that the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio was agreed to by a requisite
majority of shareholders who had required shareholding in value. Which
kind of majority is required for approving the scheme of arrangement as
presented by SportsPoint Manufacturers and Traders Limited in the
meeting of the shareholders?
 CASE SCENARIOS 109

(a) The shareholders of SportsPoint Manufacturers and Traders Limited

must have approved the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio by passing an ordinary
resolution.
(b) The shareholders of SportsPoint Manufacturers and Traders Limited
must have approved the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio by passing a special
resolution.

(c) The shareholders of SportsPoint Manufacturers and Traders Limited

must have approved the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio by simple majority of
members who had minimum shareholding of three-fourths in value.
(d) The shareholders of SportsPoint Manufacturers and Traders Limited
must have approved the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio by simple majority of
members who had minimum shareholding of two-third in value.
3. Minimum how many equity shares are required to be held by the
shareholders of SportsPoint Manufacturers and Traders Limited voting in
favour of the scheme of arrangement envisaging issue of bonus
debentures in a particular ratio for its approval?
(a) Minimum 1.275 crore equity shares are required to be held by the
shareholders of SportsPoint Manufacturers and Traders Limited to
consider the scheme of arrangement as approved.
(b) Minimum 1.50 crore equity shares are required to be held by the
shareholders of SportsPoint Manufacturers and Traders Limited to
consider the scheme of arrangement as approved.
(c) Minimum 1.75 crore equity shares are required to be held by the
shareholders of SportsPoint Manufacturers and Traders Limited to
consider the scheme of arrangement as approved.

(d) Minimum 1.875 crore equity shares are required to be held by the
shareholders of SportsPoint Manufacturers and Traders Limited to
consider the scheme of arrangement as approved.
110 CORPORATE AND ECONOMIC LAWS

4. Minimum how many members of SportsPoint Manufacturers and Traders

Limited must have agreed to the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio, if 40% of the total members had
attended and 30% of the total members had voted at the meeting?
(a) Minimum 18,751 members of SportsPoint Manufacturers and
Traders Limited must have agreed to the scheme of arrangement.
(b) Minimum 22,500 members of SportsPoint Manufacturers and
Traders Limited must have agreed to the scheme of arrangement.
(c) Minimum 20,625 members of SportsPoint Manufacturers and
Traders Limited must have agreed to the scheme of arrangement.
(d) Minimum 24,375 members of SportsPoint Manufacturers and
Traders Limited must have agreed to the scheme of arrangement.
5. Assuming that 40% of the total members of SportsPoint Manufacturers
and Traders Limited had attended the meeting to consider the scheme of
arrangement envisaging issue of bonus debentures in a particular ratio
and 30% of the total members had voted at the meeting, then minimum
how much shareholding in value was held by the minimum members who
voted in favour of the scheme in order that the scheme was considered
as approved:
(a) Minimum shareholding in value that was held by the minimum
members who voted in favour of the scheme in order that the
scheme was considered as approved must have been ` 4.5 crores.
(b) Minimum shareholding in value that was held by the minimum
members who voted in favour of the scheme in order that the
scheme was considered as approved must have been ` 6.0 crores.
(c) Minimum shareholding in value that was held by the minimum
members who voted in favour of the scheme in order that the
scheme was considered as approved must have been ` 5.25 crores.
(d) Minimum shareholding in value that was held by the minimum
members who voted in favour of the scheme in order that the
scheme was considered as approved must have been ` 5.625
crores.
 CASE SCENARIOS 111

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) SportsPoint Manufacturers and Traders Limited intends to

utilise accumulated profits to the extent of ` 375 crores for issue of bonus
debentures.
Reason

Face value of Debenture is ` 150, since fully paid up debenture to be

issued as bonus for each share held and there are 2.5 crores outstanding
shares; therefore accumulated profits to the extent of ` 375 crores (2.5
crores debentures i.e. 1 for each share * ` 150 paid-up face value) per will
be utilised for issue of bonus debentures
2. Option (c) The shareholders of SportsPoint Manufacturers and Traders
Limited must have approved the scheme of arrangement envisaging issue
of bonus debentures in a particular ratio by simple majority of members
who had minimum shareholding of three-fourths in value.
Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
3. Option (d) Minimum 1.875 crore equity shares are required to be
held by the shareholders of SportsPoint Manufacturers and Traders
Limited to consider the scheme of arrangement as approved.
Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
112 CORPORATE AND ECONOMIC LAWS

ballot, agree to any compromise or arrangement and if such compromise

or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
The total outstanding shares are 2.5 crores, therefore 3/4th of 2.50 crores
outstanding equity shares come to 1.875 crores equity shares.
Presuming all attended the meeting and voted thereat.
4. Option (a) Minimum 18,751 members of SportsPoint Manufacturers
and Traders Limited must have agreed to the scheme of arrangement.
Reason
Section 230(6)

Where, at a meeting held, majority of persons representing three-fourths

in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
Note – majority of those who attended meeting and voted shall be
considered
Since only 40% attended the meeting and only 30% voted thereat hence
majority shall reckoned against 37,500 members (i.e. 125000*30%) that
comes out to 18,751.
5. Option (d) Minimum shareholding in value that was held by the minimum
members who voted in favour of the scheme in order that the scheme was
considered as approved must have been ` 5.625 crores.
Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
 CASE SCENARIOS 113

ballot, agree to any compromise or arrangement and if such compromise

or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
Note – Majority or 3/4th value of holding shall be of those who attended
the meeting and voted thereat.
Since only 40% attended the meeting and only 30% voted thereat hence
condition of 3/4th value holding shall reckoned against ` 7.5 crores (i.e.
2.5 crores * 30%) that comes out to ` 5.625 crores.
114 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 18

Pure Pharma Limited, incorporated under the Companies Act, 1956, is a

pharmaceutical company located at Hyderabad, Andhra Pradesh. Founded by
Annand Reddy and his family in the year 1971, it manufactures and markets a
wide range of pharmaceuticals in India. The company has over 100 medications,
above 30 active pharmaceutical ingredients for drug manufacture, various
diagnostic kits and bio-technology products.
The issued, subscribed and paid-up equity share capital of Pure Pharma Limited
as on 31st March, 2021, is ` 30 crore consisting of 30 crore equity shares of ` 1
each, which are listed on BSE Limited and National Stock Exchange of India
Limited. Earlier, there were 3 crore equity shares of the face value of ` 10 each
but after the stock split, the face value was reduced to Re. 1 per share, thus
increasing the number of shares to 30 crores i.e. 10 times in the hands of
shareholders.
In order to optimally utilise surplus reserves, Pure Pharma Limited intended to
issue bonus debentures to its equity shareholders by restructuring the general
reserves. These bonus debentures, when listed, would have the dual benefit of
avoiding, on the one hand, an upfront cash outflow for the company while
offering, on the other, the option of immediate liquidity for the shareholders.
Accordingly, Pure Pharma Limited formulated a scheme of arrangement for
issue and allotment by way of bonus, one fully paid-up 8%Debenture of the
face value of ` 20 each, by utilizing its free reserves, for every one fully paid-up
equity share of face value of ` 1 each held by total 50,000 members as on the
record date.
So far as the issue of bonus debentures out of free reserves was concerned,
there was no arrangement with the creditors of Pure Pharma Limited.
Consequently, no compromise was offered under the scheme of arrangement
to any of the creditors of the company. The liability of the creditors under the
scheme, was neither being reduced nor being extinguished.
In pursuance of the so formulated scheme of arrangement, Pure Pharma
Limited filed the said scheme with the National Company Law Tribunal (NCLT)
for issue of secured non-convertible redeemable fully paid-up 8%Debentures
 CASE SCENARIOS 115

by way of bonus to its members as on the record date out of the free reserves
lying to the credit of General Reserve Account under Sections 230 to 232 and
other applicable provisions of the Companies Act, 2013.
Pursuant to the Order passed by the Hon’ble National Company Law Tribunal
(NCLT), a meeting of the equity shareholders of the company was convened
at the registered office of the company. In accordance with the provisions of
Sections 230 to 232 of the Companies Act, 2013, the scheme was agreed to
by the requisite members.

The Order, dated 2nd August 2021, passed by the Hon’ble National Company
Law Tribunal (NCLT) approving the scheme of arrangement was received by
Pure Pharma Limited on 6th August 2021 and thereafter, the same was filed
with the jurisdictional Registrar of Companies.

MULTIPLE CHOICE QUESTIONS

1. How many 8%Debentures are required to be issued by Pure Pharma

Limited in pursuance of the scheme of arrangement as approved by the
NCLT?
(a) 25 crores 8%Debentures
(b) 30 crores 8%Debentures
(c) 50 crores 8%Debentures
(d) 50,000 8%Debentures

2. What is the amount that Pure Pharma Limited intends to utilise out of
accumulated profits for issue of bonus debentures as per the scheme of
arrangement?

(a) ` 30 crores
(b) ` 50 crores
(c) ` 25 crores

(d) ` 600 crores

116 CORPORATE AND ECONOMIC LAWS

3. What is the last date for filing the Order of NCLT which approved the
scheme of arrangement with the Registrar of Companies?

(a) 1st September, 2021

(b) 5th September, 2021
(c) 21st August, 2021

(d) 17th August, 2021

4. Minimum how much equity shareholding in value is required to be held
by the specified majority of members voting in favour of the scheme for
approving the said scheme of arrangement, if all the members attend and
vote at the meeting?
(a) Minimum shareholding of ` 16.5 crores.
(b) Minimum shareholding of ` 18.0 crores.
(c) Minimum shareholding of ` 21.0 crores.
(d) Minimum shareholding of ` 22.50 crores.

5. Minimum how many members of Pure Pharma Limited must agree to the
scheme of arrangement, if 50% of total members of the company attend
and 40% of the total members vote at the meeting?
(a) Minimum 10,001 members.
(b) Minimum 37,500 members.
(c) Minimum 25,001 members.

(d) Minimum 37,501 members.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) 30 crores 8%Debentures

Reason
There are 30 crores outstanding share, and it is provided for each one
share held a bonus debenture to be issued; therefore 30 crore debentures
to be issued.
 CASE SCENARIOS 117

2. Option (d) ` 600 crores

Reason
Since the face value of each debenture is ` 20 to be issued as fully paid
bonus debenture hence ` 600 crores (i.e. 30 crores debenture * ` 20 per
debenture) shall be utilized out of free reserve.

3. Option (b) 5th September, 2021

Reason
Section 230(8)

The order of the Tribunal shall be filed with the Registrar by the company
within a period of thirty days of the receipt of the order.
4. Option (d) Minimum shareholding of ` 22.50 crores.
Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.

The total paid up share capital is INRs ` 30 crores, therefore 3/4th of ` 30

crores that come to ` 22.5 crores shall be minimum shareholding that
should assent (vote in favour) to scheme.

5. Option (a) Minimum 10,001 members.

Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
118 CORPORATE AND ECONOMIC LAWS

or arrangement is sanctioned by the Tribunal by an order, the same shall

be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
Note – majority of those who attended meeting and voted shall be
considered.

Since only 50% attended the meeting and only 40% voted thereat hence
majority shall reckoned against 40% i.e. 20,000 members (i.e. 50,000*40%)
that comes out to 10,001.
 CASE SCENARIOS 119

CASE SCENARIO 19

Healthy Bakeries Limited, founded by Avdhesh Sinha and his six cousins in the
year 1980 under the Companies Act, 1956 and having its Registered Office at
Lucknow, is one of India’s leading food company. Over the years, it has become
one of the most trusted food brands which includes a variety of biscuits, breads,
cakes and dairy products in its product portfolio. Its products are available
across the country in close to 25,00,000 retail outlets and reach over 40% of
Indian homes.
The issued, subscribed and paid-up equity share capital of Healthy Bakeries
Limited as on 31 March, 2021 is ` 50 crores consisting of 50 crore equity shares
of ` 1 each, which are listed on BSE Limited and National Stock Exchange of
India Limited. Some years back, Healthy Bakeries Limited had resorted to stock
split and changed the face value of each share from ` 10 to Re. 1, which
increased the total number of shares ten times. Accordingly, the number of
shares increased to 50 crores from the earlier 5 crores.
The Board of Directors of Healthy Bakeries Limited was keen to reward its
shareholders for their support and belief in the company. In pursuance to this
objective, a scheme of arrangement was designed for issue and allotment by
way of bonus, one fully paid-up 8.5%Debenture of the face value of ` 10 each,
by utilizing its accumulated profits, for every one fully paid-up equity share of
face value of ` 1 each held by total 60,000 members as on the record date.
After formulating the scheme of arrangement, Healthy Bakeries Limited filed
the same with the jurisdictional National Company Law Tribunal (NCLT) for issue
of secured, non-convertible, redeemable, fully paid-up 8.5%Debentures by way
of bonus to its members as on record date out of the accumulated profits lying
to the credit of Profit & Loss Account, under Sections 230 to 232 and other
applicable provisions of the Companies Act, 2013.
Pursuant to the Order passed by the National Company Law Tribunal (NCLT), a
meeting of the equity shareholders of Healthy Bakeries Limited was convened
at its Registered Office. In accordance with the provisions of Sections 230 to
232 of the Companies Act, 2013, the scheme was agreed to by the requisite
members.
120 CORPORATE AND ECONOMIC LAWS

It is worth noting that the Certificate furnished by BLR & Co., LLP, Statutory
Auditors, as regards the accounting treatment proposed in the scheme of
arrangement, was in conformity with the accounting standards prescribed
under Section 133 of the Companies Act, 2013. The said Certificate was filed
with the National Company Law Tribunal (NCLT) and was kept open for
inspection by the equity shareholders of the company at its Registered Office
between 10.00 A.M. to 2.00 P.M. on all days (except Saturdays, Sundays and
public holidays) up to the date of the meeting.

MULTIPLE CHOICE QUESTIONS

1. How many 8.5%Debentures shall be issued by Healthy Bakeries Limited in

pursuance of the scheme of arrangement?
(a) In pursuance of the scheme of arrangement, Healthy Bakeries
Limited shall issue 50 crores 8.5% Debentures.
(b) In pursuance of the scheme of arrangement, Healthy Bakeries
Limited shall issue 30 crores 8.5% Debentures.
(c) In pursuance of the scheme of arrangement, Healthy Bakeries
Limited shall issue 5 crores 8.5% Debentures.

(d) In pursuance of the scheme of arrangement, Healthy Bakeries

Limited shall issue 60,000 8.5% Debentures.
2. Select the correct option from those given below that indicates the
amount which Healthy Bakeries Limited shall utilize out of accumulated
profits for issue of bonus debentures?
(a) ` 50 crores of accumulated profits.

(b) ` 500 crores of accumulated profits.

(c) ` 25 crores of accumulated profits.
(d) ` 600 crores of accumulated profits.
3. Is it incumbent upon Healthy Bakeries Limited to obtain and file with
NCLT, the Certificate as regards to the conformity of accounting treatment
with the Accounting Standards prescribed under Section 133 of the Act,
proposed in the scheme from statutory auditors?
 CASE SCENARIOS 121

(a) It is not incumbent upon Healthy Bakeries Limited to file the said
Certificate.

(b) From the point of view of good corporate governance, Healthy

Bakeries Limited may file the said Certificate.
(c) Healthy Bakeries Limited may obtain the said Certificate from any
practicing Chartered Accountant and not necessarily from statutory
auditors, since it is just a formality to file it.
(d) Healthy Bakeries Limited is required to obtain the said Certificate
only from the statutory auditors for filing it with the NCLT.
4. Minimum how much equity shareholding in value is required to be held
by the specified majority of members voting in favour of the scheme of
arrangement for approving it, if all the members attend and vote at the
meeting?
(a) In the above situation, minimum ` 30.0 crores of shareholding is
required to be held by the specified majority of members voting in
favour of the scheme of arrangement for approving it.
(b) In the above situation, minimum ` 32.50 crores of shareholding is
required to be held by the specified majority of members voting in
favour of the scheme of arrangement for approving it.
(c) In the above situation, minimum ` 35.0 crores of shareholding is
required to be held by the specified majority of members voting in
favour of the scheme of arrangement for approving it.
(d) In the above situation, minimum ` 37.50 crores of shareholding is
required to be held by the specified majority of members voting in
favour of the scheme of arrangement for approving it.
5. Minimum how many members of Healthy Bakeries Limited must have
agreed to the scheme of arrangement, if 30% of total members of the
company had attended the meeting and 20% of the total members had
voted at the meeting?
(a) Minimum 6,001 members.
(b) Minimum 9,001 members.
122 CORPORATE AND ECONOMIC LAWS

(c) Minimum 45,000 members.

(d) Minimum 30,001 members.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) In pursuance of the scheme of arrangement, Healthy

Bakeries Limited shall issue 50 crores 8.5% Debentures.

Reason
After the stock split there are 50 crores shares, and one fully paid 8.5%
debenture to be issued in form of bonus against each share held; hence
50 crores 8.5% Debentures to be issued.
2. Option (b) ` 500 crores of accumulated profits.
Reason

Since 50 crores fully paid 8.5% debenture to be issued in form of bonus

and face value of each debenture is 10; therefore amount which Healthy
Bakeries Limited shall utilize out of accumulated profits for issue of bonus
debentures is ` 500 crores (i.e. 50 crores*10)
3. Option (d) Healthy Bakeries Limited is required to obtain the said
Certificate only from the statutory auditors for filing it with the NCLT.
Reason
Proviso to section 230(7)
No compromise or arrangement shall be sanctioned by the Tribunal
unless a certificate by the company’s auditor has been filed with the
Tribunal to the effect that the accounting treatment, if any, proposed in
the scheme of compromise or arrangement is in conformity with the
accounting standards prescribed under section 133.
4. Option (d) In the above situation, minimum ` 37.50 crores of
shareholding is required to be held by the specified majority of members
voting in favour of the scheme of arrangement for approving it.
Reason
Section 230(6)
 CASE SCENARIOS 123

Where, at a meeting held, majority of persons representing three-fourths

in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
The total outstanding shares are 50 crores (` 50 crores), and 3/4th of such
come to 37.50 crores equity shares (i.e. ` 37.50 crores)
5. Option (a) Minimum 6,001 members.
Reason
Section 230(6)
Where, at a meeting held, majority of persons representing three-fourths
in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement and if such compromise
or arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be.
Note – majority of those who attended meeting and voted shall be
considered.
Since only 30% attended the meeting and only 20% voted thereat hence
majority shall reckoned against 20% i.e. 12,000 members (i.e. 60,000*20%)
that comes out to 6,001.
124 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 20

Oriental Bakers Private Limited, having its Registered Office at Connaught Place,
New Delhi, was incorporated on 25.04.2003 under the Companies Act, 1956. It
is a Wholly-owned Subsidiary (WoS) of JKL Industries Limited and is currently
engaged in the business of manufacturing, retailing and institutional sales of
regular breads as well as a wide range of premium gourmet bakery products.
As against the Authorised Capital of ` 11.00 crores divided into 1.10 crore equity
shares of ` 10 each, the issued, subscribed and paid-up capital of Oriental
Bakers Private Limited is ` 10 crores divided into one crore equity shares of
` 10 each as at 31.03.2021.
JKL Industries Limited, having its Registered Office at Bhikaji Cama Place, New
Delhi, was incorporated on 25.04.2000 under the provisions of the Companies
Act, 1956 and is a leading food company in India. Its Authorised Capital is ` 50
crores divided into 5 crore equity shares of ` 10 each. As at 31.03.2021, the
authorised share capital is fully issued and subscribed by the shareholders.
As regards demerger of some of the divisions of Oriental Bakers Private Limited
into JKL Industries Limited, negotiations were going on for quite some time.
The end result was that a scheme of arrangement was finally agreed upon
between both the companies. Accordingly, a scheme of arrangement was
presented to the jurisdictional National Company Law Tribunal (NCLT) pursuant
to Sections 230 to 232 and other applicable provisions of the Companies Act,
2013, for demerger of the Manufacturing Business division and Retail Sales
Business division of Oriental Bakers Private Limited into JKL Industries Limited.
The Institutional Sales business shall, as hitherto, continue to belong to and be
vested in and be continued to be owned and managed by Oriental Bakers
Private Limited.
The appointed date of the scheme as set out in its present form with any
modification or modifications and as approved or imposed or directed by
National Company Law Tribunal (NCLT) shall be 01.04.2021.
Pursuant to the Order passed by the National Company Law Tribunal (NCLT),
meetings of the equity shareholders of the both companies were called and
 CASE SCENARIOS 125

held at their respective Registered Offices and the requisite members agreed to
the scheme of arrangement on 30.04.2021.

National Company Law Tribunal (NCLT) passed the Order approving the scheme
of arrangement between Oriental Bakers Private Limited and JKL Industries
Limited on 05.07.2021, and the copy of the order was filed with the jurisdictional
Registrar of Companies on 11.07.2021. This is the date on which the presently
approved scheme of arrangement shall come into effect.

MULTIPLE CHOICE QUESTIONS

1. In accordance with the scheme of arrangement agreed upon between

Oriental Bakers Private Limited and JKL Industries Limited, which type of
company Oriental Bakers Private Limited shall be:
(a) A transferee company.
(b) A transferor company.
(c) Neither transferee nor transferor company.
(d) Both transferee and transferor company.
2. In accordance with the scheme of arrangement agreed upon between
Oriental Bakers Private Limited and JKL Industries Limited, which type of
company JKL Industries Limited shall be:
(a) A transferee company.
(b) A transferor company.

(c) Neither transferee nor transferor company.

(d) Both transferee and transferor company.
3. Taking cue from the above case scenario, how shall the consideration be
payable by JKL Industries Limited to Oriental Bakers Private Limited for
transfer of latter company’s Manufacturing Business division and Retail
Sales Business division?
(a) The consideration shall be payable by JKL Industries Limited
through issue of adequate number of shares to cover the value of
net assets transferred.
126 CORPORATE AND ECONOMIC LAWS

(b) The consideration shall be payable by JKL Industries Limited in cash

or its equivalent to be calculated in accordance with the value of net
assets transferred.
(c) The consideration shall be payable by JKL Industries Limited
through issue of adequate number of shares to cover the value of
gross assets transferred.
(d) No consideration shall be payable by JKL Industries Limited since
Oriental Bakers Private Limited is its Wholly- owned Subsidiary.
4. Out of the following options, choose the correct date from which the scheme
of arrangement agreed upon between Oriental Bakers Private Limited and
JKL Industries Limited shall be effective:
(a) 30.04.2021
(b) 01.04.2021
(c) 05.07.2021
(d) 11.07.2021
5. Choose the correct alternative from those stated below as to whether
Oriental Bakers Private Limited shall be dissolved without winding up by
virtue of approval of scheme of arrangement by National Company law
Tribunal (NCLT):
(a) Since Oriental Bakers Private Limited is getting demerged into JKL
Industries Limited, it shall be dissolved without winding up.
(b) Since Institutional Sales business of Oriental Bakers Private Limited
is going to be owned and continued by itself, it shall not be
dissolved.
(c) Since Manufacturing Business division and Retail Sales Business
division of Oriental Bakers Private Limited are going to be
transferred it shall be dissolved without winding up.
(d) Since Oriental Bakers Private Limited is a Wholly-owned Subsidiary
of JKL Industries Limited, it shall be dissolved without winding up.
 CASE SCENARIOS 127

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) A transferor company.

Reason
Section 232 (1)(b)
Under the scheme of a compromise or an arrangement (merger and
amalgamation as well as demerger), the whole or any part of the
undertaking, property or liabilities of any company (shall referred to as
the transferor company) is required to be transferred to another company
(shall referred to as the transferee company).
2. Option (a) A transferee company.
Reason

Section 232 (1)(b)

Under the scheme of a compromise or an arrangement (merger and
amalgamation as well as demerger), the whole or any part of the
undertaking, property or liabilities of any company (shall referred to as
the transferor company) is required to be transferred to another company
(shall referred to as the transferee company).

3. Option (d) No consideration shall be payable by JKL Industries

Limited since Oriental Bakers Private Limited is its Wholly-owned
Subsidiary.
Reason
As the Transferor Companies are wholly-owned subsidiaries of the
Transferee Company and the entire share capital of the Transferor
Companies are held by the Transferee Company, no consideration shall
be payable and the shares held by the Transferee Company in the
Transferor Companies shall stand cancelled without any further act,
application or deed.
Section 233 deals with arrangement between Holding and WOS
companies.
128 CORPORATE AND ECONOMIC LAWS

It worth noting that Companies Act 2013 otherwise also prohibits a

subsidiary company by itself or through its nominee cannot hold shares
in a holding company.
To ensure students must understand practical application, I am
mentioning one scheme and one order

1. Scheme – Accenture – Refer Para 9

2. Order from Mumbai NCLT – Nirlep into Bajaj Electronic – Refer Para
7 & Arrina into Upgrade – Refer Para 6

4. Option (b) 01.04.2021.

Reason
Section 232(5)
The scheme under this section shall clearly indicate an appointed date
from which it shall be effective and the scheme shall be deemed to be
effective from such date and not at a date subsequent to the appointed
date.
In given case, it is 1st of April 2021.
5. Option (b) Since Institutional Sales business of Oriental Bakers
Private Limited is going to be owned and continued by itself, it shall not
be dissolved.
Reason
Since operations are continued
Tribunal while approving the scheme has to ensure the need of making
provision for the dissolution, without winding-up, of any transferor
company. Since Institutional Sales business of Oriental Bakers Private
Limited is going to be owned and continued by itself, it shall not be
dissolved.
Students need to cautious - Plain reading of the sub-section 8 to section
233 which read as the registration of the scheme under sub-section (3) or
sub-section (7) shall be deemed to have the effect of dissolution of the
transferor company without process of winding-up may be misleading.
 CASE SCENARIOS 129

CASE SCENARIO 21

Arihant Furniture Private Limited, having its Registered Office at Janakpuri, New
Delhi and incorporated in the year 2011 under the provisions of the Companies
Act, 1956, is a top player in the category of office furniture. The company, a
Wholly-owned Subsidiary of Banka Industries Limited, manufactures all kinds of
high-quality office steel furniture like cabin-desks, work-stations, almirahs,
lockers, etc. In addition to manufacturing, it is also engaged in retailing and
institutional sale of its products.
On the other hand, Banka Industries Limited, having its Registered Office in
Dwarka, New Delhi was incorporated in the year 2009 under the provisions of
the Companies Act, 1956. Being a leading furniture company in India, it
manufactures luxury furniture that matches the comfort and increases the
beauty of the houses of the high-class buyers. It makes trendy furniture that fit
for modern life at homes. The equity shares of Banka Industries Limited are
listed on BSE Limited and National Stock Exchange of India Limited.
Demerger of business of Arihant Furniture Private Limited often engaged the
attention of both the companies. A time came when a Scheme of Arrangement
was formulated pursuant to Sections 230 to 232 and other applicable provisions
of the Companies Act, 2013, for demerger of the Manufacturing Business
division and Retail Sales Business division of Arihant Furniture Private Limited
into Banka Industries Limited.
The Institutional Sales business shall continue to belong to and be vested in
and be continued to be owned and carried on by Arihant Furniture Private
Limited as going concern.

The Scheme of Arrangement as formulated between Arihant Furniture Private

Limited and Banka Industries Limited was presented before the jurisdictional
National Company Law Tribunal (NCLT) which directed both the companies to
hold the meetings of their equity shareholders respectively.
The notices of the meetings along with required documents, inter-alia, were
also sent to the Income Tax Department on 05-06-2021, requiring their
representation, if any, on the scheme of arrangement, which was received by
the Department on 09-06-2021.
130 CORPORATE AND ECONOMIC LAWS

Accordingly, as per the orders of NCLT, the respective meetings of both the
companies were called and held on 30-07-2021 at their respective Registered
Offices and the requisite number of members agreed to the scheme of
arrangement.
The appointed date of the scheme set out in its present form with any
modification or modifications approved or imposed or directed by the National
Company Law Tribunal (NCLT) was fixed as 01-09-2021 whereas it approved the
said scheme of arrangement between the companies by order dated 03-09-
2021. The copy of the order was filed with the jurisdictional Registrar of
Companies on 10-09-2021 which shall be the date on which the scheme of
arrangement comes into effect.

MULTIPLE CHOICE QUESTIONS

1. In accordance with the scheme of arrangement agreed upon between

Arihant Furniture Private Limited and Banka Industries Limited, in which
category, Arihant Furniture Private Limited shall fall:
(a) Arihant Furniture Private Limited shall fall within the category of a
transferor company.
(b) Arihant Furniture Private Limited shall fall within the category of a
transferee company.
(c) Arihant Furniture Private Limited shall fall within the category of
both transferor and transferee companies.
(d) Arihant Furniture Private Limited shall fall within the category of
neither transferor nor transferee company.

2. In accordance with the scheme of arrangement agreed upon between

Arihant Furniture Private Limited and Banka Industries Limited, in which
category, the latter company Banka Industries Limited shall fall:

(a) Banka Industries Limited shall fall within the category of a transferee
company.
(b) Banka Industries Limited shall fall within the category of a transferor
company.
 CASE SCENARIOS 131

(c) Banka Industries Limited shall fall within the category of neither
transferee nor transferor company.

(d) Banka Industries Limited shall fall within the category of a both
transferee and transferor company.
3. Considering the above case scenario, how shall the consideration be
payable by Banka Industries Limited to Arihant Furniture Private Limited
for transfer of latter company’s Manufacturing Business division and
Retail Sales Business division in pursuance of scheme of arrangement as
approved by NCLT?
(a) The consideration shall be payable by Banka Industries Limited
through issue of sufficient number of shares to cover the value of
net assets transferred.
(b) The consideration shall be payable by Banka Industries Limited in
cash or its equivalent to cover the value of net assets transferred.

(c) The consideration shall be payable by Banka Industries Limited

through issue of sufficient number of shares to cover the value of
gross assets transferred.

(d) No consideration shall be payable by Banka Industries Limited since

Arihant Furniture Private Limited is Wholly-owned Subsidiary of
Banka Industries Limited.

4. Which option do you think is correct as regards the date from which the
scheme of arrangement agreed upon between Arihant Furniture Private
Limited and Banka Industries Limited shall be effective?

(a) 30-07-2021
(b) 01-09-2021
(c) 03-09-2021

(d) 10-09-2021
5. Select the correct option from those given below as to the time period
within which the Income Tax Department is required to make
representation on the scheme of arrangement sent by Arihant Furniture
Private Limited and Banka Industries Limited?
132 CORPORATE AND ECONOMIC LAWS

(a) Income Tax Department is permitted to make its representation

within 30 days from the date of notice sent by Arihant Furniture
Private Limited and Banka Industries Limited.
(b) Income Tax Department is permitted to make its representation
within 30 days from the date of receipt of notice sent by Arihant
Furniture Private Limited and Banka Industries Limited.
(c) Income Tax Department is permitted to make its representation
within 45 days from the date of notice sent by Arihant Furniture
Private Limited and Banka Industries Limited.
(d) Income Tax Department is permitted to make its representation
within 45 days from the date of receipt of notice sent by Arihant
Furniture Private Limited and Banka Industries Limited.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Arihant Furniture Private Limited shall fall within the
category of a transferor company.
Reason
Section 232 (1)(b)

Under the scheme of a compromise or an arrangement (merger and

amalgamation as well as demerger), the whole or any part of the
undertaking, property or liabilities of any company (shall referred to as
the transferor company) is required to be transferred to another company
(shall referred to as the transferee company).
2. Option (a) Banka Industries Limited shall fall within the category of a
transferee company.
Reason
Section 232 (1)(b)
Under the scheme of a compromise or an arrangement (merger and
amalgamation as well as demerger), the whole or any part of the
undertaking, property or liabilities of any company (shall referred to as
 CASE SCENARIOS 133

the transferor company) is required to be transferred to another company

(shall referred to as the transferee company).

3. Option (d) No consideration shall be payable by Banka Industries

Limited since Arihant Furniture Private Limited is Wholly-owned
Subsidiary of Banka Industries Limited.

Reason
As the Transferor Companies are wholly-owned subsidiaries of the
Transferee Company and the entire share capital of the Transferor
Companies are held by the Transferee Company, no consideration shall
be payable and the shares held by the Transferee Company in the
Transferor Companies shall stand cancelled without any further act,
application or deed.
It worth noting that Companies Act 2013 otherwise also prohibits a
subsidiary company by itself or through its nominee cannot hold shares
in a holding company.
To ensure students must understand practical application, I am
mentioning one scheme and one order
1. Scheme – Accenture – Refer Para 9
2. Order from Mumbai NCLT – Nirlep into Bajaj Electronic – Refer Para
7 & Arrina into Upgrade – Refer Para 6
4. Option (b) 01-09-2021.
Reason
Section 232(6)

The scheme under this section shall clearly indicate an appointed date
from which it shall be effective and the scheme shall be deemed to be
effective from such date and not at a date subsequent to the appointed
date.
In given case such date is 1st September 2021.
134 CORPORATE AND ECONOMIC LAWS

5. Option (b) Income Tax Department is permitted to make its

representation within 30 days from the date of receipt of notice sent by
Arihant Furniture Private Limited and Banka Industries Limited.
Reason
Section 230 (5)

A notice (of meeting that is proposed to be called in pursuance of an

order of the Tribunal) along with all the documents in such form as may
be prescribed shall also be sent to the Central Government, the income-
tax authorities, RBI, SEBI, CCI (if required), the Registrar, the respective
stock exchanges, the Official Liquidator, and such other sectoral
regulators or authorities which are likely to be affected by the
compromise or arrangement and shall require that representations, if any,
to be made by them shall be made within a period of thirty days from the
date of receipt of such notice, failing which, it shall be presumed that they
have no representations to make on the proposals.
In given case the notices of the meetings along with required documents,
inter-alia, were also sent to the Income Tax Department on 5th June 2021,
requiring their representation, if any, on the scheme of arrangement,
which was received by the Department on 9th June 2021. Hence have time
to make representation till 8th July 2021.
 CASE SCENARIOS 135

CASE SCENARIO 22

OakTree Software Limited, incorporated in Singapore, deals in development

and distribution of software and related services. On establishing a place of
business in India at Chennai, Tamil Nadu, the company prepared the following
documents for submission to the Registrar having appropriate jurisdiction:
1 A certified true copy of the company’s constitution originally framed in
English.
2. Full address of the registered office of the company.
3. A list of the Directors and Secretary of the company containing the
prescribed particulars.
4. The names and addresses of three persons resident in India authorised to
accept on behalf of the company service of process and any notices or
other documents required to be served on the company.
5. Full address of the office of the company in Chennai, Tamil Nadu. This
office is deemed to be its principal place of business in India.

6. A signed declaration that none of the Directors of the company had ever
been convicted or debarred from formation of companies and
management in India or abroad.

7. A declaration that OakTree Software Limited was establishing a place of

business in India for the first time and therefore, no particulars were
available as regards opening and closing of a place of business in India
on earlier occasions.
Following are the names of Directors and Company Secretary:

Directors Company Secretary

1. Mr. Bob Mr. Vipul Shah
2. Mr. Thomas
3. Mr. Sumedh Soni
4. Mr. Anuj Subhash
5. Mrs. Alka Rege
136 CORPORATE AND ECONOMIC LAWS

6. Mrs. Vandana Vinit

7. Mr. Anvay Harshe
8. Mr. Ashok Tripathi
9. Mr. Ashish Tyagi

Mr. Bob is non-resident and 49 years of age. Mr. Thomas is also non-resident
and only 20 years of age.

Mr. Sumedh Soni had business interests in London. He left India for London on
1st September, 2020 for the purpose of looking after his business. He came back
to India on 2nd December, 2020 to spend some time with his parents and left
India on 5th February, 2021 and went back to London for carrying on his
business on a large scale. He again visited India on 5th March, 2021 for
attending certain meetings relating to his business and exploring other
business opportunities which would enhance his marketing business in
London and stayed in India till 15thNovember, 2021.
In fact, Mr. Sumedh Soni was not at all interested in the software business of
OakTree Software Limited and due to his non-availability he had serious
management disputes. Accordingly, he was prevailed upon by the other
Directors to resign from his Directorship in OakTree and in his place Mr.
Somnath was appointed as Director, who just returned to India from state
after serving a reputed MNC there for 15 years. Mr. Somnath returned to India
with intent to do occupation and finally settle in India only.
Later on, Mr. Somnath was designated as Managing Director of OakTree.
Accordingly, the documents sent earlier to the office of the Registrar of
Companies were altered.

Mr. Somnath is responsible for gathering business opportunities so that

software business of OakTree gets flourished. He often travels abroad for
business purpose.

The entire team of OakTree is putting its best efforts to scale up the business
operations in Singapore, India and other prominent countries.
 CASE SCENARIOS 137

MULTIPLE CHOICE QUESTIONS

1. Which one of the following options specifies the applicable Form and time
period within which the OakTree Software Limited is required to submit
the prescribed documents to the Jurisdictional Registrar of Companies on
establishment of its place of business in Chennai, Tamil Nadu:
(a) OakTree Software Limited is required to submit Form GNL-1 within
30 days of establishment of its place of business in Chennai, Tamil
Nadu to the ROC having jurisdiction over Kolkata.

(b) OakTree Software Limited is required to submit Form FC-1 within 30

days of establishment of its place of business in Chennai, Tamil
Nadu to the ROC having jurisdiction over New Delhi.
(c) OakTree Software Limited is required to submit Form FC- 2 within
60 days of establishment of its place of business in Chennai, Tamil
Nadu to ROC having jurisdiction over Mumbai.
(d) OakTree Software Limited is required to submit Form FC-1 within 30
days of establishment of its place of business in Chennai, Tamil
Nadu to ROC having jurisdiction over Chennai.
2. Suppose OakTree Software Limited after establishment of a place of
business in Chennai, Tamil Nadu fails to deliver the required documents
to the jurisdictional Registrar of Companies within the prescribed time.
From the following options, choose the one which is applicable in the
given situation:
(a) OakTree Software Limited shall be punishable with minimum fine of
` 3,00,000 and maximum of ` 5,00,000 and in case of continuing
offence with an additional fine up to ` 50,000 for every day after the
first during which the contravention continues and every officer of
this foreign company who is in default shall be punishable with
minimum fine of ` 50,000 and maximum of ` five lakhs.
(b) OakTree Software Limited shall be punishable with minimum fine of
` 50,000 and maximum of ` 5,00,000 and in case of continuing
offence with an additional fine up to ` 25,000 for every day after
the first during which the contravention continues and every
138 CORPORATE AND ECONOMIC LAWS

officer of this foreign company who is in default shall be punishable

with minimum fine of ` 25,000 and maximum of ` 3,00,000.

(c) OakTree Software Limited shall be punishable with minimum fine of

` 2,00,000 and maximum of ` 5,00,000 and in case of continuing
offence with an additional fine up to ` 50,000 for every day after the
first during which the contravention continues and every officer
of this foreign company who is in default shall be punishable with
minimum fine of ` 1,00,000 and maximum of ` 3,00,000.

(d) OakTree Software Limited shall be punishable with minimum fine of

` 1,00,000 and maximum of ` 3,00,000 and in case of continuing
offence with an additional fine up to ` 50,000 for every day after the
first during which the contravention continues and every officer of
this foreign company who is in default shall be punishable with
minimum fine of ` 25,000 and maximum of ` 5,00,000.
3. The case scenario states that there was change in Directorship with the
appointment of Mr. Somnath in place of Mr. Sumedh Soni. Which one of
the following options correctly specifies the Form and time period within
which OakTree Software Limited is required to intimate the jurisdictional
Registrar in respect of such alteration in the documents filed earlier?
(a) OakTree Software Limited is required to intimate in respect of
alteration in the documents filed earlier in Form FC-2 within 30 days
of alteration.
(b) OakTree Software Limited is required to intimate in respect of
alteration in the documents filed earlier in Form FC-2 within 60 days
of alteration.
(c) OakTree Software Limited is required to intimate in respect of such
alteration in the documents filed earlier in Form FC-3 within 30 days
of alteration.
(d) OakTree Software Limited is required to intimate in respect of
alteration in the documents filed earlier in Form FC-3 within 60 days
of alteration.
 CASE SCENARIOS 139

4. Regarding the documents to be submitted by OakTree Software Limited

for registration, choose the correct statement out of followings:

(a) All the documents required to be filed with the Registrar by the
foreign companies can be any language.

(b) All the documents required to be filed with the Registrar by the
foreign companies shall be in language of territory to which such
foreign company belongs to.

(c) All the documents required to be filed with the Registrar by the
foreign companies shall be in English language and where any such
document is not in English language, there shall be attached a
translation thereof in English language duly certified to be correct.

(d) All the documents required to be filed with the Registrar by the
foreign companies shall be in language of territory to which such
foreign company belongs to and where any such document is not
in said language, there shall be attached a translation thereof in said
language duly certified to be correct.

5. Regarding the appointment of MD by OakTree Software Limited, which of

the following statements is correct?

(a) Any person whether resident in India or non-resident, who

completed 21 year of age can be appointed as MD by OakTree
Software Limited; hence Mr. Bob can be MD; but Mr. Thomas can’t.

(b) Since OakTree Software Limited is foreign company hence only non-
resident can be appointed as MD. Only Mr. Bob can be appointed
as MD.

(c) Any director other than Mr. Bob, Mr. Thomas, and Mr. Somnath can
be appointed as MD.

(d) Mr. Somnath can be appointed as MD.

140 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) OakTree Software Limited is required to submit Form FC-

1 within 30 days of establishment of its place of business in Chennai, Tamil
Nadu to the ROC having jurisdiction over New Delhi.
Reason
Section 380(1) read with rule 3 and 8 of Companies (Registration of
Foreign Companies) Rules,2014
Every foreign company shall, within thirty days of the establishment of its
place of business in India, deliver Form FC-1 with such fee as provided in
Companies (Registration Offices and Fees) Rules, 2014 and with the
documents required to be delivered for registration to the Registrar
(Registrar having jurisdiction over New Delhi).
Note – Form FC-1 Substituted vide MCA Notification G.S.R.36(E) dated
20.01.2023.
2. Option (d) OakTree Software Limited shall be punishable with
minimum fine of ` 1,00,000 and maximum of ` 3,00,000 and in case of
continuing offence with an additional fine up to ` 50,000 for every day
after the first during which the contravention continues and every officer
of this foreign company who is in default shall be punishable with
minimum fine of ` 25,000 and maximum of ` 5,00,000.
Reason
Section 292
Note - Since non submission of document is default of continuing nature
hence penalty will between one lac to three lacs in addition to fifty
thousand for each day till the documents actually submitted by OakTree
Software Limited.
3. Option (a) OakTree Software Limited is required to intimate in
respect of alteration in the documents filed earlier in Form FC-2 within 30
days of alteration
Reason
Section 380(3) read with rule 4 of Companies (Registration of Foreign
Companies) Rules,2014
 CASE SCENARIOS 141

Where any alteration is made or occurs in the document delivered to the

Registrar for registration under sub-section (1) of section 380, the foreign
company shall file with the Registrar, a return in Form FC-2 along with the
fee as provided in the Companies (Registration Offices and Fees) Rules,
2014 containing the particulars of the alteration, within a period of thirty
days from the date on which the alteration was made or occurred.
Note – Form FC-2 Substituted vide MCA Notification G.S.R.36(E) dated
20.01.2023.
4. Option (c) All the documents required to be filed with the Registrar
by the foreign companies shall be in English language and where any such
document is not in English language, there shall be attached a translation
thereof in English language duly certified to be correct.
Reason
Rule 10 of the Companies (Registration of Foreign Companies) Rules,2014
All the documents required to be filed with the Registrar by the foreign
companies shall be in English language and where any such document is
not in English language, there shall be attached a translation thereof in
English language duly certified to be correct in the manner given in these
rules.
5. Option (d) Mr. Somnath can be appointed as MD.
Reason
Part I of Schedule V
The person to be appointed as MD shall be the resident of India.
Explanation I.—For the purpose of this Schedule, resident in India includes
a person who has been staying in India for a continuous period of not less
than twelve months immediately preceding the date of his appointment
as a managerial person and who has come to stay in India,
(i) for taking up employment in India; or
(ii) for carrying on a business or vacation in India.
142 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 23

Mr. Shyam, Managing Director (Whole-time Key Managerial Personnel) of

Aloevera Products Ltd., was removed by the Board of Directors of the company
with the agreement that he shall be compensated for his early vacation of his
office. Mr. Shyam vacated the office of Managing Director on 31.05.2021 though
his original tenure of appointment with Aloevera Products Ltd. was to continue
upto 31.12.2023.
The remuneration drawn by Mr. Shyam since the date of his joining the office
is as follows:

Financial Year Remuneration (` in lakhs)

2019-20 55
2020-21 62
2021-22 (upto 31-05-2021) 13

The data collected from the Balance Sheet of Aloevera Products Ltd. as on
31.03.2021 is as follows:

Particulars (` in lakhs)
Paid-up Share Capital 1000
Share Application Money 200
General Reserve 500
Revaluation Reserve 250
Securities Premium 300
Long term loans 400
Funded Interest Term Loan (Payable after 1 year) 100
Working capital loan 200
Mutual Fund Investments 350
Miscellaneous Expenditure not written off 50

Mr. Tushar was appointed as the new Managing Director of Aloevera Products
Ltd. on 31.07.2021 in place of Mr. Shyam. The company decided to pay
remuneration to Mr. Tushar as per Section 197 (4) of the Companies Act, 2013.
 CASE SCENARIOS 143

Mr. Jay, one of the members of Aloevera Products Ltd., wanted to inspect
contract of service entered into by Aloevera Products Ltd. with Mr. Tushar for
assigning him the office of Managing Director but he was denied to have such
inspection on the grounds that the contract with Mr. Tushar was not in writing.

MULTIPLE CHOICE QUESTIONS

1. The maximum amount of compensation to which Mr. Shyam is entitled

for premature termination of his office as Managing Director shall be -
(a) ` 1.1194 crores
(b) ` 1.51125 crores
(c) ` 1.80 crores
(d) ` 1.55 crores
2. Choose from the following options, ‘effective capital’ of Aloevera Products
Ltd. as on 31.03.2021:
(a) ` 18 crores
(b) ` 21 crores
(c) ` 19 crores
(d) ` 16 crores

3. Regarding the request of Mr. Jay to inspect the contract of service entered
by company with Mr. Tushar, MD, identify the incorrect statement out of
followings;
i. Member can inspect the contract of service with MD or WTD only if
authorised by Article.
ii. Member may inspect the contract of service only after payment of
prescribed fee.
iii. Such contract of service shall kept at registered office of the
company.
(a) i, ii, and iii
(b) i and ii
144 CORPORATE AND ECONOMIC LAWS

(c) i and iii

(d) ii and iii
4. What was the last date till which Mr. Tushar should have been appointed,
in case he was not appointed on 31.07.2021?
(a) 31.08.2021

(b) 30.11.2021
(c) 30.11.2021
(d) 31.08.2021

5. Whether contention of Aloevera Products Ltd. for denying inspection to

Mr. Jay was correct and if not, what are the consequences of the same?
(a) Not correct, as contract of service with a Managing Director should
have been made in writing and kept at registered office of the
company. Aloevera Products Ltd. is liable to pay ` 25,000 and every
officer in default is liable to pay ` 5,000 for each default, as a penalty.
(b) Partially correct, the member has no right to inspect copy of
contract of service entered into with Managing Director but
Aloevera Products Ltd. has defaulted in not making the contract in
writing and accordingly is liable to pay ` 25,000 and every officer in
default is liable to pay ` 5,000 for each default, as a penalty.
(c) Not correct, if contract of service is not in writing then a written
memorandum should have been prepared by Aloevera Products Ltd.
depicting the terms of contract of service with Mr. Tushar and kept
at Registered Office of the company. Aloevera Products Ltd. is liable
to pay ` 25,000 and every officer in default is liable to pay ` 5,000
for each default, as a penalty.
(d) Correct, if contract is not in writing then member cannot ask for
inspection of the same and accordingly there are no consequences
on Aloevera Products Ltd. for such denial.
 CASE SCENARIOS 145

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) ` 1.55 crore

Reason
Sub-section 1 and 3 of section 202
Sub-section 1 allows a company to make payment to a MD or WTD or
manager by way of compensation for loss of office, or as consideration
for retirement from office or in connection with such loss or retirement.
Further sub-section3 Any payment made to a managing or whole-time
director or manager in pursuance of sub-section (1) shall not exceed the
remuneration which he would have earned if he had been in office for the
remainder of his term or for three years, whichever is shorter, calculated
on the basis of the average remuneration actually earned by him during
a period of three years immediately preceding the date on which he
ceased to hold office, or where he held the office for a lesser period than
three years, during such period.
The average monthly compensation is INRs 5 lacs i.e. (55+62+13 lacs) /
26 months (from 1st Jan 2019 till 31st May 2021).
Compensation shall be paid for 31 months (from 1st June 2021 till 31st
December 2023) at average rate of INRs 5 lacs per month that comes out
to INRs 1.55 crores.

2. Option (c) ` 19 crore

Reason
Section II read with explanation l and ll of section IV of schedule V of Act
2013
Effective capital means the aggregate of the paid-up share capital
(excluding share application money or advances against shares); amount,
if any, for the time being standing to the credit of share premium account;
reserves and surplus (excluding revaluation reserve); long term loans and
deposits repayable after one year (excluding working capital loans, over
drafts, interest due on loans unless funded, bank guarantee, etc., and
other short-term arrangements) as reduced by the aggregate of any
146 CORPORATE AND ECONOMIC LAWS

investments (except in case of investment by an investment company

whose principal business is acquisition of shares, stock, debentures or
other securities), accumulated losses and preliminary expenses not
written off.
Note - Effective capital shall be calculated as on the last date of the
financial year preceding the financial year in which the appointment of
the managerial person is made.
Hence effective capital as on 31.03.2021 is INRs 19 crores i.e.
1000+500+300+400+100-350-50
3. Option (b) i and ii
Reason
Sub-section 1 and 2 of Section 190
Every company shall keep at its registered office, a contract of service
entered with a managing or whole-time director is in writing, a copy of
the contract; or where such a contract is not in writing, a written
memorandum setting out its terms.
The copies of the contract or the memorandum shall be open to
inspection by any member of the company without payment of fee.
4. Option (b) Board Resolution and 30.11.2021 respectively
Reason

Section 203(4)
If the office of any whole-time key managerial personnel is vacated, the
resulting vacancy shall be filled-up by the Board at a meeting of the Board
within a period of six months from the date of such vacancy.
Mind it, MD is whole-time key managerial personnel as per 203(1)(a)
5. Option (c) Not correct, if contract of service is not in writing then a
written memorandum should have been prepared by Aloevera Products
Ltd. depicting the terms of contract of service with Mr. Tushar and kept at
Registered Office of the company. Aloevera Products Ltd. is liable to pay
` 25,000 and every officer in default is liable to pay ` 5,000 for each
default, as a penalty.
 CASE SCENARIOS 147

Reason
Section 190
Every company shall keep at its registered office, a contract of service
entered with a managing or whole-time director is in writing, a copy of
the contract; or where such a contract is not in writing, a written
memorandum setting out its terms.
The copies of the contract or the memorandum shall be open to
inspection by any member of the company without payment of fee.

Further sub-section 3 provided that, if any default is made in complying

with the provisions of sub-section (1) or sub-section (2), the company
shall be liable to a penalty of twenty-five thousand rupees and every
officer of the company who is in default shall be liable to a penalty of five
thousand rupees for each default.
148 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 24

Energy Food and Beverages Limited (EFBL), having its Registered Office at
Bhikaji Cama Place, New Delhi, is a reputed manufacturer and exporter of
different kinds of energy food, drinks and beverages. The market base of its
products in India is much wider in comparison to so many other competitors. It
is exploring more and more export markets all over the world.
The Board of Directors of EFBL comprises following Directors:

Functional Directors Independent Directors

Mr. Praveen Kumar, Managing Director Mrs. Hruta Varad
Ms. Ananya Vibor Mrs. Vartika Soni
Mr. Jay Doshi Mr. Shashi Vidur
Ms. Geetika Devi Mr. Aniruddha
Mr. Amol Udit
Mr. Abhimanyu
Mr. Fernandis
Mr. Robert

Mr. Anil Kumar, well versed in legal and regulatory matters, is the Company
Secretary of the company.
The information relating to foreign exchange earnings of EFBL in the previous
four financial years is as under are:

Financial Year Foreign Exchange Earnings (in USD)

2017-18 2,400,000
2018-19 2,500,000
2019-20 3,600,000
2020-21 4,000,000

With a view to enhance the production of beverages, EFBL imported a

machinery costing ` 60,00,000 from a reputed manufacturer of Singapore. In
accordance with the terms of payment, EFBL was required to repay the cost of
machinery in five equal monthly installments which the company did
 CASE SCENARIOS 149

satisfactorily. The machinery was delivered and thereafter, installed at the new
factory site at Noida, UP.

The company is proposing to incur an amount of USD 7,500 on advertisement

in foreign print media for the purpose of promotion of its beverages business
globally. The company is also planning to donate USD 200,000 to a technical
institution established in Chicago at USA for conducting advanced research in
the field of beverages.
Mr. Jay Doshi along with his family had gone to Bhutan on a private visit. While
returning to India, he is desirous of bringing with him Reserve Bank of India
notes amounting to ` 75,000 in denomination of ` 100.
Ms. Geetika Devi often visits her son Swapnil who is settled in Michigan, USA.
She came back to India from Michigan on July 02, 2019, spent some time with
her younger son Kartik and her mother in New Delhi and left India again on
September 05, 2019. She came back to India on November 30, 2019 but left for
Michigan with her mother on December, 04, 2019 to get her medically treated.
After her mother recovered from the ailment she was suffering, Ms. Geetika
Devi came back to India on August 30, 2020 and remained with her family in
New Delhi till date.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is evident that EFBL imported a machinery

costing ` 60,00,000 from a reputed manufacturer of Singapore and repaid
the cost of imported machinery in five equal monthly installments. From
the following options, choose the one which will apply in the given
circumstances:
(a) Import of machinery is a ‘Capital Account Transaction’ since the
imported machinery is a fixed asset and shall be used for a long
period by EFBL.
(b) Import of machinery is a ‘Current Account Transaction’ since
machinery shall be used in the production of saleable items like
beverages, etc. by EFBL.
150 CORPORATE AND ECONOMIC LAWS

(c) Import of machinery is a ‘Current Account Transaction’ since a short-

term credit facility in the ordinary course of business was availed by
EFBL.
(d) Import of machinery is a ‘Capital Account Transaction’ since a long-
term credit facility was availed by EFBL and the payment was made
in more than three months.
2. According to the case scenario, Mr. Jay Doshi, while returning to India, is
desirous of bringing with him Reserve Bank of India notes amounting to
` 75,000 in denomination of ` 100. Out of the following four options,
which one is applicable in the given circumstances?
(a) Mr. Jay Doshi is permitted to bring into India from Bhutan, Reserve
Bank of India notes amounting to ` 75,000 in denomination of ` 100.
(b) Mr. Jay Doshi is not permitted to bring into India from Bhutan,
Reserve Bank of India notes exceeding ` 25,000 in denomination of
` 100.
(c) Mr. Jay Doshi is permitted to bring into India from Bhutan, Reserve
Bank of India notes of any amount without limit but only in
denomination of ` 500.
(d) Mr. Jay Doshi is not permitted to bring into India from Bhutan,
Reserve Bank of India notes exceeding ` 10,000 in denomination of
` 100.
3. It is noticed from the case scenario that Ms. Geetika Devi, one of the
Directors of EFBL, remained in India and also outside India on various
dates. Which of the following options correctly determines her residential
status in terms of the relevant provisions of the Foreign Exchange
Management Act, 1999:
(a) Ms. Geetika Devi is a person resident outside India for FY 2020-21
and a person resident in India for the FY 2021-22.
(b) Ms. Geetika Devi is a person resident outside India for the FY
2020-21 and also for the FY 2021-22.
(c) Ms. Geetika Devi is a person resident in India for the FY 2020-21 and
also for the FY 2021-22.
 CASE SCENARIOS 151

(d) Ms. Geetika Devi is a person resident in India for FY 2020-21 and a
person resident outside India for the FY 2021-22.

4. Suppose EFBL is a Public Sector Undertaking and it desires to spend

USD 7,500 for advertisement in foreign print media so that it may promote
its beverages business globally. Out of the following four options, which
one is applicable in the above-mentioned situation?
(a) EFBL is permitted to spend USD 7,500 for advertisement in foreign
print media relating to the stated purpose but only with the prior
approval of the Reserve Bank of India.
(b) EFBL is permitted to spend USD 7,500 for advertisement in foreign
print media relating to the stated purpose without seeking any
approval.
(c) EFBL is permitted to spend USD 7,500 for advertisement in foreign
print media relating to the stated purpose with the prior approval
of the Ministry of Finance, Department of Economic Affairs.
(d) EFBL is permitted to spend USD 7,500 for advertisement in foreign
print media relating to the stated purpose with the prior approval
of the Central Government through Regional Director.
5. From the case scenario, it is evident that EFBL is planning to donate
USD 200,000 to a technical institution established in Chicago at USA for
conducting advanced research in the field of beverages. From the
following options, choose the one which is applicable in the given
situation:

(a) EFBL, not being a Government Company, is not permitted to donate

any amount outside India.
(b) EFBL is not permitted to donate more than USD 50,000 in a financial
year even after seeking approval of the Reserve Bank of India.
(c) EFBL is permitted to donate USD 200,000 but only with the prior
approval of the Reserve Bank of India.
(d) EFBL is not permitted to donate more than USD 75,000 in a financial
year even after seeking approval of the Reserve Bank of India.
152 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) Import of machinery is a ‘Current Account Transaction’ since a

short-term credit facility in the ordinary course of business was availed by
EFBL.
Reason

Section 2 (j) of FEMA 1999

Current account transaction means a transaction other than a capital
account transaction and without prejudice to the generality of the
foregoing such transaction includes payments due in connection with
foreign trade, other current business, services, and short-term banking
and credit facilities in the ordinary course of business.
2. Option (a) Mr. Jay Doshi is permitted to bring into India from Bhutan,
Reserve Bank of India notes amounting to ` 75,000 in denomination of
` 100

Reason
RBI/2018-19/144 i.e. A.P. (DIR Series) Circular No. 24
There is no any limit on amount, if denomination of such Indian currency
note is upto INRs 100/-
Note - Limit of INRs 25000/- is applicable but only in case of INRs 200/-
& 500/- denomination Indian currency notes; while INRs 2000/- Indian
currency note is not allowed to be imported or exported (and even
circulation in Bhutan) to Bhutan
3. Option (a) Ms. Geetika Devi is a person resident outside India for FY
2020-21 and a person resident in India for the FY 2021-22.
Reason
Section 2(v) of FEMA 1999

She stays in India for 71 days in 2019-20 person resident outside India for
FY 2020-21, while during 2020-21 she stays 214 days in India (which is
beyond the threshold of 182 days), hence resident in India for the FY
2021-22.
 CASE SCENARIOS 153

4. Option (b) EFBL is permitted to spend USD 7,500 for advertisement

in foreign print media relating to the stated purpose without seeking any
approval.
Reason
Foreign Exchange Management (Current Account Transactions) Rules

5. Option (c) EFBL is permitted to donate USD 200,000 but only with the
prior approval of the Reserve Bank of India
154 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 25

Simran Software Solutions Ltd., a listed company, is subsidiary of Hardik Tech

Ltd which is an unlisted company. As on 31st March, 2021, Simran Software
Solutions Ltd. had paid-up share capital of ` 100 crores while Hardik Tech Ltd.
had a paid-up share capital of ` 150 crores.
Recently, it emerged that Hardik Tech Ltd was interested in amalgamating
Simran Software Solutions Ltd. in itself. After various rounds of negotiations, it
was decided between both the companies to go for this kind of restructuring.
An application was made to the jurisdictional National Company Law Tribunal
(NCLT) for the amalgamation of Simran Software Solutions Ltd. with Hardik Tech
Ltd. The scheme of arrangement as enunciated in the application proposed such
amalgamation.
Application to the National Company Law Tribunal (NCLT) for amalgamation
was submitted in Form No. NCLT-1 along with the following documents:
(a) A notice of admission in Form No. NCLT-2.

(b) An affidavit in Form No. NCLT-6.

(c) A copy of Scheme of Merger and Amalgamation.
(d) A disclosure of all the material facts relating to the company.
Note: It was also disclosed in the application filed with the National Company
Law Tribunal (NCLT) that each class of members or creditors had been identified
for the purposes of approval of the scheme.
Consequently, a meeting was called in pursuance of the Order of the National
Company Law Tribunal (NCLT). The notice of such meeting was sent to all the
creditors including debenture holders and to all the members of the company,
individually, at the addresses registered with the company accompanied by a
statement disclosing the details of the scheme of amalgamation, a copy of
valuation report and explaining the effect of such arrangement on creditors
including debenture holders, Key Managerial Personnel, promoters and
Directors.
It is worth noting that Mr. Manjit, who was appointed as Managing Director
(MD) of Simran Software Solutions Ltd. on 1st January, 2020, for a period of five
 CASE SCENARIOS 155

years was going to lose his office due to the amalgamation of Simran Software
Solutions Limited with Hardik Tech Ltd.

Similarly, Mr. Rhitam was appointed as a Whole-time Director (WTD) of Simran

Software Solutions Ltd. on 1st April, 2020 for a period of five years. In lieu of his
current assignment as Whole-time Director of Simran Software Solutions Ltd.,
he was offered to be appointed as Manager in Hardik Tech Ltd., to which he
sought some time to ponder over the whole issue. After discussing matter with
his family, he decided to join Hardik Tech Ltd. as Manager after the completion
of amalgamation.
Since both Mr. Manjit and Mr. Rhitam were to lose their assignments before
completion of their terms, the company decided to compensate them. At the
meeting, it was decided to pay both of them the average compensation for the
remaining unexpired term based on the remuneration received by them till the
effective date of amalgamation between both the companies.
Some of the shareholders of Simran Software Solutions Ltd. equalling 5% of
total members were not satisfied with the scheme of amalgamation as finalised
between their company and Hardik Tech Ltd. and accordingly, they decided to
opt out of their company. Consequently, NCLT ordered to pay such dissenting
shareholders the value of shares held by them and the valuation of such shares
was to be arrived at as per the pre-determined price formula.
Simran Software Solutions Ltd. had submitted to the NCLT, full details about a
pending legal case against Mr. Mohan, one of the directors of the company,
who was removed as director and was sued for having caused a loss of over `
20 lakh to the company through various bogus transactions. Mr. Mohan was
being prosecuted under Sections 447 and 452 of the Companies Act, 2013.
These facts were also in the knowledge of Hardik Tech Ltd.

The NCLT, after satisfying itself that the procedures specified in the Companies
Act, 2013, were duly followed, sanctioned the scheme of amalgamation. It was
decided that 14th January, 2022, shall be the effective date for amalgamation.
The NCLT ordered Simran Software Solutions Ltd. to transfer the whole of the
undertaking, property and its liabilities to Hardik Tech Ltd. as per the terms of
the amalgamation.
156 CORPORATE AND ECONOMIC LAWS

It was also held by the NCLT that after dissolution of Simran Software Solutions
Ltd., the fees, if any, paid by it on its authorised capital shall be set-off against
any fees payable by Hardik Tech Ltd. on its authorised capital, subsequent to
the amalgamation. Both the companies, in relation to such order were required
to submit a certified copy of the order as prescribed, to the Registrar of
Companies for registration within thirty days of the receipt of a copy thereof.

MULTIPLE CHOICE QUESTIONS

1. The National Company Law Tribunal (NCLT) ordered that Simran Software
Solutions Ltd. would pay its 5% dissenting shareholders the value of
shares held by them and the valuation of such shares was to be arrived at
as per the pre-determined price formula. According to the provisions of
the Companies Act, 2013, what is the basic criteria which should be
considered while deciding the valuation of shares?
(a) The valuation of the shares should not be less than the value
calculated by a practicing Chartered Accountant having minimum
fifteen years of experience.
(b) The valuation of the shares should not be less than what has been
specified by the Securities and Exchange Board of India.
(c) The valuation of the shares should not be less than that of the value
of shares of Hardik Tech Ltd calculated by a practicing Chartered
Accountant having minimum fifteen years of experience.
(d) The valuation of the shares should not be less than the market price
prevailing on the date when the amalgamation process will
commence.
2. As regards listing, what will be the consequences of amalgamation of
Simran Software Solutions Ltd., a listed company with Hardik Tech Ltd.
that is an unlisted company? Choose the correct answer from those stated
below:
(a) Amalgamation of Simran Software Solutions Ltd., a listed company,
with Hardik Tech Ltd., an unlisted company, would by itself convert
Hardik Tech Ltd. into a listed company.
 CASE SCENARIOS 157

(b) Amalgamation of Simran Software Solutions Ltd., a listed company,

with Hardik Tech Ltd., an unlisted company, would not by itself
convert Hardik Tech Ltd. into a listed company.
(c) Amalgamation of Simran Software Solutions Ltd., a listed company,
with Hardik Tech Ltd., an unlisted company, would convert Hardik
Tech Ltd. into a listed company but only after the expiry of 15 days
from the date of completion of amalgamation.
(d) Amalgamation of Simran Software Solutions Ltd., a listed company,
with Hardik Tech Ltd., an unlisted company, would convert Hardik
Tech Ltd. into a listed company but only after the expiry of 30 days
from the date of completion of amalgamation.
3. According to the provisions of this Companies Act, 2013, what is the legal
obligation imposed on the company which it is required to fulfill until the
completion of the scheme of amalgamation?
(a) To file a prescribed statement within the prescribed time with the
Registrar of Companies, certified by auditors of the companies, that
the scheme of amalgamation is complied with as per the directions
of the National Company Law Tribunal (NCLT).
(b) To file a prescribed statement within the prescribed time with the
Registrar of Companies, certified by a Chartered Accountant or Cost
Accountant or Company Secretary in practice, that the scheme of
amalgamation is complied with as per the directions of the National
Company Law Tribunal (NCLT).
(c) To file the quarterly audited annual financial statements along with
a prescribed statement within the prescribed time with the Registrar
of Companies, certified by a Chartered Accountant or Cost
Accountant or Company Secretary in practice that the scheme of
amalgamation is complied with as per the directions of the National
Company Law Tribunal (NCLT).
(d) To file a prescribed statement within the prescribed time with the
Registrar of Companies, certified by an Advocate who is practicing
in the High Court that the scheme of amalgamation is complied with
as per the directions of the National Company Law Tribunal (NCLT).
158 CORPORATE AND ECONOMIC LAWS

4. According to the provisions of the Companies Act, 2013, whether both

Mr. Manjit and Mr. Rhitam are eligible for receiving the compensation for
the loss of their respective offices as Managing Director and Whole-time
Director? Select the correct statement from the following four options:
(a) Only Mr. Rhitam is eligible for receiving the compensation for the
loss of his office as Whole-time Director of Simran Software
Solutions Ltd.
(b) Only Mr. Manjit is eligible for receiving the compensation for the
loss of his office as Managing Director of Simran Software Solutions
Ltd.
(c) Both Mr. Manjit and Mr. Rhitam are eligible for receiving the
compensation for the loss of their respective offices as Managing
Director and Whole-time Director of Simran Software Solutions Ltd.
(d) Neither Mr. Manjit nor Mr. Rhitam are eligible for receiving the
compensation for the loss of their respective offices as Managing
Director and Whole-time Director of Simran Software Solutions Ltd.
5. Mr. Mohan was removed as a Director of Simran Software Solution Ltd.
for the alleged fraud committed while being holding the office of Director.
How would the ongoing amalgamation process of the companies impact
the pending legal proceedings against Mr. Mohan?
I. The pending legal case will be continued as before between Mr.
Mohan and Simran Software Solutions Limited.
II. The pending legal case will be continued as before against Mr.
Mohan though not with Simran Software Solutions Limited but with
Hardik Tech Ltd. after amalgamation.
III. Mr. Mohan was holding the office of Director in Simran Software
Solutions Limited, the transferor company and therefore, till the
time the pending legal case is not finally decided, the process of
amalgamation cannot be completed between Simran Software
Solutions Limited and Hardik Tech Ltd.
 CASE SCENARIOS 159

IV. The ongoing legal case against Mr. Mohan would not affect the
amalgamation of Simran Software Solutions Limited with Hardik
Tech Ltd.
(a) I & III.
(b) II & III.

(c) II & IV.

(d) I & IV.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) The valuation of the shares should not be less than what has
been specified by the Securities and Exchange Board of India.
Reason
Proviso to Section 232(3)(h)
Where the transferor company is a listed company and the transferee
company is an unlisted company, the transferee company shall remain an
unlisted company until it becomes a listed company.
If shareholders of the transferor company decide to opt out of the
transferee company, provision shall be made for payment of the value of
shares held by them and other benefits in accordance with a pre-
determined price formula or after a valuation is made, and the
arrangements under this provision may be made by the Tribunal.

Provided that the amount of payment or valuation under this clause for
any share shall not be less than what has been specified by the Securities
and Exchange Board under any regulations framed by it.
Since Simran Software Solution Limited being transferor company is listed
one, while Hardik Tech Ltd. Being transferee company is unlisted; hence
above provision will be applicable.

2. Option (b) Amalgamation of Simran Software Solutions Ltd., a listed

company, with Hardik Tech Ltd., an unlisted company, would not by itself
convert Hardik Tech Ltd. into a listed company.
160 CORPORATE AND ECONOMIC LAWS

Reason
Section 232(3)(h)
Where the transferor company is a listed company and the transferee
company is an unlisted company, the transferee company shall remain an
unlisted company until it becomes a listed company.

Since Simran Software Solution Limited being transferor company is listed

one, while Hardik Tech Ltd. being transferee company is unlisted; hence
above provision will be applicable.
3. Option (b) To file a prescribed statement within the prescribed time
with the Registrar of Companies, certified by a Chartered Accountant or
Cost Accountant or Company Secretary in practice, that the scheme of
amalgamation is complied with as per the directions of the National
Company Law Tribunal (NCLT).
Reason
Section 232(7)
Every company in relation to which the order is made shall, until the
completion of the scheme, file a statement in such form and within such
time as may be prescribed in Rule 21 of Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 with the Registrar every
year duly certified by a chartered accountant or a cost accountant or a
company secretary in practice indicating whether the scheme is being
complied with in accordance with the orders of the Tribunal or not.
4. Option (b) Only Mr. Manjit is eligible for receiving the compensation
for the loss of his office as Managing Director of Simran Software
Solutions Ltd.
Reason
Sub-section 1 and 2 of section 202
Sub-section 1 provides a company may make payment to a managing or
whole-time director or manager, but not to any other director, by way of
compensation for loss of office, or as consideration for retirement from
office or in connection with such loss or retirement.
 CASE SCENARIOS 161

While sub-section put restriction and exclude certain cases.

It provides that no payment shall be made under sub-section (1) in the
certain case which also includes where the director resigns from his office
as a result of the reconstruction of the company, or of its amalgamation
with any other body corporate or bodies corporate, and is appointed as
the managing or whole-time director, manager or other officer of the
reconstructed company or of the body corporate resulting from the
amalgamation.

Hence Mr. Ritham is not eligible for compensation, while Mr. Manjit is
eligible.
5. Option (c) II & IV.
Reason
Section 240
Notwithstanding anything in any other law for the time being in force, the
liability in respect of offences committed under this Act by the officers in
default, of the transferor company prior to its merger, amalgamation or
acquisition shall continue after such merger, amalgamation or acquisition.
162 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 26

Minerva Fabrics Limited, incorporated by Padam Kishore in the year 1985 in

Bombay (now Mumbai), Maharashtra, under the Companies Act, 1956, has over
60% market share in suiting and shirting in India. It is also one of the biggest
woolen fabric maker having a distribution network of more than 2,000 outlets.
Interested in increasing the growth rate of the company and to diversify into
new product line, Yuvraj Kishore, dynamic son of Padam Kishore, currently
designated as Chief Executive Officer (CEO), planned to takeover Swati
Garments Limited. This company, having its Registered Office in Gandhi Nagar,
Gujarat, was run by Patel family since 2015 whose ‘He’ - a premium casual wear
brand - brought customers a range of semi-formal and casual clothes for men.
Initiating the move of taking over, the shareholders of Swati Garments Limited
were given an offer by Minerva Fabrics Limited to acquire their shares in
exchange for issue of shares as well as cash.
The purchase offer was approved by the shareholders holding ninety one
percent in value of the shares. After approval, the said offer was remained open
for a period of four months and was availed by the shareholders who approved
it. Thereafter, a notice for acquisition of the shares of dissenting shareholders
of Swati Garments Limited was issued to them by Minerva Fabrics Limited.
The dissenting shareholders within one month from the date on which the
notice was served on them, made an application to the National Company Law
Tribunal (NCLT) against the acquisition of their shares by Minerva Fabrics
Limited. After considering the application, the NCLT disposed of the said
application giving order in favour of Minerva Fabrics Limited. As per the order,
the shares of the dissenting shareholders were to be transferred to Minerva
Fabrics Limited.
Minerva Fabrics Limited, thereupon, sent a copy of the notice to the Swati
Garments Limited together with an instrument of transfer, to be executed on
behalf of the dissenting shareholders by a person appointed by Swati Garments
Limited. Minerva Fabrics Limited paid to Swati Garments Limited, the
consideration representing the price payable by it, for the shares of the
dissenting shareholders which it was entitled to acquire.
 CASE SCENARIOS 163

On receipt of notice together with an instrument of transfer, Swati Garments

Limited registered the name of Minerva Fabrics Limited as the holder of those
shares in its Register of Members and informed the dissenting shareholders
about such registration and of the receipt of the amount of consideration
representing the price payable to them by Minerva Fabrics Limited.
The amount of consideration so received by Swati Garments Limited from
Minerva Fabrics Limited was parked in a separate bank account and the said
consideration was held by Swati Garments Limited as a trustee for the
dissenting shareholders and was disbursed to them within the prescribed time
limit.
Mr. Manoj was holding the office of Managing Director in Swati Garments
Limited after being appointed on 15th April, 2016. Due to expertise in finance
and better track records, the company had re-appointed Mr. Manoj on 1st April,
2021, for the next five years with an understanding that he will be compensated
due to early vacation of office as Managing Director in case of merger or
amalgamation or takeover. Because of such developments relating to takeover,
Mr. Manoj lost his office as Managing Director and therefore, Swati Garments
Limited wanted to compensate him as per the agreement.
Mr. Manoj had received following remuneration during the last five financial
years.
Financial Years Amount of Remuneration (in ` )

2016-17 20,00,000
2017-18 25,00,000
2018-19 30,00,000
2019-20 35,00,000
2020-21 40,00,000

Mr. Rishabh, close friend of Mr. Manoj, is one of the Directors in TopGears
Limited, an Indian automotive company that manufactures motorcycles,
scooters and three-wheelers. The company is headquartered in Chennai, Tamil
Nadu and owned by Ramachandran Swami. It is one of the leading motorcycle
companies in India.
164 CORPORATE AND ECONOMIC LAWS

The retirement of Mr. Pranav, the current Managing Director of TopGears

Limited, is on the cards and he will get superannuated after two months. Since
Mr. Manoj was no more holding the office of Managing Director in Swati
Garments Limited, Mr. Rishabh with the consent of his friend, discussed the
matter of appointment of Mr. Manoj as Managing Director with the Board of
Directors of TopGears Limited. The terms and conditions as well as the
remuneration payable with respect to Mr. Manoj’s appointment were got
approved by the Board subject to the approval of shareholders of TopGears
Limited at its next General Meeting. Mr. Manoj was finally appointed as the
Managing Director since shareholders of TopGears Limited approved his
appointment by passing a resolution at the General Meeting of the company.

With the inclusion Mr. Manoj, the total strength of Directors of TopGears
Limited has reached 14 including two independent Directors. After some time,
TopGears Limited felt the need to raise funds from the market. Accordingly, it
floated its ‘share issue’ through issuing a prospectus and was able to raise funds
to the tune of ` 300 crores from the public at large. Its equity shares got listed
on BSE Limited and National Stock Exchange of India Ltd.

MULTIPLE CHOICE QUESTIONS

1. According to the case scenario, the offer of acquisition of shares of Swati

Garments Limited was approved by 91% shareholders and the offer
remained open for four months but the dissenting shareholders did not
avail the said offer. As per the provisions of the Companies Act, 2013,
maximum within how much time, Minerva Fabrics Limited is required to
send a notice to the dissenting shareholders indicating its intention to
acquire their shares? Select the correct answer from the following options:
(a) Maximum within one month after the expiry of first four months
during which the offer of acquisition of shares was open, Minerva
Fabrics Limited is required to give notice to the dissenting
shareholders signifying its desire to acquire their shares.

(b) Maximum within two months after the expiry of first four months
during which the offer of acquisition of shares was open, Minerva
 CASE SCENARIOS 165

Fabrics Limited is required to give notice to the dissenting

shareholders signifying its desire to acquire their shares.

(c) Maximum within three months after the expiry of first four months
during which the offer of acquisition of shares was open, Minerva
Fabrics Limited is required to give notice to the dissenting
shareholders signifying its desire to acquire their shares.
(d) Maximum within five months after the expiry of first four months
during which the offer of acquisition of shares was open, Minerva
Fabrics Limited is required to give notice to the dissenting
shareholders signifying its desire to acquire their shares.
2. Swati Garments Limited needs to park the funds received from Minerva
Fabrics Limited on behalf of the dissenting shareholders in a separate
bank account. According to the provisions of the Companies Act, 2013,
within how many days, the said funds shall be disbursed to the dissenting
shareholders?
(a) 30 days
(b) 40 days
(c) 60 days
(d) 90 days
3. Due to the takeover of Swati Garments Limited by Minerva Fabrics
Limited, Mr. Manoj lost his office as Managing Director in Swati Garments
Limited. Since Swati Garments Limited wants to compensate him, how
much compensation becomes payable to him:

(a) ` 75 lakhs.
(b) ` 105 lakhs.
(c) ` 120 lakhs.

(d) ` 130 lakhs.

4. According to the case scenario, appointment of Mr. Manoj as Managing
Director of TopGears Limited was approved by the shareholders by
passing a resolution at the General Meeting of the company. In such a
situation, as per the provisions of the Companies Act, 2013, maximum
166 CORPORATE AND ECONOMIC LAWS

within how much time the prescribed return in MR-1 is required to be

filed with the Registrar of Companies? Choose the correct answer from
the following options:
(a) Maximum within 30 days.
(b) Maximum within 45 days.

(c) Maximum within 60 days.

(d) Maximum within 90 days.
5. TopGears Limited got its shares listed on BSE Ltd. and National Stock
Exchange of India Ltd. After becoming a listed company what changes, if
any, are required to be made by TopGears Limited so far as the strength
of its Board of Directors is concerned? Select the correct alternative from
those given below:
(a) After getting listed with BSE Ltd. and National Stock Exchange of
India Ltd., TopGears Limited is required to appoint one more
Independent Director.
(b) After getting listed with BSE Ltd. and National Stock Exchange of
India Ltd., TopGears Limited is required to appoint two more
Independent Directors.
(c) After getting listed with BSE Ltd. and National Stock Exchange of
India Ltd., TopGears Limited is required to appoint three more
Independent Directors.
(d) There is need to appoint any new Independent Director since
TopGears Limited already has two independent Directors.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) Maximum within two months after the expiry of first four
months during which the offer of acquisition of shares was open, Minerva
Fabrics Limited is required to give notice to the dissenting shareholders
signifying its desire to acquire their shares.
 CASE SCENARIOS 167

Reason
Section 235(1)
Where a scheme or contract involving the transfer of shares or any class
of shares in a company (the transferor company) to another company (the
transferee company) has, within four months after making of an offer in
that behalf by the transferee company, been approved by the holders of
not less than nine-tenths in value of the shares whose transfer is involved,
other than shares already held at the date of the offer by, or by a nominee
of the transferee company or its subsidiary companies , the transferee
company may, at any time within two months after the expiry of the said
four months, give notice in the prescribed manner to any dissenting
shareholder that it desires to acquire his shares.
2. Option (c) 60 days
Reason
Section 236(4)
The majority shareholders shall deposit an amount equal to the value of
shares to be acquired by them under sub-section (2) or sub-section (3),
as the case may be, in a separate bank account to be operated by the
company whose shares are being transferred for at least one year for
payment to the minority shareholders and such amount shall be disbursed
to the entitled shareholders within sixty days.
It worth noting that such disbursement shall continue to be made to the
entitled shareholders for a period of one year, who for any reason had not
been made disbursement within the said period of sixty days or if the
disbursement have been made within the aforesaid period of sixty days,
fail to receive or claim payment arising out of such disbursement.
3. Option (b) ` 105 lakhs.
Reason
Section 209(3)
Any payment made to a managing or whole-time director or manager in
pursuance of loss of office shall not exceed the remuneration which he
168 CORPORATE AND ECONOMIC LAWS

would have earned if he had been in office for the remainder of his term
or for three years, whichever is shorter, calculated on the basis of the
average remuneration actually earned by him during a period of three
years immediately preceding the date on which he ceased to hold office,
or where he held the office for a lesser period than three years, during
such period.
Note - Presuming removal took place on 1st April 2021 itself i.e. date of
reappointment.

The average remuneration for last three years is INRs 35 lacs i.e.
(30+35+40)/3
Therefore compensation shall be lower of the INRs 175 lacs (balance term)
or INRs 105 lacs (for three years) i.e. INRs 105 lacs.
4. Option (c) Maximum within 60 days.
Reason
Second Proviso to section 196(4)
A return in the Form No. MR-1 as per Rule 3 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014
shall be filed within sixty days of such appointment with the Registrar.
5. Option (c) After getting listed with BSE Ltd. and National Stock Exchange
of India Ltd., TopGears Limited is required to appoint three more
Independent Directors.
Reason
Section 149(4)

Every listed public company shall have at least one-third of the total
number of directors as independent directors. Note - For the purposes of
this sub-section, any fraction contained in such one-third number shall be
rounded off as one.
1/3 of 14 comes to 4.33 which shall be round-up to 5, since two
independent directors are already on the board hence another 3 directors
need to be appointed.
 CASE SCENARIOS 169

Since TopGears Limited is listed company, hence it is equally worth noting

that as per Regulation 17 of LODR 2015 where the chairperson of the
board of directors is a non-executive director, at least one-third of the
board of directors shall comprise of independent directors and where the
listed entity does not have a regular non-executive chairperson, at least
half of the board of directors shall comprise of independent directors.
Even where the regular non-executive chairperson is a promoter of the
listed entity or is related to any promoter or person occupying
management positions at the level of board of director or at one level
below the board of directors, at least half of the board of directors of the
listed entity shall consist of independent directors.
170 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 27

GenTech Engineering and Consultancy Limited (GECL), having its Registered

Office in Kolkata, West Bengal, was incorporated way back in January, 2011. The
Central Government holds 21% of its paid-up share capital while the State
Government of Gujarat and Navyug Engineering Limited, a government
company, hold 23% and 10% respectively.
As GECL was interested in ascertaining the market value of its assets, it invited
tenders and after thorough scrutiny it shortlisted the following Registered
Valuers:
(1) Mr. Anant: He has set up his valuation practice in London for the last 5
years. He came to visit India on December 24, 2021, for a short span of
around one month during which, in terms of the tender submitted by him,
he was proposed by GECL to undertake the assignment relating to
valuation of its assets.
(2) Mr. Aloknath: He is a valuer member of a registered valuers’ organisation
and is one of the partners of M/s ALP & Associates, a Kolkata based
valuation firm. Mr. Aloknath was given second preference by GECL if Mr.
Anant refused the assignment relating to the valuation of assets.
(3) M/s MNC Valuers & Associates, LLP: It is a Limited Liability Partnership,
based at Kolkata, and all the partners of the firm are valuer members of
a registered valuers’ organisation. It was given third preference by GECL
for undertaking the valuation of its assets.
GECL holds 15% paid-up share capital of Prayas Marketing Limited (PML).
However, the jurisdictional Registrar of Companies (RoC), having reasonable
cause to believe that the PML was not carrying on any business or operations,
ordered a physical verification of the Registered Office of PML.
After physical verification of the Registered Office of PML, the Registrar formed
an opinion that the company, in actuality, was not carrying on any business or
operations and therefore, he issued a notice to the company and all of its
Directors indicating his intention to remove the name of the company from the
Register of Companies, if no explanation along with copies of relevant
documents were filed within a period of 30 days from the date of the notice.
Since no cause to the contrary was shown by the company and its Directors, the
Registrar, after following the requisite procedure, removed the name of the PML
 CASE SCENARIOS 171

from the Register of Companies and a notice dated 30.10.2021 to this effect
was published in the Official Gazette. On publication of this notice in the Official
Gazette and also its placement on the official website of the Ministry of
Corporate affairs, PML was dissolved.
After dissolution as above of the PML effective from 30.10.2021 under Section
248 of the Companies Act, 2013, it ceased to operate as a company and
Certificate of Incorporation was deemed to have been cancelled from such date.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is observed that the share of the Central
Government in the paid-up share capital of GECL is 21% while the State
Government of Gujarat and Navyug Engineering Limited, a government
company, respectively hold 23% and 10% of its paid-up capital. Which
one of the following options is applicable in such a situation:
(a) GECL is a Government Company since both the Central Government
and the State Government of Gujarat hold more than 25% of its
paid-up share capital.
(b) GECL is not a Government Company since the Central Government,
the State Government of Gujarat and Navyug Engineering Limited,
a Government Company, hold only 54% of its paid-up share capital
which is less than the threshold limit of 55%.
(c) GECL is a Government Company since the Central Government, the
State Government of Gujarat and Navyug Engineering Limited, a
Government Company, hold 54% of its paid-up share capital which
is more than the threshold limit of 51%.
(d) GECL is not a Government Company since the Central Government
and the State Government of Gujarat together hold 44% of its paid-
up share capital which is less than the threshold limit of 51%.
2. Which one of the following options is applicable in case Mr. Anant was
preferred to be given the valuation assignment of valuing the assets of
GECL.
(a) Mr. Anant cannot act as a valuer being a person not resident in India.
172 CORPORATE AND ECONOMIC LAWS

(b) Mr. Anant cannot act as a valuer since process of valuation of

goodwill is a tedious and time-consuming task.
(c) Mr. Anant can act as a valuer being a valuer member of a registered
valuers’ organisation in London and is more knowledgeable than
others.
(d) Mr. Anant can act as a valuer being a valuer member of a registered
valuers’ organisation in London and is out of India for less than
seven years.
3. In case PML is aggrieved by the order dated 30-10-2021 of the Registrar
of Companies that led to the removal of its name from the Register of
Companies and its dissolution and therefore, it desires to file an appeal
to the National Company Law Tribunal (NCLT), which one of the following
options shall be applicable in such a situation:
(a) PML is permitted to file an appeal to the National Company Law
Tribunal (NCLT) within a period of one year from the date of the
order of the Registrar of Companies.
(b) PML is permitted to file an appeal to the National Company Law
Tribunal (NCLT) within a period of two years from the date of the
order of the Registrar of Companies.
(c) PML is permitted to file an appeal to the National Company Law
Tribunal (NCLT) within a period of three years from the date of the
order of the Registrar of Companies.
(d) PML is permitted to file an appeal to the National Company Law
Tribunal (NCLT) within a period of five years from the date of the
order of the Registrar of Companies.
4. Which one of the following options is applicable in case PML denies to
discharge its liabilities and other obligations contending that after
dissolution it has ceased to operate?
(a) The contention of the PML is valid since after dissolution it cannot
enter into any contract.
(b) The contention of the PML is valid since once the company stands
dissolved, the shareholders of the company are liable to discharge
all its liabilities and obligations.
 CASE SCENARIOS 173

(c) The contention of the PML is invalid since the dissolution shall not
affect the realisation of amount due to it and for the discharge of
its liabilities or obligations.
(d) The contention of the PML is valid because once the company
stands dissolved, it is not liable to discharge any of its liabilities and
obligations because the shareholders of the company are to be
given back the money invested by them as shareholders.
5. Suppose PML, on its own, decides to file an application to the Registrar
of Companies for removal of its name from the Register of Companies.
From the given options, choose the one which shall be applicable in such
a situation:
(a) PML is not permitted to file an application to the Registrar of
Companies for removal of its name from the Register of Companies.
(b) All the Directors of PML at the Board Meeting can pass a resolution
to file an application to the Registrar of Companies for removal of
name of PML from the Register of Companies but only after
extinguishing all the liabilities of PML.
(c) PML after extinguishing all its liabilities and by passing an ordinary
resolution or by obtaining consent of 51% of its members in terms
of paid-up share capital may file an application to the Registrar of
Companies for removal of its name from the Register of Companies.
(d) PML after extinguishing all its liabilities and by passing a special
resolution or by obtaining consent of 75% of its members in terms
of paid-up share capital may file an application to the Registrar of
Companies for removal of its name from the Register of Companies.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) GECL is not a Government Company since the Central

Government and the State Government of Gujarat together hold 44% of
its paid-up share capital which is less than the threshold limit of 51%.

Reason

Section 2(45) of the Companies Act, 2013

174 CORPORATE AND ECONOMIC LAWS

Government company means any company in which not less than fifty-
one percent of the paid-up share capital is held by the

Central Government, or

Any State Government or Governments, or

Partly by the Central Government and partly by one or more State

Governments,

and

Includes a company which is a subsidiary company of such a Government

company.

Since Union Government (21%) and Government of Gujarat (23%)

together hold only 44% of paid-up share capital, which less than 51%;
hence not a government company.

2. Option (a) Mr. Anant cannot act as a valuer being a person not
resident in India.

Reason

Rule 3(1)(h) of Companies (Registered Valuers and Valuation) Rules, 2017

A person shall be eligible to be a registered valuer if he is a person

resident in India.

It is worth noting that for the purposes of these rules ‘person resident in
India’ shall have the same meaning as defined in clause (v) of section 2 of
the Foreign Exchange Management Act, 1999 (42 of 1999) as far as it is
applicable to an individual;

3. Option (c) PML is permitted to file an appeal to the National Company

Law Tribunal (NCLT) within a period of three years from the date of the
order of the Registrar of Companies.

Reason

Section 252(1)
 CASE SCENARIOS 175

Any person aggrieved by an order of the Registrar, notifying a company

as dissolved under section 248, may file an appeal to the Tribunal within
a period of three years from the date of the order of the Registrar.

4. Option (c) The contention of the PML is invalid since the dissolution
shall not affect the realisation of amount due to it and for the discharge
of its liabilities or obligations.

Reason

Section 250
Where a company stands dissolved under section 248, it shall on and from
the date mentioned in the notice under sub-section (5) of that section
cease to operate as a company and the Certificate of Incorporation issued
to it shall be deemed to have been cancelled from such date except for
the purpose of realizing the amount due to the company and for the
payment or discharge of the liabilities or obligations of the company.
5. Option (d) PML after extinguishing all its liabilities and by passing a
special resolution or by obtaining consent of 75% of its members in terms
of paid-up share capital may file an application to the Registrar of
Companies for removal of its name from the Register of Companies.
Reason
Section 248(2)
A company may, after extinguishing all its liabilities, by a special
resolution or consent of seventy-five percent members in terms of paid-
up share capital, file an application in the prescribed manner to the
Registrar for removing the name of the company from the register of
companies on all or any of the grounds specified in sub-section (1) and
the Registrar shall, on receipt of such application, cause a public notice to
be issued in the prescribed manner.
It is worth noting that in the case of a company regulated under a special
Act, approval of the regulatory body constituted or established under that
Act shall also be obtained and enclosed with the application.
176 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 28

The Board of Directors of Binjoy Textiles Limited, incorporated in the year 2010
under the Companies Act, 1956, comprises of six Directors including Mr. Raman
Singh functioning as Managing Director. Based in Maharashtra, the company
was in full swing with its different kinds of fabrics like cotton, polyester, nylon,
etc., and was reaching the farthest corners of the country.
The Authorised Capital of Binjoy Textiles Limited was ` 5,00,00,000 divided into
50,00,000 equity shares of ` 10 each. The issued and subscribed capital as at
31-03-2021 was ` 4,00,00,000 of which paid-up capital was ` 3,40,00,000. In fact,
500 shareholders out of total 1000 shareholders, had not paid the last call of
` 3 per share. It is noteworthy that these 500 shareholders were holding
20,00,000 equity shares.
Not known to others, two directors of Binjoy Textiles Limited, Mr. Manav and
Mr. Kundan, were involved in mismanagement of the company bringing its
downfall day-by-day. They were clandestinely withdrawing huge sums of money
on regular basis on one pretext or the other for their personal use. The company
started incurring losses year-after-year. There was unrest among the
stakeholders. Mr. Raman, Managing Director, was also a silent party to such
fraud since he did not try to put a brake on the fraudulent deeds of Mr. Manav
and Mr. Kundan, thus showing his gross negligence that led the company to
head sharply southwards.
In order to get rid of mismanagement, the contributories presented a petition
for winding up to the National Company Law Tribunal (NCLT) on the grounds
of mismanagement and fraud committed by these two directors of the
company.
The long list of contributories also contained the names of Mr. Rohan and Mr.
Sharad who inherited 2,000 partly paid-up shares whose paid-up value was
` 14,000 (Face Value ` 20,000) after the untimely death of their father Mr. Mool
Chand just three months ago. Mr. Mool Chand had held these shares for the
past two years. After inheriting 1000 shares each from their deceased father,
Mr. Rohan and Mr. Sharad became the shareholders of Binjoy Textiles Limited
and therefore, they also signed the petition for winding up of the company.
 CASE SCENARIOS 177

On being satisfied, the National Company Law Tribunal (NCLT) passed an Order
for winding up of Binjoy Textiles Limited.

Due to the impending winding up, Binjoy Textiles Limited was contemplating
on the notion to compensate Mr. Raman Singh for the loss of his office as
Managing Director. Had there been no winding up as ordered by the National
Company Law Tribunal (NCLT), Mr. Raman Singh would have retired in the year
2023. As per his retirement date, Mr. Raman Singh was supposed to receive
minimum one year’s remuneration, which he would have earned if he had been
in the office for the remainder of his term. Accordingly, Mr. Raman Singh was
looking forward to receive his dues at the time of winding up.
For the purposes of winding up of Binjoy Textiles Limited, the National
Company Law Tribunal (NCLT) appointed a Company Liquidator, Mr. Dilip, on
21st December, 2021. However, Mr. Dilip had conflict of interest with the
company. Therefore, as per the relevant provisions of the Companies Act, 2013,
on appointment as Company Liquidator, he filed a declaration in the prescribed
form with the National Company Law Tribunal (NCLT), effective from the date
of his appointment, disclosing the conflict of his interest with the company. To
take the matter ahead, following the provisions of the Companies Act, 2013, the
National Company Law Tribunal (NCLT) duly sent an intimation of winding up
to Mr. Dilip and the Registrar of Companies.
As per Section 281 of the Companies Act, 2013, the Liquidator of the company
Mr. Dilip submitted to the National Company Law Tribunal (NCLT), a report
containing chiefly the following particulars:

• The nature and details of the assets of the company including their
location and value, stating separately the cash balance in hand and in the
bank and the negotiable securities held by the company. A report on the
valuation of the assets was obtained from the registered valuer, Mrs.
Sapna Singh.
• Details of amount of share capital issued, subscribed and paid-up.

• The existing and contingent liabilities of the company including names,

addresses and occupations of its creditors, stating separately the amount
of secured and unsecured debts.
178 CORPORATE AND ECONOMIC LAWS

• All the details of secured debts including their value and the dates on
which they were given.

• The debts due to any company or persons from whom they were due and
the amount likely to be realised on account thereof.
• Guarantees extended by the company.

• List of contributories and dues payable by them and details of the unpaid
calls.
• Details of subsisting contracts.

• Details of legal cases filed by or against the company.

The National Company Law Tribunal (NCLT), then settled the list of
contributories and caused rectification of Register of Members in all cases
where rectification was required. The NCLT reviewed all the assets of the
company to be applied for the discharge of the winding up liability.
While settling the list of contributories, the NCLT included every person, who
was or had been a member and who would be liable to contribute to the assets
of the company an amount sufficient for payment of the debts and liabilities
and the costs, charges and expenses of winding up, and for the adjustment of
the rights of the contributories among themselves.
As noticed earlier, there were total 1000 members of which 500 members had
paid 70% of the amount due on their shares. A final call of ` 3 per was still due
from them. It was estimated that the company could clear its entire debt, if the
unpaid amount was received from these 500 members. However, out of the 500
members who held partly paid-up shares, 350 members paid their unpaid
contributions but remaining 150 shareholders were yet to pay the amount due
from them.

MULTIPLE CHOICE QUESTIONS

1. From the case scenario, it is evident that Mr. Rohan and

Mr. Sharad inherited 2,000 shares after the death of their father Mr. Mool
Chand and irrespective of their eligibility, both had signed the winding up
petition as the contributories of Binjoy Textiles Limited. According to the
 CASE SCENARIOS 179

provisions of the Companies Act, 2013, whether they were eligible to sign
the petition?

(a) Mr. Rohan and Mr. Sharad, after becoming contributories due to
inheriting of 2,000 shares from their father Mr. Mool Chand, were
legally eligible to sign the winding up petition, only if the shares
held by them were fully paid-up and not otherwise.
(b) Mr. Rohan and Mr. Sharad were eligible to sign the winding up
petition only if they had held the shares in their names for at least
six months after inheriting them from their deceased father,
Mr. Mool Chand.
(c) Mr. Rohan and Mr. Sharad were eligible to sign the winding up
petition only if they had held the shares in their names for at least
nine months after inheriting them from their deceased father, Mr.
Mool Chand.

(d) Mr. Rohan and Mr. Sharad were eligible to sign the winding up
petition as the shares due to which they were contributories had
devolved upon them on the death of their father, Mr. Mool Chand,
a former holder.
2. From the case scenario it is noticed that out of the 500 members who held
partly paid-up shares, only 350 members paid their unpaid contributions
and remaining 150 shareholders were yet to pay the amount due from
them. Select the correct option from those given below as to whether
payment made by 350 members would absolve the remaining 150
members from their liabilities:
(a) In case the amount required to settle the debts of Binjoy Textiles
Limited is collected from 350 members, then the remaining 150
members are not required to pay their dues.
(b) All the shareholders holding partly paid-up shares of Binjoy Textiles
Limited are required to respond individually to the demand notice
whether they wish to pay the unpaid amount due from them or not.
(c) It is within the discretion of National Company Law Tribunal to
require the remaining 150 shareholders of Binjoy Textiles Limited
whether to pay or not to pay the unpaid amount due from them.
180 CORPORATE AND ECONOMIC LAWS

(d) Every unpaid shareholder of Binjoy Textiles Limited, being a

contributory, is liable to pay to the extent of unpaid amount on his
shares, irrespective of his shareholding.
3. Binjoy Textiles Limited wanted to compensate Mr. Raman Singh since he
had to lose office of Managing Director before the completion of his term.
Is it justified for the company to pay compensation to Mr. Raman Singh?
(a) Binjoy Textiles Limited is permitted to compensate its Managing
Director Mr. Raman Singh for the loss of office before the
completion of his term.
(b) Binjoy Textiles Limited is not permitted to compensate its Managing
Director Mr. Raman Singh for the loss of office before the
completion of his term since the company is being wound up by the
National Company Law Tribunal and the negligence of Mr. Raman
Singh was involved.
(c) Binjoy Textiles Limited is permitted to compensate its Managing
Director Mr. Raman Singh for the loss of office before the
completion of his term after the shareholders passed an ordinary
resolution.
(d) Binjoy Textiles Limited is permitted to compensate its Managing
Director Mr. Raman Singh for the loss of office before the
completion of his term after the shareholders passed a special
resolution.
4. The Company Liquidator Mr. Dilip, appointed by the National Company
Law Tribunal, had some conflict of interest with Binjoy Textiles Limited.
Choose the correct date from the following options, by which Mr. Dilip
was required to file declaration with NCLT:
(a) 28th December, 2021.
(b) 31st December, 2021.
(c) 5th January, 2022.

(d) 10th January, 2022.

 CASE SCENARIOS 181

5. Out of the following four options, select the one which correctly indicates
the role of Registrar of Companies on receipt of intimation of order from
the National Company Law Tribunal for winding up of Binjoy Textiles
Limited:
(a) The Registrar of Companies will keep a vigilance over the winding
up process initiated against Binjoy Textiles Limited.
(b) The Registrar of Companies will assist the Company Liquidator Mr.
Dilip in the winding up process initiated against Binjoy Textiles
Limited.
(c) The Registrar of Companies shall make an endorsement to that
effect in his records relating to Binjoy Textiles Limited and notify it
in the Official Gazette.
(d) The Registrar of Companies will strike off the name of Binjoy Textiles
Limited from the Register of Companies.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) Mr. Rohan and Mr. Sharad were eligible to sign the
winding up petition as the shares due to which they were contributories
had devolved upon them on the death of their father, Mr. Mool Chand, a
former holder.
Reason
Section 272(2)
A contributory shall be entitled to present a petition for the winding up
of a company, notwithstanding that he may be the holder of fully paid-up
shares , or that the company may have no assets at all or may have no
surplus assets left for distribution among the shareholders after the
satisfaction of its liabilities, and shares in respect of which he is a
contributory or some of them were either originally allotted to him or
have been held by him, and registered in his name, for at least six months
during the eighteen months immediately before the commencement of
the winding up or have devolved on him through the death of a former
holder.
182 CORPORATE AND ECONOMIC LAWS

2. Option (d) Every unpaid shareholder of Binjoy Textiles Limited, being

a contributory, is liable to pay to the extent of unpaid amount on his
shares, irrespective of his shareholding.
Reason
Section 295, mind it; section 296 further empowers the tribunal to make
calls
3. Option (b) Binjoy Textiles Limited is not permitted to compensate its
Managing Director Mr. Raman Singh for the loss of office before the
completion of his term since the company is being wound up by the
National Company Law Tribunal and the negligence of Mr. Raman Singh
was involved.

Reason
Section 202 (2)(d)
No payment (by way of compensation for loss of office) shall be made
where the company is being wound up, whether by an order of the
Tribunal or voluntarily, provided the winding up was due to the
negligence or default of the director.
In present case the company is being wound up by the National Company
Law Tribunal and the negligence of Mr. Raman Singh was involved.
4. Option (a) 28th December, 2021.
Reason
Rule 14(5) Companies (Winding Up) Rules, 2020
The provisional liquidator or the Company Liquidator, as the case may be
appointed by the Tribunal shall file a declaration in Form WIN 10
disclosing conflict of interest or lack of independence in respect of his
appointment, if any, with the Tribunal within seven days from the date of
appointment.
5. Option (c) The Registrar of Companies shall make an endorsement to
that effect in his records relating to Binjoy Textiles Limited and notify it in
the Official Gazette.
 CASE SCENARIOS 183

Reason
Section 277(2)
On receipt of the copy of order of appointment of provisional liquidator
or winding up order, the Registrar shall make an endorsement to that
effect in his records relating to the company and notify in the Official
Gazette that such an order has been made.
It is further worth noting that, in the case of a listed company, the
Registrar shall intimate about such appointment or order, as the case may
be, to the stock exchange or exchanges where the securities of the
company are listed.
184 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 29

Three close friends, Mr. Singh, Mr. Khurana and Mr. Dhillon, all residents of
Delhi, wanted to start their own venture and accordingly in the year 2014, after
leaving their respective concerns, incorporated a company by the name New
Age Automobiles Private Limited. Prior to this venture, Mr. Singh worked in
National Commercial Bank Limited as Chief Manager and had gained rich
experience of over twenty-two years dealing with different tough situations and
also with seasoned businessmen as well as customers coming from all walks of
life. In the year 2014, he took voluntary retirement under the ‘Voluntary
Retirement Scheme’ announced by National Commercial Bank Limited which
was applicable to the officers who had to their credit twenty years of service or
more as on 31st December, 2013. Mr. Khurana is an experienced finance
professional [MBA (Finance) from Faculty of Management Studies, University of
Delhi] and in the last fifteen years he has served a number of finance companies
gaining extensive knowledge of finance. Mr. Dhillon, an engineer, worked in a
reputed auto company for the last fourteen years.
After two years of the formation of New Age Automobiles Private Limited, Mr.
Rawat, one of the esteemed customers of National Commercial Bank Limited,
who had an ‘Overdraft Account’ in the branch in which Mr. Singh worked as
Chief Manager, wanted to have some stake in the company. Accordingly, he
purchased 6% equity shares of New Age Automobiles Private Limited. After
transferring 6% equity shares to Mr. Rawat, the original promoters held
remaining 94% of equity shares.
Thereafter, in the year 2019, Jagat Electricals Limited having its Registered
Office at Rajendra Place, New Delhi and having reputable presence pan-India
for manufacturing quality products, acquired 60% stake in New Age
Automobiles Private Limited by way of shareholders’ agreement. As per the
agreement, the remaining 34% shares were to be held by Mr. Khurana, Mr.
Singh, and Mr. Dhillon in the ratio in which they were held by them when the
company was incorporated in 2014 and other 6% by Mr. Rawat.

Mr. Rawat was a diabetic patient for the last seven years or so which had an
adverse impact on both of his kidneys. As his kidney problem became serious
by and by leading to dialysis on weekly basis, his nephrologist advised him for
 CASE SCENARIOS 185

kidney transplant. In order to get kidney transplant done at a specialised

hospital, Mr. Rawat decided to go to Seattle, USA, where his son Saaransh
Rawat, holder of Green Card, was serving a Multi-National Company (MNC) at
a senior position. Before going to Seattle, Mr. Rawat sold his 6% stake in New
Age Automobiles Private Limited to Jagat Electricals Limited which increased
the aggregate shareholding of Jagat Electricals Limited to 66%.
Over a period of time, Jagat Electricals Limited gradually started increasing its
stake in New Age Automobiles Private Limited and ultimately it reached to a
level of 92%. The stake of 92% was achieved by way of various agreements
made with Mr. Singh, Mr. Khurana and Mr. Dhillon and by now, these three
friends were left with only 8% shareholding in New Age Automobiles Private
Limited. Being the owner of 92% equity shares of New Age Automobiles Private
Limited, Jagat Electricals Limited was running the affairs of the company in the
manner that suited it; and Mr. Singh, Mr. Khurana and Mr. Dhillon, though
minority shareholders, could not digest this phenomenon.
As a consequence of ‘thought-to-be’ mismanagement in New Age Automobiles
Private Limited, Mr. Khurana, Mr. Singh and Mr. Dhillon decided to file an
application with the jurisdictional National Company Law Tribunal (NCLT)
against oppression and mismanagement in the company.
Later on, Jagat Electricals Limited wanted to execute an agreement with
Mr. Khurana, Mr. Singh and Mr. Dhillon for purchasing their remaining
shareholding of 8%. Pursuant to this, Jagat Electricals Limited had sent a notice
to Mr. Khurana, Mr. Singh and Mr. Dhillon to sell their shares based on a
particular ‘sale consideration’ rather than on the basis of an agreed price. As
there was no response, Jagat Electricals Limited sent another notice to these
friends invoking the previous notice, offering them to sell their shareholdings
at an agreed price which was to be decided in accordance with the valuation
done by a Practicing Chartered Accountant.
Thereafter, Jagat Electricals Limited issued a notice to New Age Automobiles
Private Limited for purchasing the minority shareholding as per Section 236 of
the Companies Act, 2013. Accordingly, New Age Automobiles Private Limited
issued a notice to Mr. Khurana, Mr. Singh and Mr. Dhillon asking them to deliver
their shares. However, Mr. Khurana, Mr. Singh and Mr. Dhillon refused to
transfer their shares.
186 CORPORATE AND ECONOMIC LAWS

Mrs. Usha Singh, wife of Mr. Singh, owns a finance company by the name Singh
Finance Company Private Limited whose turnover is ` 5 crore. In addition to
Mrs. Usha Singh, Mr. Singh is also a Director in Singh Finance Company Private
Limited. The sole purpose of the company is to give loans to other companies
and corporate houses for business purposes.
Some three years before, Charan Singh Auto Parts Pvt. Limited took
` 10 lakhs as loan from Singh Finance Company Private Limited of which ` 6
lakhs along with interest has been repaid. As on date, the outstanding dues of
Charan Singh Auto Parts Pvt. Limited towards Singh Finance Company Private
Limited are ` 4 lakhs.
An investigation was conducted into the affairs of Charan Singh Auto Parts Pvt.
Limited, for it came to the knowledge of Central Government that the business
of this company was being done in an unfair and fraudulent manner. Singh
Finance Company Private Limited and one other company called Arpita Traders
Private Limited decided to file an application with the jurisdictional National
Company Law Tribunal (NCLT) to impose restrictions on Charan Singh Auto
Parts Pvt. Limited since it was likely to transfer its assets in a manner that would
prejudicially affect their interests. It is noteworthy that Singh Finance Company
Private Limited is a secured creditor whereas Arpita Traders is an unsecured
creditor. Charan Singh Auto Parts Pvt. Limited is required to repay ` 75,000 to
Arpita Traders Private Limited.
Mr. Hritik, son of Mr. Khurana, is working as Chief Financial Officer (CFO) in Yatin
Mechanical Apparatus Private Limited for the last two years. The Central
Government has appointed inspectors to investigate into the affairs of Yatin
Mechanical Apparatus Private Limited, after receiving an intimation through
special resolution passed by the company that the affairs of Yatin Mechanical
Apparatus Private Limited ought to be investigated under Section 210 of the
Companies Act, 2013. The main aim of the investigation is to obtain any
evidence or facts regarding any malpractice in the course of conducting of
business and also to identify its profits and losses correctly. During the ongoing
investigation, Yatin Mechanical Apparatus Private Limited desired to discharge
Mr. Hritik from his job as Chief Financial Officer (CFO).
 CASE SCENARIOS 187

MULTIPLE CHOICE QUESTIONS

1. Mr. Khurana, Mr. Singh and Mr. Dhillon had filed an application with the
National Company Law Tribunal against oppression and mismanagement
prevailing in New Age Automobiles Private Limited in which Jagat Electric
Limited is the majority shareholder. Choose the correct option as to
whether the said application is maintainable with NCLT:
(a) Application filed with NCLT against oppression and
mismanagement prevailing in New Age Automobiles Private Limited
cannot be maintained, as Mr. Khurana, Mr. Singh and Mr. Dhillon
together hold less than 10% shares.
(b) The application filed with NCLT by Mr. Khurana, Mr. Singh and
Mr. Dhillon against oppression and mismanagement prevailing in
New Age Automobiles Private Limited is maintainable.
(c) It is within the discretion of NCLT whether to entertain the
application or not.
(d) Application filed with NCLT against oppression and
mismanagement prevailing in New Age Automobiles Private Limited
cannot be maintained, as Mr. Khurana, Mr. Singh and Mr. Dhillon
together hold less than 9% shares.
2. Jagat Electricals Limited sent again a notice after invoking the previous
notice to Mr. Khurana, Mr. Singh and Mr. Dhillon, respectively, offering
them to sell their shares at an agreed price to be decided by a Practicing
Chartered Accountant. Do you think the minority shareholders are liable
to sell their shares to the majority shareholders in such a situation?
(a) Since price is based on the valuation done by a Practicing Chartered
Accountant who has both legal as well as financial knowledge,
minority shareholders are liable to sell their shares to the majority
shareholders.
(b) It is optional for the minority shareholders to sell their shares to the
majority shareholders but the price needs to be determined on the
basis of valuation carried out by a Registered Valuer.
188 CORPORATE AND ECONOMIC LAWS

(c) It is optional for the minority shareholders to sell their shares to the
majority shareholders but the price needs to be determined on the
basis of valuation carried out by a Practicing Company Secretary.
(d) In the given situation, the minority shareholders have no option but
to sell their shares to the majority shareholders irrespective of which
professional carries out the valuation of shares.
3. From the case scenario it is evident that Mr. Singh, Mr. Khurana and Mr.
Dhillon being minority shareholders refused to sell their shareholdings of
8% to Jagat Electricals Limited. In case the trio agrees to the proposal,
then maximum within how much time the amount of consideration shall
be disbursed to them after it is deposited by Jagat Electricals Limited in a
separate bank account to be operated by New Age Automobiles Private
Limited.
(a) Maximum within 15 days, the amount of consideration shall be
disbursed to Mr. Singh, Mr. Khurana and Mr. Dhillon by New Age
Automobiles Private Limited for selling their shareholdings of 8% to
Jagat Electricals Limited.
(b) Maximum within 30 days, the amount of consideration shall be
disbursed to Mr. Singh, Mr. Khurana and Mr. Dhillon by New Age
Automobiles Private Limited for selling their shareholdings of 8% to
Jagat Electricals Limited.
(c) Maximum within 60 days, the amount of consideration shall be
disbursed to Mr. Singh, Mr. Khurana and Mr. Dhillon by New Age
Automobiles Private Limited for selling their shareholdings of 8% to
Jagat Electricals Limited.
(d) Maximum within 90 days, the amount of consideration shall be
disbursed to Mr. Singh, Mr. Khurana and Mr. Dhillon by New Age
Automobiles Private Limited for selling their shareholdings of 8% to
Jagat Electricals Limited.
4. Singh Finance Company Private Limited and Arpita Traders Private Limited
were of the view that Charan Singh Auto Parts Pvt. Limited is likely to
transfer its assets in a manner that will prejudicially affect their interests.
 CASE SCENARIOS 189

In the capacity as creditors of Charan Singh Auto Parts Pvt. Limited,

whether they are eligible to file such an application with the NCLT:

(a) Both Singh Finance Company Private Limited and Arpita Traders
Private Limited in their individual capacity as creditors are eligible
to file the application with NCLT against Charan Singh Auto Parts
Pvt. Limited.
(b) Only Singh Finance Company Private Limited in its capacity as
creditor is eligible to file the application with NCLT against Charan
Singh Auto Parts Pvt. Limited.
(c) Only Arpita Traders Private Limited in its capacity as creditor is
eligible to file the application with NCLT against Charan Singh Auto
Parts Pvt. Limited.
(d) Since Singh Finance Company Private Limited is a secured creditor
and Arpita Traders Private Limited is not a secured creditor, hence
only Singh Finance Company Private Limited is eligible to file the
application with NCLT against Charan Singh Auto Parts Pvt. Limited.
5. The investigation being pending, Yatin Mechanical Apparatus Private
Limited is desirous of discharging Mr. Hritik from his from his job as Chief
Financial Officer (CFO). Select the correct option from those given below
whether Yatin Mechanical Apparatus Private Limited can so discharge Mr.
Hritik:
(a) Yatin Mechanical Apparatus Private Limited cannot discharge Mr.
Hritik from his job as Chief Financial Officer (CFO) till the expiry of
15 days from the completion of ongoing investigation because he
falls in the category of Key Managerial Personnel.
(b) Yatin Mechanical Apparatus Private Limited is required to seek
approval of the NCLT before discharging Mr. Hritik from his job as
Chief Financial Officer (CFO).
(c) Yatin Mechanical Apparatus Private Limited is required to seek
approval of the inspectors conducting investigation before
discharging Mr. Hritik from his job as Chief Financial Officer (CFO).
190 CORPORATE AND ECONOMIC LAWS

(d) Yatin Mechanical Apparatus Private Limited cannot discharge Mr.

Hritik from his job as Chief Financial Officer (CFO) till the expiry of
thirty days from the completion of ongoing investigation because
he falls in the category of Key Managerial Personnel.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) The application filed with NCLT by Mr. Khurana, Mr. Singh
and Mr. Dhillon against oppression and mismanagement prevailing in
New Age Automobiles Private Limited is maintainable.
Reason
244(1)(a)
In the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number
of its members, whichever is less, or any member or members holding not
less than one tenth of the issued share capital of the company, subject to
the condition that the applicant or applicants has or have paid all calls
and other sums due on his or their shares.
There are only 4 members, out of which 3 (much more than 1/10th) who
are advancing the application u/s 241 hence application is maintainable.
Presuming all the call and other if any duly paid.
2. Option (b) It is optional for the minority shareholders to sell their
shares to the majority shareholders but the price needs to be determined
on the basis of valuation carried out by a Registered Valuer.
Reason
Sub-section 2 and 3 of Section 236
The acquirer or the person acting in concert with such acquirer, becoming
registered holder of ninety percent or more of the issued equity share
capital shall offer to the minority shareholders of the company for buying
the equity shares held by such shareholders at a price determined on the
basis of valuation by a registered valuer in accordance with such rules as
may be prescribed.
 CASE SCENARIOS 191

Without prejudice to the provisions of sub-sections (1) and (2) of section

236, the minority shareholders of the company may offer to the majority
shareholders to purchase the minority equity shareholding of the
company at the price determined in accordance with such rules as may be
prescribed under sub-section (2).
3. Option (c) Maximum within 60 days, the amount of consideration
shall be disbursed to Mr. Singh, Mr. Khurana and Mr. Dhillon by New Age
Automobiles Private Limited for selling their shareholdings of 8% to Jagat
Electricals Limited.
Reason
Section 236(4)
The majority shareholders shall deposit an amount equal to the value of
shares to be acquired by them in a separate bank account to be operated
by the company whose shares are being transferred for at least one year
for payment to the minority shareholders and such amount shall be
disbursed to the entitled shareholders within sixty days.
4. Option (b) Only Singh Finance Company Private Limited in its
capacity as creditor is eligible to file the application with NCLT against
Charan Singh Auto Parts Pvt. Limited.
Reason

Section 221(1)
Where it appears to the Tribunal, on a reference made to it by the Central
Government or in connection with any inquiry or investigation into the
affairs of a company under this Chapter or on any complaint made by
such number of members as specified under sub-section (1) of section
244 or a creditor having one lakh amount outstanding against the
company or any other person having a reasonable ground to believe that
the removal, transfer or disposal of funds, assets, properties of the
company is likely to take place in a manner that is prejudicial to the
interests of the company or its shareholders or creditors or in public
interest, it may by order direct that such transfer, removal or disposal shall
not take place during such period not exceeding three years as may be
192 CORPORATE AND ECONOMIC LAWS

specified in the order or may take place subject to such conditions and
restrictions as the Tribunal may deem fit.

Since amount due towards Arpita Traders Private Limited is only

INRs 75000 i.e. less than one lakh; hence Arpita Traders Private Limited is
not allowed to make application to NCLT u/s 221.

5. Option (b) Yatin Mechanical Apparatus Private Limited is required to seek

approval of the NCLT before discharging Mr. Hritik from his job as Chief
Financial Officer (CFO).
Reason
Section 218(1)(b)
During the pendency of any proceeding against any person concerned in
the conduct and management of the affairs of a company, such company,
if proposes
(i) to discharge or suspend any employee; or
(ii) to punish him, whether by dismissal, removal, reduction in rank or
otherwise; or
(iii) to change the terms of employment to his disadvantage,
shall obtain approval of the Tribunal of the action proposed against the
employee.
Note - if the Tribunal has any objection to the action proposed, it shall
send by post notice thereof in writing to the company, other body
corporate or person concerned.
 CASE SCENARIOS 193

CASE SCENARIO 30

Mumbai based Vishakha Tours and Travels Limited (VTTL) is a part of a new
generation of tour operators which specialises in unique, instant and
exceptional tours in Maharashtra. The mission of the Directors Vallabh, Vibhor
and Sapna is to provide a hassle-free experience to their customers. There are
four more Directors (closely related to the first three Directors) who look after
internal departments of the company.
The first three Directors i.e. Vallabh, Vibhor and Sapna had twelve years of
experience and during this period they arranged various categories of tours like
sightseeing tours, luxury tours, walking tours, sports and games, rock climbing,
horse riding and the like. To name a few, the places often visited included Pawna
Lake Camping, Alibaugh, Bhandardara, Lohagad Valley, camping and rafting at
Koland, etc. They had provided the touring services to approximately 3.5 lacs
persons on annual basis. While travelling with them, the tourists would enjoy
in-depth experience, wisest guides, the closest wilderness encounters to ensure
best moments of their lives. The USP of the company is “Best Price Guaranteed”.
According to the audited financial statements, the paid-up share capital of VTTL
as on 31st March, 2021 was ` 6.00 crore (60,00,000 equity shares of ` 10 each)
and the reserves and surplus amounted to ` 2.50 crore. The turnover of the
company for the Financial Year 2020-21 was ` 55.00 crore.
As the company had surplus funds, Vallabh thought of investing ` 50.00 lacs in
equity shares of reputed companies as a part of investment plan. A Board
Meeting was called which was attended by five Directors. However, only three
Directors out of five agreed to the investment plan.

Vallabh and Vibhor were keen to diversify the activities of the company into
certain other areas as well. They were of the opinion to buy a big plot of land
in Lonavala and construct a theme park for fun and frolic on weekend getaways.
It was supposed to provide all amenities and comforts including 5 acres of
Water Park, 2 roller coasters and 50 other attractions. Their aim was to ensure
that their guests enjoy exclusive privileges, novel experience with most
competitive prices. To deliberate on the issue, VTTL called a Board Meeting on
10th September, 2021 at 3:00 p.m. at its Registered Office at Worli, Mumbai.
194 CORPORATE AND ECONOMIC LAWS

However, no business could be undertaken for want of quorum and the meeting
was adjourned.

MULTIPLE CHOICE QUESTIONS

1. In the above case scenario, one of the Directors Vallabh wanted to invest
surplus funds of VTTL amounting to ` 50.00 lakhs in equity shares of
reputed companies as a part of investment plan. It is noticed that five
Directors out of total seven Directors attended the Board Meeting in
which this proposal was discussed and only three Directors consented to
the proposal. Which one of the following options is applicable in the given
situation?
(a) VTTL can go ahead with such investment plan since majority of the
Directors present at the Board Meeting agreed to the proposal of
investing funds amounting to ` 50.00 lakhs in equity shares of
reputed companies.
(b) VTTL cannot invest funds amounting to ` 50.00 lakhs in equity
shares of reputed companies since all the five Directors present at
the meeting did not agree to such investment plan.
(c) VTTL cannot invest funds amounting to ` 50.00 lakhs in equity
shares of reputed companies since the total strength of seven
Directors must attend the Board Meeting and all must consent to
such investment plan.
(d) VTTL cannot invest funds amounting to ` 50.00 lakhs in equity
shares of reputed companies since the investment plan did not
receive the consent of 3/4th majority of the Directors present (i.e.
four out of five present).
2. From the case scenario, it is evident that VTTL called a Board Meeting on
10th September, 2021, at 3:00 p.m. at its Registered Office at Worli,
Mumbai to deliberate on the issue of expanding its activities into certain
other areas as well. However, no business could be undertaken for want
of quorum and the meeting was adjourned. From the following options,
choose the one which indicates the correct date, time and place for
 CASE SCENARIOS 195

holding such adjourned meeting if no contrary provisions are contained

in the Articles of Association of VTTL.

(a) The adjourned Board Meeting needs to be held on 13th September,

2021, at 3:00 p.m. at the Registered Office of VTTL at Worli, Mumbai.
(b) The adjourned Board Meeting needs to be held on 15th September,
2021, at 3:00 p.m. at the Registered Office of VTTL at Worli, Mumbai.
(c) The adjourned Board Meeting needs to be held on 17th September,
2021, at 3:00 p.m. at the Registered Office of VTTL at Worli, Mumbai.

(d) The adjourned Board Meeting needs to be held on 20th September,

2021, at 3:00 p.m. at the Registered Office of VTTL at Worli, Mumbai.
3. The case scenario does not speak about the appointment of any
Independent Director. From the following four options choose the one,
which indicates the number of Independent Directors that VTTL is required
to appoint based on the financial results as on 31-03-2021:

(a) VTTL is required to appoint minimum one Independent Director.

(b) VTTL is required to appoint minimum two Independent Directors.
(c) VTTL is not required to appoint an Independent Director.
(d) VTTL is required to appoint minimum three Independent Directors.
4. From the options given below, choose the one which indicates the
maximum amount which VTTL can invest for acquiring by way of purchase
the securities of any other body corporate without passing a special
resolution in a General Meeting:
(a) VTTL can invest maximum up to ` 6.00 crore for acquiring by way of
purchase the securities of any other body corporate.
(b) VTTL can invest maximum up to ` 5.95 crore for acquiring by way of
purchase the securities of any other body corporate.

(c) VTTL can invest maximum up to ` 3.60 crore for acquiring by way of
purchase the securities of any other body corporate.
(d) VTTL can invest maximum up to ` 5.10 crore for acquiring by way of
purchase the securities of any other body corporate.
196 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) VTTL cannot invest funds amounting to ` 50.00 lakhs in

equity shares of reputed companies since all the five Directors present at
the meeting did not agree to such investment plan.

Reason

section 186(5)

No investment shall be made by the company unless the resolution

sanctioning it is passed at a meeting of the board with the consent of all
the directors present at meeting.

It is worth noting, where any term loan is subsisting the prior approval of
concerned public financial institution is required to be obtained.

2. Option (c) The adjourned Board Meeting needs to be held on 17th

September, 2021 at 3:00 p.m. at the Registered Office of VTTL at Worli,
Mumbai.

Reason

Section 174(4)

Where a meeting of the Board could not be held for want of quorum,
then, unless the articles of the company otherwise provide, the meeting
shall automatically stand adjourned to the same day at the same time and
place in the next week or if that day is a national holiday, till the next
succeeding day, which is not a national holiday, at the same time and
place.

3. Option (c) VTTL is not required to appoint an Independent Director.

Reason

Section 149(4) read with Rule 4 of the Companies (Appointment and

Qualification of Directors) Rules, 2014.
 CASE SCENARIOS 197

4. Option (d) VTTL can invest maximum up to ` 5.10 crore for acquiring
by way of purchase the securities of any other body corporate.

Reason

Section 186(2)
No company shall directly or indirectly acquire by way of subscription,
purchase or otherwise, the securities of any other body corporate,
exceeding sixty percent of its paid-up share capital, free reserves and
securities premium account or one hundred percent of its free reserves
and securities premium account, whichever is more.
Higher of 60% of 8.5 (6+2.5) i.e. 5.1 or 100% of 2.5 i.e. 2.5 is INRs 5.1 crores
198 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 31

Having keen interest in watching planets and stars, Ebhanan, Ilesh, Ina and
Idhan thought of manufacturing optical instruments like telescopes and
binoculars and to achieve their objects, they formed Iris Engineering Limited
(IEL) way back in the year 1992 with some of their close relatives. Based in
Mumbai, the products manufactured by IEL allow the observers to delve deeper
into the beauty of space with full range of comfortable view. In particular,
telescopes made by the company are light-weight, portable as well as elegant
and are used by private observatories, educational institutions, Government
organisations, etc., both in India and abroad.
The products of IEL carry a pre-eminent reputation for crystal clear optics for
every outdoor activity. They are extremely popular for bird-watching, hiking,
star-gazing, marine observation, astronomy and the like. The company has
made a good place for itself in the market giving a tough competition to its
rivals.
From time to time, Ebhanan, Ilesh, Ina and Idhan have inducted certain other
eminent persons as directors who have in-depth knowledge and relevant
experience in the field in which the company is engaged. Further, Ina was given
the responsibility to search talent from outside India also. Accordingly, she
established contacts with two USA based physicists Isa and Ivaan who had
specialised knowledge in the field of optics and optic materials. To extract as
much of their expertise, she proposed to rope them in as directors in the
company to which other directors agreed without any resistance and thus, Isa
and Ivaan were appointed as directors taking the count of directors to fifteen
which is the maximum strength as per the Articles of the company. However,
there occurred four vacancies in the office of directorship in May, 2021 because
of covid related deaths of four directors and such vacancies are yet to be filled.

To make matter easier for Isa and Ivaan, an option was provided to all the
directors to attend Board Meetings through Video Conferencing. Further, the
company started sending the notice of Board Meeting by e-mail though no
such provision was included in the Articles of Association.
The net profits/loss of the company for the last few financial years are as under:
 CASE SCENARIOS 199

FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21

(`) (`) (`) (`)
Net 1,92,00,000 2,55,00,000 2,85,00,000 (36,00,000)
Profit/(Loss)
Note: During the FY 2020-21, loss was incurred because of disturbance in
operation due to continuing pandemic.

The company was considering to import Optical Tube Assemblies (OTA), Mirrors
and Lenses of fine quality for improving the production capacity. In order to
purchase these items, Isa started negotiations with one of the reputed suppliers
M/s John Optical Tubes & Glass Company, Inc., based at New York, USA and
the deal was finalised for US$ 200,000. Isa further negotiated with M/s John
Optical Tubes & Glass Company, Inc., to supply these items for a credit period
of four months to which the exporter agreed.

MULTIPLE CHOICE QUESTIONS

1. The case scenario states that IEL started sending the notice of Board
Meeting by e-mail though no such provision was included in the Articles
of Association. Whether action of IEL to opt for sending of the said Notice
by e-mail is valid?

(a) Action of IEL to opt for sending the notice of the Board Meeting by
e-mail is not valid since its Articles of Association do not contain
such provision.

(b) Action of IEL to opt for sending the notice of the Board Meeting by
e-mail is not valid since such notice is permitted to be sent by post
only.
(c) Action of IEL to opt for sending the notice of the Board Meeting by
e-mail is not valid since such notice is permitted to be sent by post
or conveyed through telephonic call.
(d) Action of IEL to opt for sending the notice of the Board Meeting by
e-mail is valid since such notice is permitted to be sent by hand
delivery or by post or by electronic means.
200 CORPORATE AND ECONOMIC LAWS

2. What shall be the quorum for the meeting of the Board of Directors if the
directors of IEL including Isa and Ivaan who are citizens of USA are given
the option to attend the meeting through video conferencing:
(a) Quorum for the Board Meeting shall be five directors.
(b) Quorum for the Board Meeting shall be four directors.

(c) Quorum for the Board Meeting shall be nine directors.

(d) Quorum for the Board Meeting shall be two directors.
3. What shall be the maximum amount of contribution if IEL decides to
contribute certain sum of money to a bona-fide charitable trust with the
approval of the Board during the FY 2021-22:
(a) IEL can contribute maximum ` 8,70,000 to a bona-fide charitable
trust with the approval of the Board.
(b) IEL can contribute maximum ` 8,40,000 to a bona-fide charitable
trust with the approval of the Board.
(c) IEL can contribute maximum ` 6,22,500 to a bona-fide charitable
trust with the approval of the Board.
(d) IEL cannot contribute any amount to a bona-fide charitable trust
with the approval of the Board since it has incurred loss in the
immediately preceding Financial Year.
4. Regarding filling the casual vacancies vacate on account if death of 4
directors due to COVID, find the correct combination of statements;
i. Casual Vacancy can be filled by board but only through resolution
at board meeting not be circulations.
ii. Director appointed against casual vacancy shall hold office till next
AGM only.
iii. Board can fill only those casual vacancies wherein original directors
in such place was appointed at AGM.
(a) Only i and ii are correct
(b) Only ii and iii are correct

(c) Only i and iii are correct

 CASE SCENARIOS 201

(d) All of I, ii, iii are correct

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) Action of IEL to opt for sending the notice of the Board
Meeting by e-mail is valid since such notice is permitted to be sent by
hand delivery or by post or by electronic means.
Reason
Section 173(3)
A meeting of the Board shall be called by giving not less than seven days’
notice in writing to every director at his address registered with the
company and such notice shall be sent by hand delivery or by post or by
electronic means.
2. Option (b) Quorum for the Board Meeting shall be four directors.
Reason
Section 174(1)
The quorum for a meeting of the Board of Directors of a company shall
be one third of its total strength or two directors, whichever is higher, and
the participation of the directors by video conferencing or by other audio
visual means shall also be counted for the purposes of quorum under this
sub-section.
1/3rd of 11 amounts to 3.66 that shall be round up to 4 director which
more than 2, hence quorum shall be of 4 directors.
3. Option (b) IEL can contribute maximum ` 8,40,000 to a bona-fide
charitable trust with the approval of the Board.

Reason
Section 181
The Board of Directors of a company may contribute to bona fide
charitable and other funds, provided that prior permission of the company
in general meeting shall be required for such contribution in case any
amount the aggregate of which, in any financial year , exceed five percent
202 CORPORATE AND ECONOMIC LAWS

of its average net profits for the three immediately preceding financial
years.

5% of [(255 lacs + 285 lacs - 36 lacs)/3] comes to INRs 8.4 lacs

4. Option (c) Only i and iii are correct
Reason

Section 161 (4)

If the office of any director appointed by the company in general meeting
is vacated before his term of office expires in the normal course, the
resulting casual vacancy may, in default of and subject to any regulations
in the articles of the company, be filled by the Board of Directors at a
meeting of the Board which shall be subsequently approved by members
in the immediate next general meeting.
Provided that any person so appointed shall hold office only up to the
date up to which the director in whose place he is appointed would have
held office if it had not been vacated.
 CASE SCENARIOS 203

CASE SCENARIO 32

Malhotra Ispat Limited (MIL), founded in 1984, had a significant presence in the
steel manufacturing sector. Led by Abhay Malhotra, the company's success
story was scripted essentially by its resolve to innovate, set new standards,
enhance capabilities, and enrich lives to ensure that it stayed true to its
cherished value system. Over the years, under his outstanding leadership, MIL
had grown into a large and profitable enterprise and also aspired for global
presence. The company was continuously scaling its capacity utilisation and
efficiencies to capture suitable and timely opportunities.

As on March 31, 2017, the company had a paid-up capital of ` 20 crores with
1150 shareholders and after-tax net profit to the tune of ` 10.25 crores.
However, a shocking event took place in May 2017 which led to the downfall of
the company. It so happened that due to severe neuro problem, Abhay
Malhotra was unable to manage the rising business and consequently, the reins
of the business slipped into the hands of his two young but inexperienced sons
Virat and Sambhav.
In an attempt to raise the company to further heights, the Gen-Next
management took a heavy loan of ` 70 crores from Prabhat Development Bank
Limited. The funds so borrowed were not properly utilised due to the weak
managerial skills of the new leadership and for want of guidance from Abhay
Malhotra; and it caused the company to nosedive to such an extent that in just
four years after Abhay Malhotra’s illness it was felt expedient to go for some
kind of compromise or arrangement if the company had to survive in the near
future.
After lengthy discussions at the top management level, the company decided
to provide for the following scheme of arrangement:
“Sale of a part of plant and machinery and also a vacant plot for appropriating
the proceeds so received for repayment of 70% of the outstanding term loan
availed from Prabhat Development Bank Limited. The remaining 30% of loan
shall be rescheduled for repayment in installments spread over next five years.”
It is noteworthy that Prabhat Development Bank Limited had given in-principle
approval to the above repayment plan, if sanctioned.
204 CORPORATE AND ECONOMIC LAWS

Accordingly, MIL made an application in the specified Format along with

requisite documents to the jurisdictional National Company Law Tribunal
(NCLT).
The Tribunal ordered for a meeting of the shareholders to be held on
10 October, 2021 at 11.00 A.M. at the registered office of the company situated
at Connaught Place, New Delhi and the company was directed to issue a
suitable notice for conducting the meeting of the shareholders. Some of the
shareholders raised objections against the said arrangement.

MULTIPLE CHOICE QUESTIONS

1. The Case Scenario states that some of the shareholders raised objections
against the said arrangement. Since the compromise or arrangement is to
be agreed by some kind of majority of persons (without considering the
value) who attend and vote at the meeting through specified modes, then
which kind of majority is required for approval:

(a) Simple majority where votes cast in favour of compromise or

arrangement exceed the votes cast against it.
(b) Sixty percent or more majority where votes cast in favour of
compromise or arrangement are 60% or more.
(c) Seventy five percent or more majority where votes cast in favour of
compromise or arrangement are 75% or more.

(d) Full majority where all the votes are cast in favour of compromise or
arrangement.
2. It is observed from the above Case Scenario that the Tribunal has ordered
for a meeting of the shareholders to consider the scheme of arrangement.
The notice of such meeting shall provide that the persons to whom the
notice is sent may vote on the scheme of compromise or arrangement:

(a) Only by themselves keeping in view the importance of meeting.

(b) By themselves or through proxies appointed by them.
(c) By themselves or through proxies appointed by them but any such
appointed proxy must hold minimum one share in the company.
 CASE SCENARIOS 205

(d) By themselves or through proxies appointed by them or by postal

ballot.

3. According to the Case Scenario some of the shareholders raised

objections against the said arrangement. Since the compromise or
arrangement is to be agreed by specified majority of persons (considering
the value they hold) who attend and vote at the meeting through
specified modes, then which kind of majority in value is required for
approval of the scheme:

(a) Specified majority of persons who cast votes in favour of

compromise or arrangement must hold fifty one percent or more in
value.
(b) Specified majority of persons who cast votes in favour of
compromise or arrangement must hold sixty percent or more in
value.
(c) Specified majority of persons who cast votes in favour of
compromise or arrangement must hold seventy five percent or more
in value.
(d) Specified majority of persons who cast votes in favour of
compromise or arrangement must hold ninty percent or more in
value.
4. A reading of the above Case Scenario reveals that some of the
shareholders raised objections against the said arrangement. From the
legal point of view who is eligible to raise an objection to the scheme of
compromise or arrangement if he is a shareholder of the company:
(a) Persons holding not less than 10% of the shareholding as per the
latest audited financial statement.

(b) Persons holding not less than 5% of the shareholding as per the
latest audited financial statement.
(c) Persons holding not less than 7.5% of the shareholding as per the
latest audited financial statement.
(d) Persons holding not less than 15% of the shareholding as per the
latest audited financial statement.
206 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Simple majority where votes cast in favour of compromise

or arrangement exceed the votes cast against it.

Reason

Section 230(6)

Where, at a meeting held, majority of persons representing three-fourths

in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement.

2. Option (d) By themselves or through proxies appointed by them or

by postal ballot.

Reason

Section 230(6)

Where, at a meeting held, majority of persons representing three-fourths

in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement.

3. Option (c) Specified majority of persons who cast votes in favour of

compromise or arrangement must hold seventy five percent or more in
value.

Reason

Section 230(6)

Where, at a meeting held, majority of persons representing three-fourths

in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal
ballot, agree to any compromise or arrangement.
 CASE SCENARIOS 207

4. Option (a) Persons holding not less than 10% of the shareholding as
per the latest audited financial statement.

Reason

Proviso to Section 230(4)

Any objection to the compromise or arrangement shall be made only by

persons holding not less than ten percent of the shareholding or having
outstanding debt amounting to not less than five percent of the total
outstanding debt as per the latest audited financial statement.
208 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 33

Roopak Leathers Limited offers quality leather products in the latest styles,
catering to the choice of present generation. Their portfolio includes leather
shoes, leather bags, wallets, belts and accessories. Incorporated in the year 2002
at Naubasta, Kanpur, the company with over 1000 showrooms in northern India,
has maintained a stable position catering to all kinds of income groups. It is a
profit-making company and has paid-up share capital of ` 70 crores (70,00,000
equity shares of ` 100 each)
Ambuj, CMD and also one of the four promoters of Roopak Leathers Limited
and his team of directors, is interested in having their presence felt in
Maharashtra and Gujarat as well. To accomplish their objective, they are
thinking of raising funds through public issue of its securities by issuing a
prospectus. The equity shares are proposed to be listed on the BSE Limited and
National Stock Exchange of India Limited (popularly called NSE).
For the purpose of valuation of its equity shares, the name of Perfect Valuation
Services, LLP, was suggested by one of the directors Manu Kulkarni. In fact,
Manu knew CA Promila, one of the partners in Perfect Valuation Services, LLP
through his cousin Tanishk who was her class-fellow in school. Ambuj liked the
idea and accordingly, Perfect Valuation Services, LLP was duly appointed by the
Audit Committee of Roopak Leathers Limited.
IBBI registered Perfect Valuation Services, LLP, started by twins CA Promila and
CA Prachi in the year 2019 and supported by qualified and experienced staff,
takes up valuation of ‘Securities and Financial Assets’ which includes submission
of valuation reports for issue of shares and securities, valuation of intangibles,
related party transactions, ESOP valuation, etc. The services provided by this
firm help in determining the fair value of clients’ business through application
of complex and in-depth models enabling them to maximise their economic
potential and helps them in making informed decision-makers.
Within the assigned time, Perfect Valuation Services, LLP, valued the equity
shares of Roopak Leathers Limited and submitted the valuation report to the
company and charged pre-decided fees.
 CASE SCENARIOS 209

Based on the valuation report and other legal formalities, Roopak Leathers
Limited floated the public issue which was oversubscribed five times within
three hours of opening. Thereafter, the company got its shares successfully
listed on BSE Limited and National Stock Exchange of India Limited.

MULTIPLE CHOICE QUESTIONS

1. While making an application to the Insolvency and Bankruptcy Board of

India (IBBI) for registration as a registered valuer in the year 2019, how
much non-refundable application fee Perfect Valuation Services, LLP must
have paid? Choose the correct alternative from the following options:
(a) Perfect Valuation Services, LLP must have paid ` five thousand as
non-refundable application fee while making application for
registration as a registered valuer.
(b) Perfect Valuation Services, LLP must have paid ` ten thousand as
non-refundable application fee while making application for
registration as a registered valuer.
(c) Perfect Valuation Services, LLP must have paid ` fifteen thousand as
non-refundable application fee while making application for
registration as a registered valuer.
(d) Perfect Valuation Services, LLP must have paid ` twenty thousand as
non-refundable application fee while making application for
registration as a registered valuer.
2. After considering the application, had IBBI been of the prima facie opinion
that the registration ought not to be granted to Perfect Valuation Services,
LLP, and the reasons for forming such an opinion were communicated to
the LLP, then after the receipt of such communication, maximum how
much time would have been allowed to Perfect Valuation Services, LLP for
submission of an explanation as to why its application should be
accepted:
(a) In such a situation, Perfect Valuation Services, LLP would have been
allowed maximum five days for submission of an explanation as to
why its application should be accepted.
210 CORPORATE AND ECONOMIC LAWS

(b) In such a situation, Perfect Valuation Services, LLP would have been
allowed maximum fifteen days for submission of an explanation as
to why its application should be accepted.
(c) In such a situation, Perfect Valuation Services, LLP would have been
allowed maximum twenty-one days for submission of an
explanation as to why its application should be accepted.
(d) In such a situation, Perfect Valuation Services, LLP would have been
allowed maximum thirty days for submission of an explanation as to
why its application should be accepted.
3. The case scenario states that the Audit Committee of Roopak Leathers
Limited appointed Perfect Valuation Services, LLP, to value its equity
shares. Had there been no Audit Committee constituted by Roopak
Leathers Limited, which other authority in the company would have
appointed Perfect Valuation Services, LLP? Choose the correct answer
from the following options:
(a) In the absence of Audit Committee, Ambuj, the Managing Director
of Roopak Leathers Limited would have appointed Perfect Valuation
Services, LLP.
(b) In the absence of Audit Committee, the promoters of Roopak
Leathers Limited would have appointed Perfect Valuation Services,
LLP.
(c) In the absence of Audit Committee, the Board of Directors of
Roopak Leathers Limited would have appointed Perfect Valuation
Services, LLP.
(d) In the absence of Audit Committee, the shareholders of Roopak
Leathers Limited would have appointed Perfect Valuation Services,
LLP by passing a resolution in the General Meeting.
4. Suppose CA Promila, before becoming partner of Perfect Valuation
Services, LLP, was levied a penalty under Section 271J of Income-tax Act,
1961 and such penalty had been confirmed by the Income-tax Appellate
Tribunal, then in such a situation when would she become eligible to be
a registered valuer:
 CASE SCENARIOS 211

(a) Two years must be elapsed after levy of penalty under Section 271J
of Income-tax Act, 1961, before CA Promila becomes eligible to be
a registered valuer.
(b) Three years must be elapsed after levy of penalty under Section 271J
of Income-tax Act, 1961, before CA Promila becomes eligible to be
a registered valuer.
(c) Five years must be elapsed after levy of penalty under Section 271J
of Income-tax Act, 1961, before CA Promila becomes eligible to be
a registered valuer.
(d) Seven years must be elapsed after levy of penalty under Section
271J of Income-tax Act, 1961, before CA Promila becomes eligible
to be a registered valuer.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) Perfect Valuation Services, LLP must have paid ` ten
thousand as non-refundable application fee while making application for
registration as a registered valuer.
Reason
Rule 6(2) of the Companies (Registered Valuers and Valuation) Rules, 2017
A partnership entity or company eligible for registration as a registered
valuer under rule 3 may make an application to the authority in Form-B
of Annexure-II along with a nonrefundable application fee of ten
thousand rupees in favour of the authority.
2. Option (b) In such a situation, Perfect Valuation Services, LLP would
have been allowed maximum fifteen days for submission of an
explanation as to why its application should be accepted.
Reason
Rule 6(8) of the Companies (Registered Valuers and Valuation) Rules, 2017
The applicant shall submit an explanation as to why his/its application
should be accepted within fifteen days of the receipt of the
communication under sub- rule (7), to enable the authority to form a final
opinion.
212 CORPORATE AND ECONOMIC LAWS

3. Option (c) In the absence of Audit Committee, the Board of Directors of

Roopak Leathers Limited would have appointed Perfect Valuation
Services, LLP.
Reason
Section 247(1)
Where a valuation is required to be made in respect of any property,
stocks, shares , debenture , securities or goodwill or any other assets or
net worth of a company or its liabilities under the provision of this Act, it
shall be valued by a person having such qualifications and experience,
registered as a valuer and being a member of an organisation recognised,
in such manner, on such terms and conditions as may be prescribed and
appointed by the audit committee or in its absence by the Board of
Directors of that company.
4. Option (c) Five years must be elapsed after levy of penalty under Section
271J of Income-tax Act, 1961, before CA Promila becomes eligible to be
a registered valuer.
Reason
Rule 3(1)(j) of the Companies (Registered Valuers and Valuation) Rules,
2017
A person shall not be eligible to be a registered valuer if;
1. A penalty under section 271J of Income-tax Act, 1961 has been
levied
and
2A. time limit for filing appeal before Commissioner of Income-tax
(Appeals) or Income-tax Appellate Tribunal, as the case may be has
expired
or
2B. Such penalty has been confirmed by Income-tax Appellate Tribunal
and
3. Five years have not elapsed after levy of such penalty.
 CASE SCENARIOS 213

CASE SCENARIO 34

Having met each other while working for an IT organisation during 2014, Adarsh
and Aadhav teamed up to enter online grocery and vegetable delivery space
and founded Harekrishna Daily Needs Limited with the Head Office in Gurgaon
(currently called Gurugram) in the beginning of the year 2016. Initially the
company had ten subscribers who were related to both Adarsh and Aadhav.
They launched ‘Groceve - a Mobile App portmanteau of groceries and
vegetables’ through which the consumers could order their daily requirements
against online payments and get quick doorstep deliveries of various daily need
items. By and by, the company started catering to the northern India. As on
31st March, 2021, it had paid-up share capital of ` 200 lacs (20 lacs equity shares
of ` 10 each) held by 500 shareholders.
As Harekrishna Daily Needs Limited was in need of a Managing Director, it
appointed Gyanendra Singh as its MD in April 2019. Earlier, Gyanendra Singh
worked as General Manager of Vyom Financial Services Limited, a non-banking
financial company (NBFC). Habitual of working according to his own whims and
caprices, he acted the same way in this company also. He, in his own style,
started ordering the employees to supply groceries to the retailers as well as
wholesalers at concessional rates which, in fact, was against the policy of the
company, for the policy was to supply goods directly to consumers after
obtaining online payments. In addition, he offered two months’ and three
months’ debt collection period to the retailers and wholesalers respectively
after receiving kickbacks from them. Further, no cash security was deposited by
the retailers and wholesalers to cover late payments. Most of the retailers and
also wholesalers did not clear their outstanding dues resulting in bad debts. At
the end of the financial year 2021-21, the company suffered heavy bad debts
which had to be written off at the time of finanalising the annual accounts.
Aggrieved by these wrongful and undesirable acts, 10 members of Harekrishna
Daily Needs Limited made an application before the jurisdictional National
Company Law Tribunal (NCLT) praying that the affairs of the company were
being conducted in a manner prejudicial to the interests of the members as well
as the company and requested NCLT for termination of the service agreement
of the Managing Director, Mr. Gyanendra Singh.
214 CORPORATE AND ECONOMIC LAWS

The National Company Law Tribunal (NCLT), however, did not entertain the
application filed by 10 members stating that the members making the
application were not eligible to apply.
When Dharmesh, one of the shareholders, came to know about rejection of the
application by National Company Law Tribunal (NCLT), he, on his own, filed the
application afresh with the NCLT on the similar grounds of mismanagement and
making the company and Managing Director Gyanendra Singh as respondents.
In fact, Dharmesh through his representative also brought to the knowledge of
NCLT that Gyanendra Singh, during his earlier assignment as General Manager
with Vyom Financial Services Limited, was involved in sanctioning big loans
without insisting on adequate security to dubious borrowers and therefore,
many such loan accounts turned non-performing assets (NPA) and
irrecoverable.
It is to be noted that the National Company Law Tribunal (NCLT) after accepting
the application filed by Dharmesh and after hearing both the parties, observed
that Gyanendra Singh, the Managing Director of Harekrishna Daily Needs
Limited was involved in malpractices and mismanagement, on the basis of his
past track record and the current handling of affairs of Harekrishna Daily Needs
Limited. The NCLT, therefore, ordered termination of the service agreement by
which he was appointed as Managing Director. Gyanendra Singh demanded
compensation from the company for the remaining period of his service since
his term as Managing Director was yet to expire.

MULTIPLE CHOICE QUESTIONS

1. In the above case scenario, an application was filed by 10 members of

Harekrishna Daily Needs Limited citing the prevalence of mismanagement
in the company but it was rejected by the National Company Law Tribunal
(NCLT) stating that 10 shareholders were ineligible to apply. In the given
situation, how many members irrespective of their shareholdings need to
apply to the NCLT?

(a) Minimum 100 members of Harekrishna Daily Needs Limited,

irrespective of their shareholdings, are required to file an application
with NCLT against mismanagement in the company.
 CASE SCENARIOS 215

(b) Minimum 75 members of Harekrishna Daily Needs Limited,

irrespective of their shareholdings, are required to file an application
with NCLT against mismanagement in the company.
(c) Minimum 50 members of Harekrishna Daily Needs Limited,
irrespective of their shareholdings, are required to file an application
with NCLT against mismanagement in the company.
(d) Minimum 25 members of Harekrishna Daily Needs Limited,
irrespective of their shareholdings, are required to file an application
with NCLT against mismanagement in the company.
2. After rejection of application filed by 10 members of Harekrishna Daily
Needs Limited, Dharmesh, one of the shareholders of the company, filed
the application afresh on the similar grounds of mismanagement which
was accepted by the National Company Law Tribunal (NCLT). If conditions
for making application u/s 241 not waived/relaxed by NCTL then what
could be the reason because of which application filed by Dharmesh was
accepted by the NCLT?
(a) Application filed by Dharmesh was accepted by the NCLT because
he must be the holder of minimum 1,00,000 shares of the face value
of ` 10 each amounting to ` 10 lacs.
(b) Application filed by Dharmesh was accepted by the NCLT because
he must be the holder of minimum 2,00,000 shares of the face value
of ` 10 each amounting to ` 20 lacs.
(c) Application filed by Dharmesh was accepted by the NCLT because
he must be the holder of minimum 2,50,000 shares of the face value
of ` 10 each amounting to ` 25 lacs.
(d) Application filed by Dharmesh was accepted by the NCLT because
he must be the holder of minimum 3,00,000 shares of the face value
of ` 10 each amounting to ` 30 lacs.
3. According to the case scenario, Gyanendra Singh demanded
compensation from Harekrishna Daily Needs Limited for the remaining
period of his service since his term as Managing Director was yet to expire.
Whether the company is liable to pay him compensation in view of the
216 CORPORATE AND ECONOMIC LAWS

fact that his service agreement was terminated by National Company Law
Tribunal (NCLT)?

(a) Harekrishna Daily Needs Limited, irrespective of termination of his

service agreement by the NCLT, is required to compensate
Gyanendra Singh by paying him remuneration equal to the
remaining period of his service but such compensation must not
exceed three years of remuneration.
(b) Harekrishna Daily Needs Limited, irrespective of termination of his
service agreement by the NCLT, is required to compensate
Gyanendra Singh by paying him remuneration equal to the
remaining period of his service but such compensation must not
exceed two years of remuneration.
(c) Harekrishna Daily Needs Limited, irrespective of termination of his
service agreement by the NCLT, is required to compensate
Gyanendra Singh by paying him remuneration equal to the
remaining period of his service but such compensation must not
exceed fifteen months of remuneration.
(d) Harekrishna Daily Needs Limited is not required to compensate
Gyanendra Singh, for his service agreement was terminated by the
NCLT.
4. The case scenario mentions that National Company Law Tribunal (NCLT)
ordered termination of the service agreement by which he was appointed
as Managing Director of Harekrishna Daily Needs Limited. Whether
Gyanendra Singh, after being terminated, can be offered the office of
Managing Director or director or manager by the company?
(a) Gyanendra Singh, after termination of the service agreement as
Managing Director by NCLT, cannot be offered the office of
Managing Director or director or manager by the company for a
period of one year from the date of the order of NCLT without the
leave of NCLT.
(b) Gyanendra Singh, after termination of the service agreement as
Managing Director by NCLT, cannot be offered the office of
Managing Director or director or manager by the company for a
 CASE SCENARIOS 217

period of three years from the date of the order of NCLT without
the leave of NCLT.

(c) Gyanendra Singh, after termination of the service agreement as

Managing Director by NCLT, cannot be offered the office of
Managing Director or director or manager by the company for a
period of five years from the date of the order of NCLT without the
leave of NCLT.
(d) Gyanendra Singh, after termination of the service agreement as
Managing Director by NCLT, cannot be offered the office of
Managing Director or director or manager by the company for a
period of seven years from the date of the order of NCLT without
the leave of NCLT.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) Minimum 50 members of Harekrishna Daily Needs Limited,

irrespective of their shareholdings, are required to file an application with
NCLT against mismanagement in the company.
Reason
Section 244(1)(a)
In the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number
of its members, whichever is less, or any member or members holding not
less than one tenth of the issued share capital of the company, subject to
the condition that the applicant or applicants has or have paid all calls
and other sums due on his or their shares.
Since there are 5000 members of Harekrishna Daily Needs Limited hence
10% of same amounts to 50 which is less than 100 therefore at-least 50
members together allowed to advance application u/s 241 against
mismanagement to NCLT.
It worth noting that tribunal may, on an application made to it in this
behalf, waive such requirement so as to enable the members to apply
under section 241.
218 CORPORATE AND ECONOMIC LAWS

Further Students are advised to take note that where any share or shares
are held by two or more persons jointly, they shall be counted only as one
member.
2. Option (b) Application filed by Dharmesh was accepted by the NCLT
because he must be the holder of minimum 2,00,000 shares of the face
value of ` 10 each amounting to ` 20 lacs.
Reason
Section 244(1)(a)
In the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number
of its members, whichever is less, or any member or members holding not
less than one tenth of the issued share capital of the company, subject to
the condition that the applicant or applicants has or have paid all calls
and other sums due on his or their shares.

10% of the paid –up share capital i.e. INRs 200 lacs of Harekrishna Daily
Needs Limited amounts to INRs 20 lacs.
3. Option (d) Harekrishna Daily Needs Limited is not required to
compensate Gyanendra Singh, for his service agreement was terminated
by the NCLT
Reason
Section 202(2)(c) read with Section 167(1)(e)
As per section 167(1)(e), director shall vacate office if he becomes
disqualified by an order of a court or the Tribunal; further section 202(2)(c)
provides that No compensation shall be made to any MD/WTD/Manager,
where the office of the director is vacated under sub-section (1) of section
167.
4. Option (c) Gyanendra Singh, after termination of the service agreement
as Managing Director by NCLT, cannot be offered the office of Managing
Director or director or manager by the company for a period of five years
from the date of the order of NCLT without the leave of NCLT.
 CASE SCENARIOS 219

Reason
Section 243(1)(b)
No managing director or other director or manager whose agreement is
so terminated or set aside shall, for a period of five years from the date
of the order terminating or setting aside the agreement, without the leave
of the Tribunal, be appointed, or act, as the managing director or other
director or manager of the company.
Students are advised to note that the Tribunal shall not grant leave under
this clause unless notice of the intention to apply for leave has been
served on the Central Government and that Government has been given
a reasonable opportunity of being heard in the matter.
Students are also advised to note that Section 164(1)(e) A person shall not
be eligible for appointment as a director of a company, if an order
disqualifying him for appointment as a director has been passed by a
court or Tribunal and the order is in force.
220 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 35

Belonging to the non-banking finance category, Purvi Savings and Investments

Nidhi Ltd. was incorporated as a Nidhi for the purpose of inculcating thrift and
savings amongst its members, receiving deposits from, and lending to, its
members only, for their mutual benefit. It educates its members to use money
in a wise manner and insists upon that the money saved today will help them
in facing adverse days, if any, tomorrow.
With its Registered Office situated at Mathura, Uttar Pradesh, it was
incorporated on 6th April, 2021 by Krishna Bihari, Brij Mohan, Ram Lal, Sunder,
Sriniwas, Laxmi and Purab who were all residents of Mathura and also held the
directorships in the company. Being the senior most member, Krishna Bihari
was appointed as Managing Director for a period of five years. At the time of
incorporation, the Authorised Share Capital of Purvi Savings and Investments
Nidhi Ltd. was ` 30 lacs divided into 3,00,000 equity shares of ` 10 each. Initially,
it issued 1,30,000 shares and therefore, its paid-up share capital was ` 13,00,000.
The Term Deposits Plans of Purvi Savings and Investments Nidhi Ltd. include
Dhanlaxmi Fixed Deposit Scheme where the enrolled members will get
attractive and assured returns with impeccable services. In fact, the deposit
amount (minimum ` 1,000 and further in multiples of ` 100) will fetch maximum
rate of interest @ 6.5% p.a. if the tenure of deposit exceeds thirty-six months.
The company also issues Kisan Nidhi Bonds of 12 months where the rate of
interest payable is 5% p.a.
Catering to the financial needs of its members, Purvi Savings and Investments
Nidhi Ltd. extends loans as per the norms prescribed by Nidhi Rules, 2014. The
lending is in the form of Purvi Nidhi Gold Loan, Purvi Nidhi Silver Loan, Purvi
Nidhi Mortgage Loan, Purvi Jewellery Loan and Purvi Kisan Crop Loan.
Depending upon the tenure and amount of the loan advanced to its members,
Purvi Savings and Investments Nidhi Ltd. charges applicable rate of interest. The
members are also fully aware about the fact that the repayment of loans must
be made as per the repayment schedule agreed at the time of sanctioning of
loan because this is the only way by which the company will flourish and prosper
in future.
 CASE SCENARIOS 221

After nine months from the date of its incorporation, Purvi Savings and
Investments Nidhi Ltd. had 150 members.

MULTIPLE CHOICE QUESTIONS

1. The case scenario states that after nine months from the date of
incorporation, Purvi Savings and Investments Nidhi Ltd. had 150
members. How many more members should be added by it so as to reach
the required limit of minimum members within a period of one year from
the date of its incorporation? Select the correct alternative from the
following options:
(a) Purvi Savings and Investments Nidhi Ltd. must add minimum 50
members more so as to reach the required limit of minimum
members within a period of one year from the date of its
incorporation.
(b) Purvi Savings and Investments Nidhi Ltd. must add minimum 150
members more so as to reach the required limit of minimum
members within a period of one year from the date of its
incorporation.
(c) Purvi Savings and Investments Nidhi Ltd. must add minimum 250
members more so as to reach the required limit of minimum
members within a period of one year from the date of its
incorporation.
(d) Purvi Savings and Investments Nidhi Ltd. must add minimum 350
members more so as to reach the required limit of minimum
members within a period of one year from the date of its
incorporation.
2. Suppose after nine months from the date of incorporation, Purvi Savings
and Investments Nidhi Ltd. had Net Owned Funds (NOF) of ` 15 lacs and
at the same time deposits mobilised from members were to the tune of `
375 lacs, which gave ratio of NOF to deposits as 1:25, then in order to
reach the prescribed minimum ratio of NOF to deposits within a period of
one year from the date of its incorporation, how much more amount is
222 CORPORATE AND ECONOMIC LAWS

required to be added by the Nidhi to the current figure of NOF of ` 15

lacs, assuming that deposits would remain stagnant at ` 375 lacs:

(a) In the given situation, Purvi Savings and Investments Nidhi Ltd. is
required to add ` 12.50 lacs to the current figure of NOF of ` 15 lacs
so as to reach the prescribed minimum ratio of NOF to deposits
within a period of one year from the date of its incorporation.
(b) In the given situation, Purvi Savings and Investments Nidhi Ltd. is
required to add ` 10 lacs to the current figure of NOF of ` 15 lacs
so as to reach the prescribed minimum ratio of NOF to deposits
within a period of one year from the date of its incorporation.
(c) In the given situation, Purvi Savings and Investments Nidhi Ltd. is
required to add ` 3.75 lacs to the current figure of NOF of ` 15 lacs
so as to reach the prescribed minimum ratio of NOF to deposits
within a period of one year from the date of its incorporation.

(d) In the given situation, Purvi Savings and Investments Nidhi Ltd. is
not required to add any amount to the current figure of NOF of
` 15 lacs because the ratio of 1:25 is the prescribed minimum ratio
which needs to be reached within a period of one year from the date
of its incorporation.
3. According to the case scenario, Purvi Savings and Investments Nidhi Ltd.
has issued 1,30,000 shares and therefore, its paid-up share capital stood
at ` 13,00,000. Minimum how many shares are required to be allotted to
each deposit holder? Choose the correct option from those given below:
(a) Purvi Savings and Investments Nidhi Ltd. is required to allot
minimum five equity shares to each deposit holder.
(b) Purvi Savings and Investments Nidhi Ltd. is required to allot
minimum ten equity shares to each deposit holder.
(c) Purvi Savings and Investments Nidhi Ltd. is required to allot
minimum twenty equity shares to each deposit holder.
(d) Purvi Savings and Investments Nidhi Ltd. is required to allot
minimum twenty-five equity shares to each deposit holder.
 CASE SCENARIOS 223

4. The case scenario mentions that the rate of interest of 6.5% p.a. is the
highest which is being offered by Purvi Savings and Investments Nidhi
Ltd. on deposits of more than three years. What is the maximum rate of
interest it can charge on any loan advanced by it to its members? Select
the correct alternative from the given options:
(a) Maximum rate of interest which Purvi Savings and Investments
Nidhi Ltd. can charge on any loan advanced by it to its members
shall not exceed 10.0% p.a.

(b) Maximum rate of interest which Purvi Savings and Investments

Nidhi Ltd. can charge on any loan advanced by it to its members
shall not exceed 12.0% p.a.
(c) Maximum rate of interest which Purvi Savings and Investments
Nidhi Ltd. can charge on any loan advanced by it to its members
shall not exceed 14.0% p.a.
(d) Maximum rate of interest which Purvi Savings and Investments
Nidhi Ltd. can charge on any loan advanced by it to its members
shall not exceed 16.0% p.a.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Purvi Savings and Investments Nidhi Ltd. must add
minimum 50 members more so as to reach the required limit of minimum
members within a period of one year from the date of its incorporation.
Reason
Rule 5(1)(a) of the Nidhi Rules 2014

Every Nidhi shall, within a period of one year from the date of its
incorporation, ensure that it has not less than two hundred members
In first 9 months 150 members added, further 50 members need to be
added in 3 months to reach to 200 members limit in one year from date
of incorporation.
224 CORPORATE AND ECONOMIC LAWS

2. Option (c) In the given situation, Purvi Savings and Investments Nidhi
Ltd. is required to add ` 3.75 lacs to the current figure of NOF of ` 15 lacs
so as to reach the prescribed minimum ratio of NOF to deposits within a
period of one year from the date of its incorporation.
Reason

Rule 5(1)(d) of the Nidhi Rules 2014

Every Nidhi shall, within a period of one year from the date of its
incorporation, ensure that ratio of Net Owned Funds to deposits of not
more than 1:20.
If deposit stand at INRs 375 lacs then 5% of same (so that ratio of NOF to
deposit shall be 1:20) comes to INRs 18.75 lacs. Since currently after the
9 month from incorporation the NOF is INRs 15 lacs, which further need
to increase by INRs 3.75 lacs to reach a level of INRs 18.75 lacs.
3. Option (b) Purvi Savings and Investments Nidhi Ltd. is required to
allot minimum ten equity shares to each deposit holder.
Reason
Rule 7(3) of the Nidhi Rules 2014
Every Nidhi shall allot to each deposit holder at least a minimum of ten
equity shares or shares equivalent to one hundred rupees.
Students shall also note that a savings account holder and a recurring
deposit account holder shall hold at least one equity share of rupees ten.
4. Option (c) Maximum rate of interest which Purvi Savings and Investments
Nidhi Ltd. can charge on any loan advanced by it to its members shall not
exceed 14.0% p.a.
Reason
Rule 16 of the Nidhi Rules 2014
The rate of interest to be charged on any loan given by a Nidhi shall not
exceed seven and half per cent above the highest rate of interest offered
on deposits by Nidhi and shall be calculated on reducing balance method.
 CASE SCENARIOS 225

Since highest rate interest offered is 6.5% therefore adding 7.5% to that
comes to 14% p.a.

Students are also advised to take note that Nidhi shall charge the same
rate of interest on the borrowers in respect of the same class of loans and
the rates of interest of all classes of loans shall be prominently displayed
on the notice board at the registered office and each branch office of
Nidhi.
226 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 36

Krishna Toy Limited (KTL) is a manufacturer and trader of a wide variety of toys
ranging from soft toys to wooden toys, from console or panel-based games to
battery-operated games, and from mechanical toys to electronic toys including
video games, etc. Currently, it caters to the needs of children or adolescents
falling in the age group of 3 years or older to 15 years. KTL enjoys dominance
over the toy market and is willing to maintain it.
The increasing trend of online gaming dents the dominance of KTL; therefore,
to sustain its position as the market leader in the toy or gaming industry, the
management of KTL decided at its board meeting to restructure its business
and cater to the youngster age group between the ages of 15 and 20, and even
above that.
KTL started exploring the opportunities for expansion and diversification
through inorganic means. Mr. Gopal, who is Executive Director at KTL and aware
of the expansion plan, started making the necessary arrangements for raising
debt to finance the M&A. Mr. Gopal is willing to tell Mr. John and Mr. Jain about
this plan. Mr. John holds a manager-level position at KTL and is responsible for
managing logistics and supply chain, while Mr. Jain is an insider at KTL. Ms.
Iqbal Kaur, who is responsible for availing a credit rating from a credit rating
agency and preparing the documents for statutory filling, should seek
clarification from Mr. Gopal on the purpose of seeking a fresh credit rating.
Mr. Vidyanath vacated the office of MD around three months ago because he
assumed the office of WTD in Gamers Limited, which is expected to be in
competition with KTL; hence, a conflict of interest may exist if he does not
vacate the office at KTL.
Ms. Mahira is appointed as the new MD. She is unaware of the meeting of the
board wherein the resolution regarding the preliminary decision on expansion
was moved and the road map laid down. She asked Mr. Gopal to brief her on
why he is engaged in arrangements for raising funds.
In the next board meeting the periodical (quarterly) financial statements need
to be presented/adopted and the interim dividend is expected to be declared
in addition to certain other agenda items including resolution on the mode of
expansion as well as determining the criteria for selection of possible targets.
 CASE SCENARIOS 227

MULTIPLE CHOICE QUESTIONS

You are an expert on securities laws, who is being professionally engaged to

answer the following questions (specified as MCQs) by identifying the most
appropriate option based upon provisions contained in the Securities and
Exchange Board of India Act, 1992 (SEBI Act, 1992) and the Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 only.
1. Advice Mr. Gopal with whom (out of Ms. Mahira, Mr. John, Ms. Iqbal Kaur,
and Mr. Jain) he can share the information pertaining to expansion plan
of KTL which he possess;
(a) With all or any of them.
(b) With Mr. Jain as he is insider to KTL.
(c) With Ms. Mahira only as she is MD.
(d) With Ms. Mahira and Ms. Iqbal Kaur only.
2. In light of agenda established for next board meeting at KTL, out of
following three set of informations, which are to be classified as price
sensitive information?
i. Quarterly Financial Results
ii. Declaration of interim dividend
iii. Proposed expansion of business
(a) i and ii only.
(b) ii and iii only.
(c) i and iii only.
(d) All of i, ii and iii.
3. In the case of KTL there are some who may access the unpublished price
sensitive information through either Mr. Gopal or being in an influential
position themselves and some others likewise Mr. Gopal already in
possession of such information, according to you who shall be considered
as Insider as per Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2015;
(a) Everyone who so ever is in possession or having access of the
unpublished price sensitive information
228 CORPORATE AND ECONOMIC LAWS

(b) Everyone who so ever is in possession of the unpublished price

sensitive information
(c) Everyone who so ever having access to the unpublished price
sensitive information
(d) Everyone who is either on board or hold position of KMP
4. Which of following statements is true in regard to Mr. Vidyanath who
vacated the office of MD at KTL;
(a) He is a connected person but not the insider
(b) He is an insider but not the connected person
(c) He is a connected person as well as an insider
(d) He is neither the connected person nor the insider
5. Assuming Mr. Gopal himself traded in shares of selected target company
based upon the unpublished price sensitive information he possess in
capacity of insider and made gain of INRs 6.25 crores, while value of total
trade performed by him is 40 crores. What shall be the maximum penalty
that can be imposed upon Mr. Gopal?
(a) 40.00 crores rupee
(b) 25.00 crores rupee
(c) 18.25 crores rupee
(d) 6.25 crores rupee

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) With Ms. Mahira and Ms. Iqbal Kaur only.
Reason
Regulation 3(1) of the Securities and Exchange Board of India (Prohibition
of Insider Trading) Regulations, 2015

No insider shall communicate, provide, or allow access to any unpublished

price sensitive information, relating to a company or securities listed or
proposed to be listed, to any person including other insiders except where
 CASE SCENARIOS 229

such communication is in furtherance of legitimate purposes,

performance of duties or discharge of legal obligations.

Hence Mr. Gopal allowed to disclose the information pertaining to

expansion plan i.e. unpublished price sensitive information under 2(1)(n)
only to MD i.e. Ms. Mahira and Ms. Iqbal Kaur.

Students are advised to take note that this provision is intended to cast
an obligation on all insiders who are essentially persons in possession of
unpublished price sensitive information to handle such information with
care and to deal with the information with them when transacting their
business strictly on a need to know basis. It is also intended to lead to
organisations developing practices based on need to know principles for
treatment of information in their possession.
2. Option (d) All of i, ii and iii
Reason
Regulation 2(1)(n) of Securities and Exchange Board of India (Prohibition
of Insider Trading) Regulations, 2015 "unpublished price sensitive
information" means any information, relating to a company or its
securities, directly or indirectly, that is not generally available which upon
becoming generally available, is likely to materially affect the price of the
securities and shall, ordinarily including but not restricted to, information
relating to the following;
financial results;
dividends;

change in capital structure;

mergers, de-mergers, acquisitions, delistings, disposals and expansion of
business and such other transactions;
changes in key managerial personnel
Students are advised to take note that, it is intended that information
relating to a company or securities, that is not generally available would
be unpublished price sensitive information if it is likely to materially affect
the price upon coming into the public domain. The types of matters that
230 CORPORATE AND ECONOMIC LAWS

would ordinarily give rise to unpublished price sensitive information have

been listed above to give illustrative guidance of unpublished price
sensitive information.
Note - Dividend includes interim dividend and Financial results includes
periodical financial results presented through quarterly financial
statements
3. Option (a) Everyone who so ever is in possession or having access of the
unpublished price sensitive information
Reason
Regulation 2(1)(g) of Securities and Exchange Board of India (Prohibition
of Insider Trading) Regulations, 2015

"Insider" means any person who is;

a connected person; or
in possession of or having access to unpublished price sensitive
information
Student must note with due care that it is intended that anyone in
possession of or having access to unpublished price sensitive information
should be considered an “insider” regardless of how one came in
possession of or had access to such information.
Various circumstances are provided for such a person to demonstrate that
he has not indulged in insider trading. Therefore, this definition is
intended to bring within its reach any person who is in receipt of or has
access to unpublished price sensitive information.

The onus of showing that a certain person was in possession of or had

access to unpublished price sensitive information at the time of trading
would, therefore, be on the person levelling the charge after which the
person who has traded when in possession of or having access to
unpublished price sensitive information may demonstrate that he was not
in such possession or that he has not traded or he could not access or
that his trading when in possession of such information was squarely
covered by the exonerating circumstances.
 CASE SCENARIOS 231

4. Option (c) He is a connected person as well as an insider

Reason
Regulation 2(1)(d) and 2(1)(g) of Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulations, 2015
Connected person means,

any person who is or has during the six months prior to the concerned act
been associated with a company, directly or indirectly, in any capacity
including by reason of frequent communication with its officers or by
being in any contractual, fiduciary or employment relationship or by being
a director, officer or an employee of the company or holds any position
including a professional or business relationship between himself and the
company whether temporary or permanent, that allows such person,
directly or indirectly, access to unpublished price sensitive information or
is reasonably expected to allow such access.

Further Regulation 2(1)(g) states clearly that connected person shall be

the insider.
5. Option (b) 25 crores rupee.
Reason
Section 15G read with Section 12A of SEBI Act 1992 and Regulation 3(1)
of Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 2015
If any insider who
(i) either on his own behalf or on behalf of any other person, deals in
securities of a body corporate listed on any stock exchange on the
basis of any unpublished price-sensitive information; or
(ii) communicates any unpublished price-sensitive information to any
person, with or without his request for such information except as
required in the ordinary course of business or under any law; or
(iii) counsels, or procures for any other person to deal in any securities
of anybody corporate on the basis of unpublished price-sensitive
information,
232 CORPORATE AND ECONOMIC LAWS

Shall be liable to a penalty which shall not be less than ten lakh rupees
but which may extend to twenty-five crore rupees or three times the
amount of profits made out of insider trading, whichever is higher.

Minimum Maximum
INRs 10 lac Higher of
INRs 25 crore; Or
3 times the amount of profit made out of insider trading

Three times of INRs 6.25 crores amounts to INRs 18.75 crores which less
than INRs 25 crores, hence maximum penalty may limit upto
INRs 25 crores.
 CASE SCENARIOS 233

CASE SCENARIO 37

Chiranjeev, equipped with MBA Finance, always dreamt of setting up a small

finance business company with a vision to contribute to the Indian economy to
the maximum possible extent by using his limited efforts. After discussing the
matter with his relatives and friends he decided to start a Nidhi company as this
was the most easy and affordable way to start a loan business in India which
required only seven members with easy documentation. No approval,
whatsoever, was also required from Reserve Bank of India as in the case of other
finance companies. Further, the Nidhi Company would be able to accept
deposits from members and lend to them as well besides earning periodical
interests on loans while its main expenditure would be to pay interests on
deposits and establishment charges, etc.

In order to fulfil his dream, Chiranjeev along with his six other trusted friends
and relatives incorporated a Nidhi company under the name Shri Murugan
Wealth Nidhi Limited, on 20th August, 2015 at Kanchipuram, Tamil Nadu, which
was duly notified as Nidhi in the Official Gazette. It was mentioned in the
Memorandum that as Nidhi, the company would cultivate the habit of thrift and
savings amongst its members, receive deposits from and lend to, its members
only, for their mutual benefit and it shall comply with Nidhi Rules, 2014. The
authorised capital of the company was ` 1,00,00,000 divided into 10,00,000
equity shares of ` 10 each.
All the members of the Board of Shri Murugan Wealth Nidhi Limited possessed
a very strong background in terms of financial stability as also expertise in
business. Chiranjeev was throughout supported by the extraneous efforts of his
younger brother, Chinnamani who was the executive president of Shri Murugan
Wealth Nidhi Limited and possessed administrative talent to govern the
organisation without compromising ethical practices.

With a dedicated team of staff, the company was on its growth path with utmost
courteous services rendered with able management. The company encouraged
rural savings habit and believed in rendering all financial assistance to its
members by receiving both short-term and long-term deposits.
The deposits raised by Shri Murugan Wealth Nidhi Limited were in the form of
fixed deposits, recurring deposits and savings deposits. While extending loans
234 CORPORATE AND ECONOMIC LAWS

to its members, the Nidhi provided Shri Murugan Jewel Loan against pledge of
gold jewellery for productive and consumption purposes with minimum
documentation and utmost safety of their gold. It also provided mortgage loans
and loans against deposits. In addition, it provided locker facilities to its
members.
As on 31st March 2023, the issued, subscribed and paid-up share capital of Shri
Murugan Wealth Nidhi Limited was ` 95,00,000 (9,50,000 equity shares of ` 10
each). Its deposits were to the extent of ` 315 crores with 12,000 members. The
loans aggregated to ` 275 crores. Keeping in view the sufficiency of profits, the
company declared a dividend of Re. one per share.
In near future, Shri Murugan Wealth Nidhi Limited has plans to open more
branches which proves the fact that they are securing trust of more and more
members as the years go by.

MULTIPLE CHOICE QUESTIONS

1. It is evident from the case scenario that Shri Murugan Wealth Nidhi
Limited started with paid-up share capital of ` 95,00,000. Keeping in view
the minimum paid-up share capital with which a Nidhi can be started, how
much is the excess paid-up share capital Shri Murugan Wealth Nidhi
Limited had when it started its operations with effect from 20th August,
2015:
(a) Shri Murugan Wealth Nidhi Limited had excess paid-up share capital
of ` 75,00,000 when it started its operations with effect from
20th August, 2015.
(b) Shri Murugan Wealth Nidhi Limited had excess paid-up share capital
of ` 80,00,000 when it started its operations with effect from
20th August, 2015.
(c) Shri Murugan Wealth Nidhi Limited had excess paid-up share capital
of ` 90,00,000 when it started its operations with effect from
20th August, 2015.
 CASE SCENARIOS 235

(d) Shri Murugan Wealth Nidhi Limited had excess paid-up share capital
of ` 93,00,000 when it started its operations with effect from
20th August, 2015.
2. For the Financial Year 2022-23, Shri Murugan Wealth Nidhi Limited
declared a dividend of Re. one share. What is the maximum amount of
dividend it is permitted to declare? Choose the correct option from those
given below:
(a) Since Shri Murugan Wealth Nidhi Limited has declared maximum
permitted dividend of Re. one per share, it cannot declare dividend
in excess of Re. one per share.
(b) Shri Murugan Wealth Nidhi Limited can declare maximum permitted
dividend of ` two per share.
(c) Shri Murugan Wealth Nidhi Limited can declare maximum permitted
dividend of ` two and fifty paise per share.

(d) Shri Murugan Wealth Nidhi Limited can declare maximum permitted
dividend of ` three per share.
3. The case scenario states that Shri Murugan Wealth Nidhi Limited also
provided locker facilities to its members. What is the maximum rental
income that the company can generate from locker facilities provided to
its members.

(a) Shri Murugan Wealth Nidhi Limited can generate rental income
from locker facilities provided to its members maximum upto ten
per cent of its gross income at any point of time during a financial
year.
(b) Shri Murugan Wealth Nidhi Limited can generate rental income
from locker facilities provided to its members maximum upto twenty
per cent of its gross income at any point of time during a financial
year.
(c) Shri Murugan Wealth Nidhi Limited can generate rental income
from locker facilities provided to its members maximum upto
twenty-five per cent of its gross income at any point of time during
a financial year.
236 CORPORATE AND ECONOMIC LAWS

(d) Shri Murugan Wealth Nidhi Limited can generate rental income
from locker facilities provided to its members maximum upto thirty
per cent of its gross income at any point of time during a financial
year.
4. By declaring dividend of Re. one per share, Shri Murugan Wealth Nidhi
Limited is required to pay ` 9,50,000 as dividend amount to its members.
How much amount it is required to transfer to General Reserve when it
declares dividend of ` 9,50,000? Select the correct alternative from the
following options:
(a) Shri Murugan Wealth Nidhi Limited is not required to transfer any
amount to General Reserve when it declares dividend of |` 9,50,000.
(b) Shri Murugan Wealth Nidhi Limited is required to transfer minimum
` 9,50,000 (i.e. 100% of ` 9,50,000) to General Reserve when it
declares dividend of ` 9,50,000.
(c) Shri Murugan Wealth Nidhi Limited is required to transfer minimum
` 4,75,000 (i.e. 50% of ` 9,50,000) to General Reserve when it
declares dividend of ` 9,50,000.
(d) Shri Murugan Wealth Nidhi Limited is required to transfer minimum
` 14,25,000 (i.e. 150% of ` 9,50,000) to General Reserve when it
declares dividend of ` 9,50,000.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) Shri Murugan Wealth Nidhi Limited had excess paid-up share
capital of ` 90,00,000 when it started its operations with effect from 20th
August, 2015.
Reason
Rule 4(1) of the Nidhi Rule 2014.

A Nidhi shall be a public company and shall have a minimum paid up

equity share capital of five lakh rupees.
Note – But w.e.f 19.04.2022 through Nidhi Amendment Rules 2022, the
threshold has been enhanced to ten lakh rupees.
 CASE SCENARIOS 237

Since in question it was asked excess capital ‘when it started its

operations’ i.e. 20th August 2015; at then threshold was 5 lacs hence
option (c) emerged as correct answer.

To avoid confusion among the 4 options none of the option contain 85

lacs as answer (which will correct answer if we solve this MCQ considering
current threshold rather prevailing in 2015)

Students are advised to take note that every Nidhi existing as on the date
of commencement (i.e. 19.04.2022) of the Nidhi Amendment Rules, 2022,
shall comply with this requirement within a period of eighteen months
from the date of such commencement.

2. Option (c) Shri Murugan Wealth Nidhi Limited can declare maximum
permitted dividend of ` two and fifty paise per share.

Reason

Rule 18 of the Nidhi Rules 2014

A Nidhi shall not declare dividend exceeding twenty five per cent in a
financial year. Since the Paid-up value of each share is INRs 10 (in case of
950000 shares), hence 25% of same comes out to be IRNs 2.50; therefore
the maximum dividend per share can be INRs 2.5 per share.

3. Option (b) Shri Murugan Wealth Nidhi Limited can generate rental
income from locker facilities provided to its members maximum upto twenty
per cent of its gross income at any point of time during a financial year.

Reason

Proviso to Rule 6(e) of the Nidhi Rules 2014

Nidhis which have adhered to all the provisions of these rules (i.e. Nidhi
Rules, 2014) may provide locker facilities on rent to its members subject
to the rental income from such facilities not exceeding twenty per cent of
the gross income of the Nidhi at any point of time during a financial year.
238 CORPORATE AND ECONOMIC LAWS

4. Option (a) Shri Murugan Wealth Nidhi Limited is not required to

transfer any amount to General Reserve when it declares dividend of
` 9,50,000.
Reason
Rule 18 of the Nidhi Rules 2014

Rule 18 simply says that a Nidhi shall not declare dividend exceeding
twenty five per cent in a financial year.
Note – Prior to 19.04.2022 there was requirement of transferring equal
amount (equal to dividend) to general reserve.
 CASE SCENARIOS 239

CASE SCENARIO 38

Marigold Stationers Limited, incorporated in April 2014 by Pratham and Utkarsh

as well as their close friends, has its Registered Office situated in Rajendra Place,
New Delhi. Its manufacturing units are located in Chandigarh and Sangrur. The
Company, in its infancy, manufactured smorgasbord of paper stationery like,
Note Books of different sizes, Long Books, Note Pads, Registers, Account Books,
etc., but moved on to add certain non-paper stationery products like
Calculators, Rubber Stamp Kits, Gel-Pens, HB Pencils, Geometry Boxes, Drawing
Colours, etc., in another five years’ time. The company had a tie-up with
stationery wholesalers for selling and distribution of its products.
As per the latest audited financial statements i.e. as on 31st March, 2021, the
paid-up share capital of Marigold Stationers Limited was ` 300 crores and its
turnover was ` 500 crores.
As regards the number of directors, there are twelve directors in this stationery
manufacturing company. Out of these, Vishesh and Vinayak are independent
directors whereas Pallavi and Bhavasrija are women directors. Further, leaving
independent and women directors, out of remaining eight directors, six are
executive directors. The Articles of Association of the company are silent on the
issue of retirement of the directors at every Annual General Meeting.
Vallabh, one of the executive directors of Marigold Stationers Limited, recently
shifted to his newly constructed house in Greater Kailash-I after vacating rented
accommodation in Punjabi Bagh. He got his Aadhar card changed to
accommodate new residential address. Since, DIR-3, earlier filed by him,
contains his old residential address, he is desirous of changing his address in
the records of Registrar of Companies.
In the immediate previous financial year, Marigold Stationers Limited had
contributed a total ` 25,00,000 to two prominent political parties of the country,
namely Nitya Vikas Party and Nav Bhor Party. In the current financial year, it is
contemplating to contribute ` 50,00,000 to both the parties in the same
proportion as was done in the financial year just gone by.
Lotus Stationery Limited, incorporated in June, 2015 by Kabir and Vishvender
and their close relatives, has its Registered Office in Thane, Mumbai and is a
240 CORPORATE AND ECONOMIC LAWS

subsidiary of Marigold Stationers Limited. It is into the manufacturing of

computer stationery, computer paper, inkjet cartridges, Pen Drives of different
capacities and the like. It is managed by seven directors of which two are
independent directors. Its issued and paid-up capital is ` 30 crores. In the
immediate previous financial year, its turnover reached ` 90 crores.
Due to imminent expansion plans, Lotus Stationery Limited is desirous of
appointing Anirudh, a well-qualified and experienced personality, as a director
to strengthen its Board. It is noteworthy that Anirudh is already holding
directorships in Marigold Stationers Limited, seven other public companies, six
private limited companies of which two are subsidiaries of public limited
companies and alternate directorship in Kitab Literacy Publishers Private
Limited.

MULTIPLE CHOICE QUESTIONS

1. There are twelve directors in Marigold Stationers Limited. Considering the

applicable provisions, choose the correct answer from the following
options that indicates the number of directors who are liable for
retirement by rotation and the actual number of directors who shall get
retired:
(a) Out of twelve directors in Marigold Stationers Limited, seven are
liable for retirement by rotation whereas actual number of directors
to be retired shall be two.
(b) Out of twelve directors in Marigold Stationers Limited, six are liable
for retirement by rotation whereas actual number of directors to be
retired shall be two.
(c) Out of twelve directors in Marigold Stationers Limited, eight are
liable for retirement by rotation whereas actual number of directors
to be retired shall be three.
(d) Out of twelve directors in Marigold Stationers Limited, eight are
liable for retirement by rotation whereas actual number of directors
to be retired shall be two.
 CASE SCENARIOS 241

2. It is stated in the case scenario that Vallabh, one of the directors of

Marigold Stationers Limited, recently changed his residence from Punjabi
Bagh to Greater Kailash-I. In order to change his residential particulars
already filled in DIR-3, through which Form Vallabh shall intimate the MCA
(Central Government) and in how many days:
(a) Vallabh is required to fill Form DIR-3A in 30 days with the MCA.
(b) Vallabh is required to fill Form DIR-3A in 15 days with the MCA.
(c) Vallabh is required to fill Form DIR-6 in 30 days with the MCA.
(d) Vallabh is required to fill Form DIR-6 in 15 days with the MCA.
3. Lotus Stationery Limited is desirous of appointing Anirudh as a director
to strengthen its Board. Anirudh is already holding directorships in
Marigold Stationers Limited, seven other public companies, six private
limited companies of which two are subsidiaries of public limited
companies and alternate directorship in Kitab Literacy Publishers Private
Limited. Select the correct option from those stated below whether
Anirudh, keeping in view his directorships in other companies, can be
appointed as a director in Lotus Stationery Limited:
(a) Anirudh can be appointed as a director in Lotus Stationery Limited
since he is permitted to hold directorships in maximum 20
companies whereas currently he is holding directorships in only 15
companies.
(b) Anirudh cannot be appointed as a director in Lotus Stationery
Limited since he is holding directorships in eight public companies
and two private limited companies which are subsidiaries of public
limited companies.
(c) Anirudh cannot be appointed as a director in Lotus Stationery
Limited since he is already holding directorships in maximum
permitted 15 companies.
(d) Anirudh can be appointed as a director in Lotus Stationery Limited
since he is holding directorships only in eight public companies as
against maximum permitted ten public companies.
242 CORPORATE AND ECONOMIC LAWS

4. In the current financial year, Marigold Stationers Limited is contemplating

to contribute ` 50,00,000 to two political parties whom they contributed
` 25,00,000 in the previous financial year. Is it possible for Marigold
Stationers Limited to make such contribution of ` 50,00,00? Choose the
correct answer from the following options:
(a) Marigold Stationers Limited can contribute to both the political
parties maximum upto 125% of ` 25,00,000 which was contributed
in the immediate previous financial year and such amount works out
to ` 31,25,000.
(b) Marigold Stationers Limited can contribute to both the political
parties maximum upto 150% of ` 25,00,000 which was contributed
in the immediate previous financial year and such amount works out
to ` 37,50,000.
(c) Marigold Stationers Limited can contribute to both the political
parties maximum upto 175% of ` 25,00,000 which was contributed
in the immediate previous financial year and such amount works out
to ` 43,75,000.
(d) Marigold Stationers Limited can contribute any amount to both the
political parties irrespective of what was contributed in the
immediate previous financial year.
 CASE SCENARIOS 243

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Out of twelve directors in Marigold Stationers Limited,

seven are liable for retirement by rotation whereas actual number of
directors to be retired shall be two.

Reason

Section 152(6) read with Section 149(13)

Clause (a) to section 152(6) provides Unless the articles provide for the
retirement of all directors at every annual general meeting, not less than
two-thirds of the total number of directors of a public company shall be
persons whose period of office is liable to determination by retirement
of directors by rotation; and save as otherwise expressly provided in this
Act, be appointed by the company in general meeting.

Note – As per Sub-section 13 to section 149, the provisions of sub-

sections (6) and (7) of section 152 in respect of retirement of directors
by rotation shall not be applicable to appointment of independent
directors.

Therefore the number of directors who are liable to retiring by rotation

shall be 2/3rd of 10 (i.e. 12 - 2 independent directors) that comes out to
be 6.66 shall be round up to 7.

Further clause (c) to section 152(6) at the first annual general meeting
of a public company held next after the date of the general meeting at
which the first directors are appointed in accordance with clauses (a) and
(b) and at every subsequent annual general meeting, one-third of such
of the directors for the time being as are liable to retire by rotation, or
if their number is neither three nor a multiple of three, then, the number
nearest to one-third, shall retire from office.

Therefore, number of director to be retired in upcoming AGM shall be

1/3 rd of 7 (i.e. retiring by rotation) that comes to 2.33; but this round off
(not round up) to nearest full number that is 2 directors.
244 CORPORATE AND ECONOMIC LAWS

2. Option (c) Vallabh is required to fill Form DIR-6 in 30 days with the MCA.
Reason
Rule 12(1) of the Companies (Appointment and Qualification of Directors)
Rules, 2014
Every individual who has been allotted a Director Identification Number
under these rules shall, in the event of any change in his particulars as
stated in Form DIR-3, intimate such change(s) to the Central Government
within a period of thirty days of such change(s) in Form DIR-6 in the
following manner, namely;-
the applicant shall download Form DIR-6 from the portal, fill in the
relevant changes, verify the Form and attach duly scanned copy of the
proof of the changed particulars and submit electronically;
the form shall be digitally signed by a chartered accountant in practice or
a company secretary in practice or a cost accountant in practice;

the applicant shall submit the Form DIR-6;

Students further advised to take note that rule 12(3) provides the DIN cell
of the Ministry shall also intimate the change(s) in the particulars of the
director submitted to it in Form DIR-6; to the concerned Registrar(s) under
whose jurisdiction the registered office of the company(s) in which such
individual is a director is situated.
Further rule 12(4) provides that the concerned individual shall also
intimate the change(s) in his particulars to the company or companies in
which he is a director within fifteen days of such change.
3. Option (b) Anirudh cannot be appointed as a director in Lotus
Stationery Limited since he is holding directorships in eight public
companies and two private limited companies which are subsidiaries of
public limited companies.
Reason
Proviso to section 165(1) in light of Explanation 1 thereto.
The maximum number of public companies in which a person can be
appointed as a director shall not exceed ten.
 CASE SCENARIOS 245

Further the explanation I to sub-section 1 provides for reckoning the limit

of public companies in which a person can be appointed as director,
directorship in private companies that are either holding or subsidiary
company of a public company shall be included.
Including Marigold Stationers Limited, Mr. Anirudh is director of 8 public
companies in addition to two private companies which are subsidiary of
public companies (which shall also be counted as public companies for
the purpose of checking ceiling limit of 10 directorship in public
companies); therefore he already occupy the director office in 10 public
companies.
4. Option (d) Marigold Stationers Limited can contribute any amount to
both the political parties irrespective of what was contributed in the
immediate previous financial year.
Reason

Section 182(1)
Notwithstanding anything contained in any other provision of the
Companies Act 2013, a company (other than a Government company and
a company which has been in existence for less than three financial year),
may contribute any amount directly or indirectly to any political party.
Marigold Stationers Limited is not a government company and
incorporated way back in 2014; hence can contribute any amount as
political contribution.
246 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 39

Sitting over the fence, Shelly opted to face dynamism of consumer preferences,
razor-cut competition and changing Government policies to fulfill her inherent
passion for exotic make-up brands by launching a beauty product company in
Bombay (now Mumbai), supported by her advocate father Bhimsen, elder
brother Ashutosh and younger brother Soumit as well as ten close friends, way
back in 1984 under the then Companies Act, 1956, much before the air of
liberalisation, privatisation and globalisation touched the soil of our country.
The company M/s Beauty Products Limited with an Authorised Capital of
` 30,00,000 divided into 3,00,000 shares of ` 10 each (paid-up capital
` 25,00,000) and under the brand ‘Angelic’ began manufacturing cosmetic
products like Nail-enamel, Foundation Cream, Compact, Mascara, Eye-pencil,
etc. Its products had an international touch and captured the Indian market at
a time when the elite class was splurging on imported cosmetics.
This unlisted company, under the strong and able leadership of Shelly, Ashutosh
and Soumit, had not only observed a growth trend in terms of its turnover and
profitability but had also earned name and fame in the hearts of consumers as
well as cosmetic industry. Ashutosh directed the company in the capacity as
Managing Director up to the satisfaction of all.
In 2015, M/s Beauty Products Limited felt the need, decided and raised its
Authorised Capital to ` 20,00,00,000. Through private placements from time to
time, it pumped in more capital and its paid-up capital reached to a level of
` 19,50,00,000 as on 31st March, 2021. At this juncture, its turnover was ` 850
crores.
The secretarial audit of M/s Beauty Products Limited was started in the year
2018 as the company had crossed the threshold limit relating to turnover as per
the audited financial statements as on 31st March, 2017. M/s Keshav and
Kaustubh & Associates, a firm of practicing company secretaries, was engaged
to carry out the secretarial audit.
In the beginning of the current financial year, the total strength of directors of
M/s Beauty Products Limited had reached eleven which included two
independent directors. Some of the directors of the company were desirous of
 CASE SCENARIOS 247

appointing Mr. Soumit as Managing Director of the company in place of Mr.

Ashutosh, who wanted to leave the office of Managing Director due to intense
family pressure. It is to be noted that Mr. Soumit was also holding the office of
Managing Director in M/s Glow and Glow Cosmetics Limited which was run by
his father-in-law along with his relatives. For the appointment of Mr. Soumit as
Managing Director of M/s Beauty Products Limited, a Board Meeting was
convened by giving a specific notice of such meeting and of the resolution to
be moved thereat, to all the directors then in India. At the Board Meeting, five
out of nine directors present in the meeting consented to Mr. Soumit becoming
as Managing Director.
By now, M/s Beauty Products Limited had over 150 products catering to every
kind of consumer. Included in its diverse portfolio were moisturisers, aloe-vera
gels, lip balms, deodorants and a variety of nail-paints to meet the demand of
teenagers.
After some time, keeping in view the future expansion, M/s Beauty Products
Limited wanted to appoint Mr. Amba Prasad, 74 years of age, as a Whole-time
director with the approval of the Board. He had sharp business acumen and
wide experience by working at a very senior position in Rich Bank Limited from
where he superannuated 14 years back. At a Board Meeting, the proposal to
appoint Mr. Amba Prasad as Whole-time director was approved with full
majority of eight directors attending the Meeting. No further action was taken
in this regard.

MULTIPLE CHOICE QUESTIONS

1. As per the case scenario, some of the directors of M/s Beauty Products
Limited were desirous of appointing Mr. Soumit as Managing Director of
the company, who was also acting as Managing Director in M/s Glow and
Glow Limited. At the Board Meeting convened in this respect, five out of
nine directors present in the meeting consented to his becoming as
Managing Director. Considering the applicable provisions, choose the
correct alternative from those given below as to whether or not Mr.
Soumit was appointed as Managing Director of M/s Beauty Products
Limited?
248 CORPORATE AND ECONOMIC LAWS

(a) Since more than half directors (i.e. five out of nine directors)
attending the Board Meeting consented to Mr. Soumit becoming
the Managing Director, he must have been appointed as the
Managing Director of M/s Beauty Products Limited.
(b) Since minimum two-third directors (i.e. six out of nine directors)
attending the Board Meeting must consent to Mr. Soumit becoming
the Managing Director, he could not have been appointed as the
Managing Director of M/s Beauty Products Limited.

(c) Since minimum three-fourth directors (i.e. seven out of nine

directors) attending the Board Meeting must consent to Mr. Soumit
becoming the Managing Director, he could not have been
appointed as the Managing Director of M/s Beauty Products
Limited.
(d) Since all the directors attending the Board Meeting must consent to
Mr. Soumit becoming the Managing Director, he could not have
been appointed as the Managing Director of M/s Beauty Products
Limited.
2. It is evident from the case scenario that the proposal to appoint Mr. Amba
Prasad, aged 74 years, as Whole-time Director was approved by the Board
of Directors of M/s Beauty Products Limited. Select the correct alternative
from the following options that indicates the validity or invalidity of
appointment of Mr. Amba Prasad as a Whole-time Director of the
company after approval of proposal by the Board:

(a) In view of the fact that Mr. Amba Prasad has crossed the age of 70
years, his appointment as a Whole-time Director would be
considered as valid only when an ordinary resolution is passed and
thereafter, sanction of National Company Law Tribunal is sought.
(b) Even if Mr. Amba Prasad has crossed the age of 70 years, his
appointment as a Whole-time Director would be considered as valid
since it was approved by all the eight directors who attended the
Board Meeting.
(c) In view of the fact that Mr. Amba Prasad has crossed the age of 70
years, his appointment as a Whole-time Director would not be
 CASE SCENARIOS 249

considered as valid since it was not approved by all the eleven

directors.

(d) In view of the fact that Mr. Amba Prasad has crossed the age of 70
years, his appointment as a Whole-time Director would be
considered as valid only when a special resolution is passed and if
no such special resolution is passed, but the votes cast in favour of
motion exceed the votes, if any, cast against the motion and the
Central Government approves such appointment.

3. Suppose Mr. Amba Prasad, after due formalities, is appointed as Whole-

time Director of M/s Beauty Products Limited, then what would be the
maximum term for which he can be so appointed:
(a) The appointment of Mr. Amba Prasad as Whole-time Director of M/s
Beauty Products Limited would be for a maximum term of three
years.
(b) The appointment of Mr. Amba Prasad as Whole-time Director of M/s
Beauty Products Limited would be for a maximum term of five years.
(c) The appointment of Mr. Amba Prasad as Whole-time Director of M/s
Beauty Products Limited would be for a maximum term of seven
years.
(d) The appointment of Mr. Amba Prasad as Whole-time Director of M/s
Beauty Products Limited would be for a maximum term of ten years.
4. The case scenario mentions that in the year 2018, secretarial audit of M/s
Beauty Products Limited was started as the company had crossed the
threshold limit relating to turnover. At that time, what could be the
threshold limit relating to turnover which necessitated starting of
secretarial audit:

(a) At the time starting secretarial audit in the year 2018, the turnover
of M/s Beauty Products Limited must have been ` 300 crores or
more.

(b) At the time starting secretarial audit in the year 2018, the turnover
of M/s Beauty Products Limited must have been ` 250 crores or
more.
250 CORPORATE AND ECONOMIC LAWS

(c) At the time starting secretarial audit in the year 2018, the turnover
of M/s Beauty Products Limited must have been ` 150 crores or
more.
(d) At the time starting secretarial audit in the year 2018, the turnover
of M/s Beauty Products Limited must have been ` 100 crores or
more.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) Since all the directors attending the Board Meeting must
consent to Mr. Soumit becoming the Managing Director, he could not
have been appointed as the Managing Director of M/s Beauty Products
Limited.
Reason
Third proviso to Section 203(3)
A company may appoint or employ 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 resolution passed at a meeting of the Board with the
consent of all the directors present at the meeting and of which meeting,
and of the resolution to be moved thereat, specific notice has been given
to all the directors then in India.
2. Option (d) In view of the fact that Mr. Amba Prasad has crossed the
age of 70 years, his appointment as a Whole-time Director would be
considered as valid only when a special resolution is passed and if no such
special resolution is passed, but the votes cast in favour of motion exceed
the votes, if any, cast against the motion and the Central Government
approves such appointment.
Reason
Proviso to section 196(3)(a)
No company shall appoint or continue the employment of any person as
managing director, whole-time director or manager who is below the age
of twenty-one years or has attained the age of seventy years.
A person who has attained the age of seventy years may be appointed.
 CASE SCENARIOS 251

By passing a special resolution in which case the explanatory statement

annexed to the notice for such motion shall indicate the justification for
appointing such person
and
where no such special resolution is passed but votes cast in favour of the
motion exceed the votes, if any, cast against the motion and the Central
Government is satisfied, on an application made by the Board, that such
appointment is most beneficial to the company, the appointment of the
person who has attained the age of seventy years may be made.
3. Option (b) The appointment of Mr. Amba Prasad as Whole-time
Director of M/s Beauty Products Limited would be for a maximum term of
five years.
Reason
Section 196(2)
No company shall appoint or re-appoint any person as its managing
director, whole-time director or manager for a term exceeding five years
at a time
4. Option (b) At the time starting secretarial audit in the year 2018, the
turnover of M/s Beauty Products Limited must have been ` 250 crores or
more.
Reason
Section 204(1) read with Rule 9 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules,2014
For the purposes of sub-section (1) of section 204 (i.e. companies required
to annex secretarial audit report to board report), the class of companies
in addition to listed companies shall be as under
(a) every public company having a paid-up share capital of fifty crore
rupees or more; or
(b) every public company having a turnover of two hundred fifty crore
rupees or more; or
(c) every company having outstanding loans or borrowings from banks
or public financial institutions of one hundred crore rupees or more.
252 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 40

To provide banking services to the people living in Emakulam, Kerala, which still
was a far off location and devoid of accessing finance from nationalised banks
and Non-Banking Financial Companies (NBFCs), Nagarajan, his close friends
Krishnamurti, Raghunath, Govindam, Radhakrishnan, Vijay Krishnan and
Chaitanya, who were experienced and dedicated persons from the field of
business, trade and industry, thought of opening a Nidhi company which would
act as the safest and cheapest way of inviting deposits from them and granting
them loans.

Vinayak Strotram Nidhi Limited was thus incorporated by Nagarajan along with
this group of close friends on 10th July, 2014 in Emakulam District of Kerala.
The Authorised Capital of this Nidhi, which wanted to nurture the habit of
caution and savings among the members by receiving deposits from them and
lending money to them only for their mutual benefit, was ` 70,00,000 divided
into 7,00,000 equity shares of ` 10 each while issued and paid-up capital stood
at a figure of ` 60,00,000 with just eight employees.
Through this Nidhi, savings could be deposited in the form of Savings Account,
Recurring Deposit Account, Fixed Deposit Account and Daily Deposit Accounts
while Vinayak Strotram Nidhi Limited granted loans to the members only
against securities of immovable properties and movables such as gold, silver,
jewellery, deposits, National Saving Certificates, life insurance policies and other
Government securities as per the prescribed rules for Nidhi companies.
Customer centricity was at the core of Managing Director Nagarajan and three
executive directors Krishnamurti, Raghunath and Govindam and it was this
belief that had led the business to build long term relationships.
Since its inception, the Nidhi was earning profits year by year. In anticipation of
growing and rendering better services to their members and stabilizing it as a
profit centre, Nagarajan and his dedicated team felt that there was a demand
for opening some branches in the district itself. Thus, Vinayak Strotram Nidhi
Limited opened three more branches at Aluva, Kanayannur and Kothamanglam
in Emakulam district of Kerala. These branches were inaugurated with more
 CASE SCENARIOS 253

focus on deposit mobilization and lending which was a core business of this
Nidhi.

The Nidhi brought within its fold experienced persons like retired senior
executives from national and multi-national banks to seek guidance and build
it as the pioneer in rendering best services by adopting latest technology.

By the end of March, 2021, Vinayak Strotram Nidhi Limited had 11,000 members
and 200 employees.
In the track of fast growth and with foresightedness in mind, Nagarajan desired
to open a new branch in another district of Kerala. He chose Kannaur district
since he had a special bonding with this place because he was an alumnus of
Kannaur University, having graduated in commerce from this famous University.
But instead of doing that way, he opened another Nidhi company by the name
Vinayak Strotram Kannaur Nidhi Limited in Kannaur district of Kerala.

MULTIPLE CHOICE QUESTIONS

1. Kartikay, a resident of Aluva, is desirous of opening a Savings Account

with Vinayak Strotram Nidhi Limited but before opening such account he
must be a member of this Nidhi. How many minimum shares must be
issued to him so that he becomes a member?
(a) Kartikay must be issued minimum one share to become member of
Vinayak Strotram Nidhi Limited so that he is able to open a Savings
Account.
(b) Kartikay must be issued minimum three shares to become member
of Vinayak Strotram Nidhi Limited so that he is able to open a
Savings Account.
(c) Kartikay must be issued minimum five shares to become a member
of Vinayak Strotram Nidhi Limited so that he is able to open a
Savings Account.
(d) Kartikay must be issued minimum ten shares to become member of
Vinayak Strotram Nidhi Limited so that he is able to open a Savings
Account.
254 CORPORATE AND ECONOMIC LAWS

2. Suppose Krishnamurti, one of the directors of Vinayak Strotram Nidhi

Limited, were to hold office of director for a term upto ten consecutive
years, then when shall he be eligible for re-appointment as director?
Choose the correct alternative from those stated below:
(a) After expiry of six months of ceasing to be director of Vinayak
Strotram Nidhi Limited, he shall be eligible for re-appointment as
director.
(b) After expiry of one year of ceasing to be director of Vinayak
Strotram Nidhi Limited, he shall be eligible for re-appointment as
director.
(c) After expiry of two years of ceasing to be director of Vinayak
Strotram Nidhi Limited, he shall be eligible for re-appointment as
director.
(d) After expiry of three years of ceasing to be director of Vinayak
Strotram Nidhi Limited, he shall be eligible for re-appointment as
director.
3. Maximum how much interest Vinayak Strotram Nidhi Limited can offer on
fixed and recurring deposits accepted from its members? Select the
correct option from those mentioned below:
(a) Vinayak Strotram Nidhi Limited is permitted to offer interest on
fixed and recurring deposits at a rate not exceeding the maximum
rate of interest that a Non-Banking Financial Company can pay on
its public deposits.

(b) Vinayak Strotram Nidhi Limited is permitted to offer interest on

fixed and recurring deposits at a rate not exceeding the maximum
rate of interest that a nationalised bank can pay on its public
deposits.
(c) Vinayak Strotram Nidhi Limited is permitted to offer interest on
fixed and recurring deposits at a rate not exceeding the maximum
rate of interest that a Rural Regional Bank can pay on its public
deposits.
 CASE SCENARIOS 255

(d) Vinayak Strotram Nidhi Limited is permitted to offer interest on

fixed and recurring deposits at a rate not exceeding the maximum
rate of interest that a Co-operative Bank can pay on its public
deposits.
4. In which year at the earliest, Vinayak Strotram Nidhi Limited would have
got the approval to open branches at Aluva, Kanayannur and
Kothamanglam in Emakulam district of Kerala.
(a) At the earliest, after 9th July, 2015, Vinayak Strotram Nidhi Limited
would have got the approval to open branches at Aluva, Kanayannur
and Kothamanglam in Emakulam district of Kerala.
(b) At the earliest, after 9th July, 2016, Vinayak Strotram Nidhi Limited
would have got the approval to open branches at Aluva, Kanayannur
and Kothamanglam in Emakulam district of Kerala.
(c) At the earliest, after 9th July, 2017, Vinayak Strotram Nidhi Limited
would have got the approval to open branches at Aluva, Kanayannur
and Kothamanglam in Emakulam district of Kerala.
(d) At the earliest, after 9th July, 2018, Vinayak Strotram Nidhi Limited
would have got the approval to open branches at Aluva, Kanayannur
and Kothamanglam in Emakulam district of Kerala.
5. Nagarajan, Managing Director of Vinayak Strotram Nidhi Limited, desired
to open a branch in Kannaur district but changed his plan and rather
opened a new Nidhi by the name Vinayak Strotram Kannaur Nidhi Limited.
What could be the reason for change of his mind? Choose the appropriate
option from those given below:
(a) Nagarajan, Managing Director of Vinayak Strotram Nidhi Limited,
could not open a new branch in another district because he did not
get permission from the Registrar of Companies.
(b) Nagarajan, Managing Director of Vinayak Strotram Nidhi Limited,
could not open a new branch in another district because he did not
get permission from the Regional Director.
256 CORPORATE AND ECONOMIC LAWS

(c) Nagarajan, Managing Director of Vinayak Strotram Nidhi Limited,

could not open a new branch in another district because he did not
get permission from the State Government.
(d) Nagarajan, Managing Director of Vinayak Strotram Nidhi Limited,
could not open a new branch in another district because he did not
get permission from the Reserve Bank of India.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Kartikay must be issued minimum one share to become

member of Vinayak Strotram Nidhi Limited so that he is able to open a
Savings Account.
Reason
Rule 7(3) of the Nidhi Rules 2014
A savings account holder and a recurring deposit account holder shall
hold at least one equity share of rupees ten.
2. Option (c) After expiry of two years of ceasing to be director of Vinayak
Strotram Nidhi Limited, he shall be eligible for re-appointment as director.
Reason

Rule 17(3) of the Nidhi Rules 2014

The Director shall be eligible for re-appointment only after the expiration
of two years of ceasing to be a Director.

3. Option (a) Vinayak Strotram Nidhi Limited is permitted to offer

interest on fixed and recurring deposits at a rate not exceeding the
maximum rate of interest that a Non-Banking Financial Company can pay
on its public deposits.
Reason
Rule 13(5) of the Nidhi Rules 2014

A Nidhi may offer interest on fixed and recurring deposits at a rate not
exceeding the maximum rate of interest prescribed by the Reserve Bank
 CASE SCENARIOS 257

of India which the Non-Banking Financial Companies can pay on their

public deposits.

4. Option (c) At the earliest, after 9th July, 2017, Vinayak Strotram Nidhi
Limited would have got the approval to open branches at Aluva,
Kanayannur and Kothamanglam in Emakulam district of Kerala.
Reason
Rule 10(1) of the Nidhi Rules 2014
A Nidhi may open branches, only if it has earned net profits after tax
continuously during the preceding three financial years.
3 years from 10th July 2014 elapsed on 9th July 2017. It is mentioned in the
facts of the case that since its inception, the Nidhi was earning profits year
by year.
Students are advised to take note that subject to the condition stated, a
Nidhi may open up to three branches within the district. If a Nidhi
proposes to open more than three branches within the district or any
branch outside the district, it shall obtain the prior permission of the
Regional Director by applying in Form NDH-2 along with fee specified in
the Companies (the Registration Offices and Fees) Rules, 2014 and an
intimation is to be given to the Registrar about opening of every branch
within thirty days of such opening.

5. Option (b) Nagarajan, Managing Director of Vinayak Strotram Nidhi

Limited, could not open a new branch in another district because he did
not get permission from the Regional Director.

Reason
Rule 10(3) of the Nidhi Rules 2014
Sub-rule 3 provides that if a Nidhi proposes to open more than three
branches within the district or any branch outside the district, it shall
obtain the prior permission of the Regional Director by applying in Form
NDH-2 along with fee specified in the Companies (the Registration Offices
and Fees) Rules, 2014 and an intimation is to be given to the Registrar
about opening of every branch within thirty days of such opening.
258 CORPORATE AND ECONOMIC LAWS

Hence not getting approval may be reason/rational behind the change of

mind.

Students are advised to take note that Sub-rule 2 provides that subject to
the condition that it has earned net profits after tax continuously during
the preceding three financial years, a Nidhi may open up to three
branches within the district. Hence even if it is case of opening another
branch in same district the permission is required under sub-rule 3.
 CASE SCENARIOS 259

CASE SCENARIO 41

Supported by the latest technology, supply chain management, product

development, robust research and development, Akhil and Bharat Nandan
along with other trusted persons incorporated Chai Garden Limited in 2014 with
its Registered Office situated in Mumbai to transform every day’s chai
experience of the people living in Maharashtra, Gujarat and Karnataka by
adopting business model of online tea ordering.
Their business was a great success because of game changing heat retaining
disposable cardboard flasks that enabled the company to deliver the brew fresh
to the consumers across the cities. Its orders for chai peaked between 9.30 AM
to noon and then between 4.00 PM to 8.00 PM. Seeing the growth of the
company Akhil and Bharat Nandan roped in four of their trusted friends,
namely, Rohan, Rahul, Raunit and Raman as directors - to head finance,
marketing, Research and Development and operations. Akhil was the MD of the
company. The hard work put in by them and their team of employees paid good
dividends.
By and by, the demand started spilling to week-ends as well showing that
consumers were ordering tea from their cozy homes. By June, 2022, with over
1000 employees in 250 hubs across six cities viz. Mumbai, Pune, Surat,
Vadodara, Bangalore and Mysore, the company was serving more than 2,00,000
cups per day.
The directors Akhil and Bharat Nandan thought of including healthy breakfast
and snacks like poha, idly, cucumber sandwiches, egg sandwiches, atta cookies
and the like that could perfectly complement existing business of chai. This
diversification needed infusion of additional capital to buy high-tech machines,
development of infrastructure, working capital for day-to-day operations. They
were toying with the idea of availing loan from Top Bank Limited or private
placement of shares.
Therefore, four more directors, namely, Nandish, Nandini, Nevil and Nandita
were added to the Board of Directors after following due process of law.
According to the Articles of the company, maximum directors can be up to
twelve. However, keeping in view the future expansion plans, the Articles of
Association were amended so that the company could appoint maximum of
260 CORPORATE AND ECONOMIC LAWS

twenty directors. In November, 2023, a meeting of the Board of Directors was

called to ponder upon various issues including that of making provision in
respect of healthy breakfast and snacks.
It is noteworthy that one week before the meeting of the Board of Directors,
Avinash, one of the shareholders holding 1000 equity shares, requested the
company to furnish him a copy of the Register of Directors and Key Managerial
Personnel (KMPs).
In the Board meeting, everyone voted in favour of diversification and a Board
Resolution was passed in this regard. This was followed by an intense discussion
on whether to avail term loan or raise funds through private placement.
However, all the directors assented to the private placement since the same
seemed to be more beneficial.
Consequently, the strength of the shareholders also increased from 600 to 900
and thereafter to 1500 by March, 2024. There was no looking back.

MULTIPLE CHOICE QUESTIONS

1. According to the case scenario, Avinash, one of the shareholders holding

1000 equity shares, requested the company to furnish him a copy of the
Register of Directors and Key Managerial Personnel (KMPs). What is the
maximum time period within which the copy of said Register needs to be
provided to a member? Choose the correct option from those given
below:
(a) When requested by a shareholder, a copy of the Register of
Directors and Key Managerial Personnel (KMPs) needs to be
provided maximum within seven days.
(b) When requested by a shareholder, a copy of the Register of
Directors and Key Managerial Personnel (KMPs) needs to be
provided maximum within fifteen days.
(c) When requested by a shareholder, a copy of the Register of
Directors and Key Managerial Personnel (KMPs) needs to be
provided maximum within thirty days.
 CASE SCENARIOS 261

(d) When requested by a shareholder, a copy of the Register of

Directors and Key Managerial Personnel (KMPs) needs to be
provided maximum within forty-five days.
2. Suppose, Chai Garden Limited decides to appoint total strength of twenty
directors as allowed by its Articles of Association as against the maximum
fifteen directors permitted by the Companies Act, 2013. Which way can
the company appoint twenty directors? Choose the correct option from
those given below:

(a) Chai Garden Limited can appoint twenty directors as allowed by the
Articles of Association as against the maximum fifteen directors
permitted by the Companies Act, 2013 by passing an ordinary
resolution.
(b) Chai Garden Limited can appoint twenty directors as allowed by the
Articles of Association as against the maximum fifteen directors
permitted by the Companies Act, 2013 by passing a special
resolution.
(c) Chai Garden Limited can appoint twenty directors as allowed by the
Articles of Association as against the maximum fifteen directors
permitted by the Companies Act, 2013 by passing an ordinary
resolution and thereafter, it shall be required to seek approval of
the Registrar of Companies.
(d) Chai Garden Limited can appoint twenty directors as allowed by the
Articles of Association as against the maximum fifteen directors
permitted by the Companies Act, 2013 by passing an special
resolution and thereafter, it shall be required to seek approval of
the Regional Director.

3. Is it mandatory for Chai Garden Limited to form a Stakeholders

Relationship Committee keeping in view the current strength of the
shareholders? Select the correct option from those given below:
(a) It is not mandatory for Chai Garden Limited to form a Stakeholders
Relationship Committee because it does not have more than 2000
shareholders.
262 CORPORATE AND ECONOMIC LAWS

(b) It mandatory for Chai Garden Limited to form a Stakeholders

Relationship Committee because it has more than 1000
shareholders.
(c) It is not mandatory for Chai Garden Limited to form a Stakeholders
Relationship Committee because it does not have more than 2500
shareholders.
(d) It is not mandatory for Chai Garden Limited to form a Stakeholders
Relationship Committee because it does not have more than 3000
shareholders.
4. The Audit Report of F.Y. 2022-23 pointed out that Raman in the capacity
as director received excess remuneration than the prescribed limit to the
extent of ` 2,10,000. In case Chai Garden Limited decides to waive the
recovery of excess remuneration from Raman, which kind of resolution
the company shall pass:
(a) For waiving the recovery of excess remuneration from Raman, Chai
Garden Limited shall pass a Board Resolution.
(b) For waiving the recovery of excess remuneration from Raman, Chai
Garden Limited shall pass an ordinary resolution.
(c) For waiving the recovery of excess remuneration from Raman, Chai
Garden Limited shall pass an ordinary resolution but thereafter, it
shall seek approval of the Central Government through Registrar of
Companies.
(d) For waiving the recovery of excess remuneration from Raman, Chai
Garden Limited shall pass a special resolution.
5. It is noticed that Raman in the capacity as director had received excess
remuneration than the prescribed limit to the extent of ` 2,10,000. It is
assumed that Chai Garden Limited passed the required resolution for
waiving the recovery of excess remuneration from Raman. Choose from
the following options the maximum time limit within which the required
resolution must be passed:
 CASE SCENARIOS 263

(a) The required resolution approving the waiver of recovery of excess

remuneration from Raman must be passed within two years from
the date the sum becomes refundable.
(b) The required resolution approving the waiver of recovery of excess
remuneration from Raman must be passed within three years from
the date the sum becomes refundable.
(c) The required resolution approving the waiver of recovery of excess
remuneration from Raman must be passed within four years from
the date the sum becomes refundable.
(d) The required resolution approving the waiver of recovery of excess
remuneration from Raman must be passed within five years from
the date the sum becomes refundable.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c)
Reason
Refer Section 171 (1) (a). According to this clause, if a request is
made by a member for obtaining a copy of the Register of Directors
and Key Managerial Personnel (KMPs), the same shall be provided
to him within thirty days.
2. Option (b)
Reason
As per proviso to section 149(1) of the Companies Act, 2013, every
may appoint more than fifteen directors after passing a special
resolution.
3. Option (b)
Reason

Refer Section 178 (5) which requires that the Board of Directors of a
company which consists of more than one thousand shareholders,
debenture-holders, deposit-holders and any other security holders
264 CORPORATE AND ECONOMIC LAWS

at any time during a financial year shall constitute a Stakeholders

Relationship Committee.

4. Option (d)
Reason
Refer Section 197 (10) which requires passing of special resolution
for approving waiving of recovery of excess remuneration paid to a
director.
5. Option (a)

Reason
According to Section 197 (10) if a company decides to approve
waiving of recovery of excess remuneration paid to a director, it shall
pass the requisite resolution within two years from the date such
sum becomes refundable.
 CASE SCENARIOS 265

CASE SCENARIO 42

With a view to revolutionise every day’s tea experience of tea lovers, Sarthak,
Vignesh, Kishore and his friend Shashank, all alumnus of IIT, Mumbai, along with
some of their close relatives opened brick and mortar retail chain stores in
Bangalore and Mumbai. Besides normal and ‘kadak’ tea, they served a wide
range of tea including shahi tea, pahari tea, ginger tea, jaggery tea, aamras tea,
to name a few. The company, Tea Point Limited earned a name of one of the
largest organised tea retailer bringing a perfectly brewed cup of tea made with
fresh natural ingredients. This was six years back. The authorised capital of the
company was ` 20,00,00,000 (2,00,00,000 equity shares of ` 10 each) and there
were ten directors namely, Sarthak, Vignesh, Kishore, Shashank, Avinash,
Avantika, Uttara, Urmimala, Shantanu and Vibhore.

Slowly and gradually, their business grew and they wanted to open retail stores
in six more cities. They decided to appoint Sridhar as Director (Operations).
Three years passed on. The company had over 500 employees in eighty service
hubs across eight cities.
The directors convened a Board Meeting to discuss about future plans. It was
convened on Friday, the 19th January, 2024 at 10.30 AM at Head Office of the
company situated at Bandra, Mumbai. On that day, the required quorum was
not present. The meeting was adjourned and no business could be conducted
on that day. There was no mention of this topic i.e. adjournment of meeting in
the Articles of Association. However, the adjourned meeting was conducted on
the scheduled time. Sarthak highlighted the necessity of opening of online tea-
ordering business. Vibhore, another director, appreciated the idea and opined
that for most of the white collared workers, to sip hot tea generally meant to
step out of office to the nearest chai shop or walking to a tea vendor machine
which could be avoided if online tea-ordering came into existence. All the
directors present at the meeting agreed to the proposal. In order to generate
funds to the extent of ` One crore for sustaining online tea-ordering business
they identified seventy-five persons who could be issued shares through private
placement.
266 CORPORATE AND ECONOMIC LAWS

It may be mentioned that Vignesh is also a partner in a firm, namely, M/s. Sooraj
and Aakash Tea Distributers. In fact, in addition to Vignesh, his wife Sheela, his
sons Sooraj and Aakash as well as Sooraj’s close friend Rahul are also partners
in this firm. Vignesh is desirous that a loan of ` 30,00,000 be granted to M/s.
Sooraj and Aakash Tea Distributers by Tea Point Limited for furthering the
business of the partnership firm.
Tea Point Limited has a wholly owned subsidiary, namely, Green Leaves
Marketing and Exports Limited. This subsidiary company is involved in
marketing full range of loose and packaged teas to meet the needs of the tea
industry, domestic as well as overseas. With an aim of expansion, the directors
of Tea Point Limited decided for merger of Green Leaves Marketing and Exports
Limited after considering vital facts that such merger would result in economies
of scale and economies of scope in production, distribution and financing.
Avinash, Director (HR) took a loan of ` 50,00,000 from the company to buy a
readymade flat. After making repayment for first six years, Avinash wanted his
repayment period of remaining four years to increase by another two years and
he, therefore, made a written request to the Board of Directors.

MULTIPLE CHOICE QUESTIONS

1. As per Case Scenario, Avinash, Director (HR) who took a loan of `

50,00,000 to buy a readymade flat wanted his repayment period of
remaining four years to extend by another two years and he, therefore,
made a written request to the Board of Directors. Which of the following
options is applicable in the given situation:

(a) The repayment period in case of Avinash, Director (HR), can be

increased at a meeting of the Board if minimum two directors (apart
from Avinash) agree to such proposal.
(b) The repayment period in case of Avinash, Director (HR), can be
increased at a meeting of the Board if minimum three directors
(apart from Avinash) agree to such proposal.

(c) The repayment period in case of Avinash, Director (HR), can be

increased by passing an ordinary resolution.
 CASE SCENARIOS 267

(d) The repayment period in case of Avinash, Director (HR), can be

increased by passing a special resolution.

2. In the case scenario, there is mention of Board Meeting which was to be

held on Friday, the 19th January, 2024 at 10.30 AM at Head Office of the
company situated at Bandra, Mumbai but the same was to be adjourned
for want of quorum. When do you think such adjourned meeting was held
afterwards. Choose the correct option from the following:
(a) On Tuesday, the 23rd January, 2024 at 10.30 AM at Head Office
situated at Bandra, Mumbai.
(b) On Friday, the 26th January, 2024 at 10.30 AM at Head Office
situated at Bandra, Mumbai.
(c) On Saturday, the 27th January, 2024 at 10.30 AM at Head Office
situated at Bandra, Mumbai.
(d) On Monday, the 29th January, 2024 at 10.30 AM at Head Office
situated at Bandra, Mumbai.
3. Vignesh, one of the directors of Tea Point Ltd. is desirous that a loan of
` 30,00,000 be granted to M/s. Sooraj and Aakash Tea Distributers by Tea
Point Limited for furthering the business of the partnership firm.
(a) No loan can be granted by Tea Point Ltd. to M/s. Sooraj and Aakash
Tea Distributers in which Vignesh, one of its directors, is partner.
(b) A maximum loan of ` 5,00,000 can be granted by Tea Point Ltd. to
M/s. Sooraj and Aakash Tea Distributers in which Vignesh, one of its
directors, is a partner, by passing a special resolution.
(c) A maximum loan of ` 10,00,000 can be granted by Tea Point Ltd. to
M/s. Sooraj and Aakash Tea Distributers in which Vignesh, one of its
directors, is a partner, by passing a special resolution.
(d) A maximum loan of ` 20,00,000 can be granted by Tea Point Ltd. to
M/s. Sooraj and Aakash Tea Distributers in which Vignesh, one of its
directors, is a partner, by passing a special resolution.
268 CORPORATE AND ECONOMIC LAWS

4. The case scenario states that Tea Point Limited is desirous of merging its
wholly owned subsidiary Green Leaves Marketing and Exports Limited. To
proceed further, it is required that a notice of the proposed scheme of
merger inviting objections or suggestions from the Registrar and Official
Liquidators where the registered office of the respective companies are
situated needs to be issued. Maximum within how much time such notice
is required to be issued. Choose the correct option from those given
below:

(a) The required notice of the proposed scheme of merger needs to be

issued within fifteen days.
(b) The required notice of the proposed scheme of merger needs to be
issued within thirty days.
(c) The required notice of the proposed scheme of merger needs to be
issued within sixty days.

(d) The required notice of the proposed scheme of merger needs to be

issued within ninety days.
5. It is assumed that certain suggestions were received in response to the
notice of the proposed scheme of merger and the same were considered
by the companies in their respective general meetings including other
matters relating to merger. Thereafter, the scheme of merger was
approved by the members. Choose the appropriate option from those
given hereunder as to the minimum share-holding, the members had who
approved the proposed scheme of merger:
(a) The members who approved the proposed scheme of merger must
be holding at least sixty percent of the total number of shares.
(b) The members who approved the proposed scheme of merger must
be holding at least seventy five percent of the total number of
shares.
(c) The members who approved the proposed scheme of merger must
be holding at least ninety percent of the total number of shares.
(d) The members who approved the proposed scheme of merger must
be holding at least ninety five percent of the total number of shares.
 CASE SCENARIOS 269

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d)

Reason
Refer Section 180 (1) (d) where it is provided that the Board of Directors
shall exercise powers in relation to remit, or give time for the repayment
of, any debt due from a director only with the consent of the company
through a special resolution.]
2. Option (c)
Reason
Refer Section 174 (4) which states that a Board Meeting, not held for want
of quorum, then, unless the articles of the company otherwise provide,
shall automatically stand adjourned to the same day at the same time and
place in the next week or if that day is a National Holiday, till the next
succeeding day, which is not a National Holiday, at the same time and
place.
3. Option (a)
Reason
Refer Section 185 (1) (b) which prohibits a company from advancing of
any loan to a firm in which its director is a partner.
4. Option (b)

Reason
Refer Section 233 (1) (a) which requires that such notice needs to be
issued within thirty days by both the transferor and transferee company.

5. Option (c)
Reason
According to Section 233 (1), the proposed scheme of merger is required
to be approved by the members at a general meeting holding at least
ninety percent of the total number of shares.
270 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 43

Venus Limited is a listed company that manufactures and trades in perfumes,

attars, essential oils, natural extracts, and fragrance-based cosmetic and
personal care items. It has the largest manufacturing plant for rose water
extractions in Kannauj, the perfume capital of India and often referred to as the
Grasse (France) of the East.
Venus Limited has 12 directors on its board, and Mr. Vinod Kapadia was
appointed as managing director just a month ago. Mars Limited, another listed
company, holds 12% of the equity shares and paid-up share capital of Venus
Limited.
An audit committee was constituted, consisting of six directors, of whom three
are independent and one is non-executive. Ms. Krishna, who is an independent
director, was appointed as the chairperson of the audit committee. The audit
committee of Venus Limited during 2022-2023 and 2023-2024 met on the
following dates:

Meeting Date & Place of the No. of member of committee, who

meeting attended the meeting
A 18th May 2022, RO All 6 members
B 10th August 2022, RO All 6 members
C 30 October 2023, RO
th
5 members including 3 independent
directors
D 10th Jan 2023, RO All 6 members
E 15th March 2023, RO All 6 members
1 12 April 2023, RO
th
All 6 members
2 17 June 2023, RO
th
5 members including 3 independent
directors
3 8th July 2023, Shimla 4 members including 2 independent
(HP, India) directors
4 11th Nov 2023, RO 5 members including 2 independent
and 1 non-executive directors
 CASE SCENARIOS 271

5 28th December 2023, 3 director including 1 independent and

Kannuaj (UP, India) 1 non-executive directors
6 13th Jan 2024, Grasse All 6 members
(France)
7 10th March 2024, RO 1 independent and 1 non-executive
director only

Since Mr. Vinod Kapadia is appointed as MD recently hence he is willing to know

about the time within which the quarterly results need to be reported from end
of the quarter in ordinary course of business.

MULTIPLE CHOICE QUESTIONS

You are an expert on securities laws, who is being professionally engaged to

answer the following questions (specified as MCQs) by identifying the most
appropriate option based upon provisions contained in the Securities and
Exchange Board of India (Listing Obligation and Disclosure Requirements)
Regulations, 2015.
1. Whether constitution of Audit Committee is in order in case of Venus
Limited?

(a) No, because audit committee shall consist of at least 3 directors with
independent directors forming a majority.
(b) No, because audit committee shall consist of at least 3 directors out
of which at least 2/3 shall be independent directors.
(c) Yes, because audit committee shall consist of at least 3 directors out
of which at least 1/3 shall be independent directors.

(d) Yes, because audit committee shall consist of at least 3 directors

with at-least 2 independent directors and/or non-executive
directors.

2. Which of following is the correct option that represents those meetings

of audit committee convened during 2022-23, which was supposed to be
adjourned for want of quorum?
(a) Only 7th meeting.
272 CORPORATE AND ECONOMIC LAWS

(b) 5th and 7th meetings only.

(c) 3rd, 5th and 7th meeting only.

(d) None of the meeting.

3. How many instances of default by Venus Limited in context to number of
meetings of audit committee and time gap between such meetings took
place during 2022-23 and 2023-24;
(a) Not even once in both the years
(b) Once each during 2022-23 and 2023-24
(c) Once only in 2022-23
(d) Once only in 2023-24
4. Financial results of first quarter of 2024-25 need to be reported to stock
exchange by Venus Limited within;
(a) 15th July 2024
(b) 30th July 2024

(c) 14th August 2024

(d) 29th August 2024

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (b) No, because audit committee shall consist of at least 3

directors out of which 2/3 shall be independent directors.
Reason
Regulation 18(1) of the Securities and Exchange Board of India (Listing
Obligation and Disclosure Requirements) Regulations, 2015
Every listed entity shall constitute a qualified and independent audit
committee in accordance with the terms of reference, subject to the
following:

The audit committee shall have minimum three directors as members.

 CASE SCENARIOS 273

At least two-thirds of the members of audit committee shall be

independent directors

Students are advised to take note that in case of a listed entity having
outstanding SR equity shares, the audit committee shall only comprise of
independent directors

While in given case 3 out of 6 audit committee members are independent

directors that amounts to ½ only, whereas requirement is of at least 2/3rd.
2. Option (b) 5th and 7th meetings only

Reason
Regulation 18(2)(b) of the Securities and Exchange Board of India (Listing
Obligation and Disclosure Requirements) Regulations, 2015

The quorum for audit committee meeting shall either be two members or
one third of the members of the audit committee, whichever is greater,
with at least two independent directors.
In case of both 5th and 7th two independent directors were not present,
hence these two meetings was supposed to be adjourned for want of
quorum.
3. Option (d) Once only in 2023-24
Reason
Regulation 18(2)(a) of the Securities and Exchange Board of India (Listing
Obligation and Disclosure Requirements) Regulations, 2015
The audit committee shall meet at least four times in a year and not more
than one hundred and twenty days shall elapse between two meetings.

The time gap between 3th (8th July 2023) and 4th meeting (11th Nov 2023)
is more than 120 days
4. Option (c) 14th August 2024
Reason
Regulation 33(3)(a) of the Securities and Exchange Board of India (Listing
Obligation and Disclosure Requirements) Regulations, 2015
274 CORPORATE AND ECONOMIC LAWS

The listed entity shall submit quarterly and year-to-date standalone

financial results to the stock exchange within forty-five days of end of
each quarter, other than the last quarter.
Forty five days from end of first quarter i.e. 30th June 2024 last on
14th August 2024.
 CASE SCENARIOS 275

CASE SCENARIO 44

Ms. Pray, Ms. Soul, Mr. Blessing and Mr. Boon went to Budapest, Hungary after
their CA Final exams on May 26th 2016. All four decided to return to India
before declaration of Result. Result was declared on 26th July 2016 and all four
cleared their exam and became Qualified CA. As decided, Ms. Pray and Ms. Soul
went back to India on 16th of July and 25th July 2016 respectively. Mr. Blessing
got highly inspired by his grandfather, Mr. Benedict who has also studied and
remained in Budapest for 40 years and earned lot of money, fame and respect.
Mr. Benedict converted his all earning in foreign securities and died in the year
2006 leaving behind his legacy to his son. Following him, his grandson also
decided to pursue Certified Public Accountant (CPA) and came to India on 26th
July 2016, to comply with other formalities required by the Institute of
Chartered Accountants of India and Foreign Exchange Management Act (FEMA,
1999) and other regulatory authorities. He again went to Budapest on Dec 6th
2016 for further studies. Mr. Boon also first decided to pursue CPA but then
circumstances made him to return to his home on 06th January 2017
discontinuing his further studies.
Mr. Blessing joined the course and started to work there as an Intern to meet
his daily and other expenses. On 26th Dec 2016, his father, Mr. Sacred drew
foreign exchange of USD 196000 for his admission and USD 76000 on 06th April
2017 for his other ancillary expenses. As a qualified CA and a CPA student and
an intern as well, he gave consultancy in respect of incorporation of company
in US to a client in India named Veni Vidi Vici, Chartered Accountants (a
partnership firm) for which the firm paid USD 100000 to him. Before coming to
Budapest, he also purchased a lottery ticket and fortunately won prize of ` 10
Lacs. He wants to use that amount for facilitating his higher studies and other
expenses and making arrangement of withdrawal of the same. Mr. Sacred sold
all the foreign securities which he inherited from his father and purchased a flat
in Budapest exclusively from the fund received from sale proceed of securities.
Mr. Blessing is planning to settle their permanently and decided to marry a
citizen of the Budapest. He also became the member of P & I club there.
Considering the current situation, Mr. Sacred is also going to settle with his son
there along with the family and looking for an agent who can sell his Villa.
Finally, he outsourced this work to one company called Pious & co who with
276 CORPORATE AND ECONOMIC LAWS

their agent in Singapore sold that villa to resident of Singapore planning to

settle in India, against the commission amounting to USD 96000 paid by Pious
& co. The villa was sold for USD 40 Lacs. They left India on Nov 26th 2019.
In the year 2021, on 16th Nov, Mr. Blessing and his wife got a job opportunity
in Microsoft in Bangalore and joined the office in Dec 2021. They send money
to their family abroad from Resident Foreign Currency Account (RFC). Further
the membership money of P & I club is also remitted using RFC account.

MULTIPLE CHOICE QUESTIONS

1. What will be the Residential status of Ms. Pray, Ms. Soul, Mr. Blessing and
Mr. Boon as per applicable provisions of FEMA Act, 1999? In other words,
mention who all are Person Resident in India (PRII) and who all are Person
Resident Outside India (PROI) for financial year 2017-18 as per the FEMA
Act, 1999?
(a) Ms. Pray and Ms. Soul are PRII and Mr. Blessing and Mr. Boon are
PROI
(b) Ms. Pray, Ms. Soul and Mr. Boon are PRII and Mr. Blessing is PROI
(c) Ms. Pray, Ms. Soud and Mr. Blessing are PRII and Mr. Boon is PROI
(d) Ms. Pray is PRII and Ms. Soul, Mr. Blessing and Mr. Boon are PROI
2. “Further the membership money of P & I club is also remitted using RFC
account” Elucidate the nature of transaction from below mentioned
options.
(a) Current account transaction which is prohibited
(b) Current account transaction which requires prior approval from
Reserve Bank of India
(c) Current account transaction which is permissible and does not
require any approval

(d) Current Account transaction which requires prior approval of

Government of India, Ministry of Finance but when the said
remittance is done from RFC account no approval is required.
 CASE SCENARIOS 277

3. Below are the various current account transactions undertaken. Some of

them are permissible and does not require prior approval of Government
of India or Reserve Bank of India and some of them require prior approval.
1. Withdrawal by Mr. Sacred on two different dates (26th Dec 2016 for
USD 176000 and 07th April 2017 for USD 76000) for the purpose of
studies abroad of his son.
2. Payment of consultancy fees by Veni Vidi Vici to Mr. Blessing in
Budapest for USD 100000
3. Withdrawal from lottery winnings
4. Payment of Commission of USD 96000 against inward remittance of
USD 4000000 by Pious & co to agent in Singapore for selling Villa.

5. Payment of membership of P & I club from RFC account.

Mention which of the above transactions can be freely taken and does not
require prior approval of RBI/GOI
(a) 1, 2, 3 and 4
(b) 1, 2, 4 and 5
(c) 2, 3, 4 and 5
(d) 1, 3, 4 and 5
4. Out of following transactions, which one is permissible capital account
transaction?
(a) Withdrawal of Foreign exchange by Mr. Sacred for admission and
other expenses of his son, Mr. Blessing
(b) Payment of consultancy fees by Veni Vidi Vici to Mr. Blessing in
Budapest
(c) Payment of Commission by Mr. sacred to agent in Singapore for
selling Villa

(d) Purchase of Flat in Budapest by Mr. Sacred.

278 CORPORATE AND ECONOMIC LAWS

5. What is permissible limit of payment of commission to agent abroad for

sale of residential flats in India?

(a) USD 25000

(b) USD 100000
(c) USD 25000 or 5% of Inward remittance whichever is higher

(d) USD 250000

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a)
Reason
Ms. Pray and Ms. Soul are PRII and Mr. Blessing and Mr. Boon are PROI as
per FEMA, Sec 2(n), any person resides in India for more than 182 days
are PRII except for the case if the person goes out of India for any purpose
which would indicate his intention to stay outside for uncertain period. In
the given scenario, Mr. Boon resides less than 182 days in India so he is
PROI and at the same time though Mr. Blessing reside for more than 182
days but he goes out for education and his intention to stay there is for
uncertain period so he is also PROI.
2. Option (d)
Reason
Current Account Transaction which requires prior approval of Government
of India, Ministry of Finance but when the said remittance is done from
RFC account no approval is required. Under schedule II of Sec 5 of the
FEMA Act, 1999, said remittance requires approval from Ministry of
Finance but exempted when done from RFC account.
3. Option (b)
Reason

1, 2, 4 and 5.
1. As per the applicable provisions of FEMA schedule I, II and III of sec
5 of the said Act, Individuals can avail foreign exchange facility upto
 CASE SCENARIOS 279

USD 250000 for the purpose of studies abroad. Though Mr. Sacred
withdrew more than USD 250000 but that were in two different
financial years so permissible.
2. Remittance by person other than individual upto USD 1000000 for
consultancy services procured from outside India is permissible and
doesnot require any approval. In the above case Veni Vidi Vici,
Chartered Accountant only remiited USD 100000 so permissible
3. Remittance out of lottery winnings is prohibited so it is not
permissible.
4. Commission to agent abroad for sale of flats in India exceeding 5%
of inward remittance or USD 25000 whichever is more. In the above
case, commission is within limit of 5% of USD 4000000 is USD
200000 but Mr. Sacred remitted only USD 96000 so permissible.
5. Though remittance for membership of P & I club requires prior
approval of Government of India, Ministry of Finance but as it is
from RFC account, it does not require any approval and thus
permissible.
4. Option (d)
Reason
Purchase of flat in Budapest by Mr. Sacred. As per sec 6(4) of FEMA Act,
1999, A person resident in India may hold, own, transfer or invest in
foreign currency or any immovable property outside India if such security
or immovable property was acquired, held or owned by such person when
he was resident outside India or inherited from a person who was resident
outside India.
Again, as per subclause iv of sec 6(4) – A person resident in India may
freely utilize their eligible assets abroad and make any fresh investment
abroad without approval of Reserve Bank of India provided the cost of
investment are met exclusively out of funds forming part of eligible assets
held by him.
280 CORPORATE AND ECONOMIC LAWS

So taking into consideration the situation where Mr. Sacred inherited

foreign securities from his father Mr. Benedict when former was resident
of India was eligible asset for him and when he sold the securities and
purchased flat was also very well under the permissible provisions of the
act.
5. Option (c)
Reason
USD 25000 or 5% of Inward remittance whichever is higher.
 CASE SCENARIOS 281

CASE SCENARIO 45

M/s. Sahashtravali Private Limited is a Real Estate company registered under

companies Act having its registered office in Chennai, represented and
administered by Board of directors having two directors. It is running its project
in all metropolitan cities. In Chennai, the company is constructing a society
under the name of “Kailash Niwas” comprising of 96 villas. Each villa cost ` 2
crores. Construction has been started in the year June 2019 and 76% advance
has been taken by villa buyers. The company promised, by way of legal
instrument, to handover the homes by the end of June 2023. It however handed
over 46 villas to respective buyers in time. But company is not handing over the
same to other allottees in spite of legal reminders by them. The following is the
extract of Balance sheet of M/s. Sahashtravali Private limited

Balance Sheet (Extract) as on 31.12.2023

Liabilities Amount (` in Lacs) Assets

Secured Loan
Bank of Maharashtra 98.00
Bank of Baroda 108.00
Sundry Creditors
Creditors For Raw Material
(Due for more than a year)
Achyutam Builders 116.00
Mangalam Ceramics 86.00
Others 56.00

One allotee named Somam commercials along with other 16 allotees who have
not been allotted villas have jointly filed an application against
M/s. Sahashtravali Private Limited to initiate Corporate Insolvency Resolution
Process (CIRP) before NCLT in accordance with the provisions contained in
Insolvency and Bankruptcy code, 2016. Copy of such application has been
forwarded to registered office of the company and to the Board along with
record of the default and other information on 16.01.2023. NCLT has rejected
the application and gave notice to applicant to rectify the defects in the
282 CORPORATE AND ECONOMIC LAWS

application. The mistake in the application has been duly rectified by applicants
on 31st Jan 2023. Following the rectification of mistake, Order of admission of
application has been given on 01.02.2023 to both Somam Commercials and
M/s. Sahashtravali Private Limited.
Mr. Achyutam being an Interim Resolution Professional who has also been
awarded best employee of the year 2021 by the firm of secretarial Auditors of
M/s. Sahashtravali Private Limited has made public announcement as required
under sec 15 of Insolvency and Bankruptcy Code, 2016 with all the particulars
on 09.02.2023. All the allottees except two submitted their claims with proof
before 16.02.2023 as it was the last date to submit claim. Other two submitted
their claim on 26.04.2023. Committee of Creditors (CoC) has been formed
comprising 15 allottees.
First meeting of CoC was duly convened and they have decided with votes of
76% that IRP being ineligible has to be replaced with new Resolution
Professional and application in this regard has been filed along with the name
of Proposed Resolution Professional (RP) Mr. Hansam. Following the
comprehensive process of CIRP, Mr. Hansam prepared Information
memorandum on 26th Mar 2023. He then invited Expression of Interest from
prospective resolution applicants to submit Resolution Plan. Most appropriate
plan has been presented to CoC for their approval. The Resolution Plan was
approved by CoC with majority votes. Further the resolution plan was also
approved by NCLT on 28.7.2023. Finally, Resolution plan was implemented.
This news of resolution plan provoked Achyutam builder and other creditors.
On 01.02.2024 they again filed an application to NCLT for Corporate Insolvency
Resolution Process.

MULTIPLE CHOICE QUESTIONS

1. As per the important definitions defined U/s. 3 and 5 of Insolvency and

Bankruptcy code, 2016, which of the following option is correct?

Corporate Debtor Financial Creditor Operational Creditor

(a) M/s. Sahashtravali Allottees of Kailash Creditors for Raw
Private Limited Niwas, Secured Material
Loan
 CASE SCENARIOS 283

(b) Achyutam Builders Allottees of Kailash M/s. Sahashtravali

Niwas, Secured Private Limited
Loan
(c) M/s. Sahashtravali Creditors for Raw Secured Loan
Private Limited Material
(d) Allottees of Kailash Creditors for Raw M/s. Sahashtravali
Niwas Material Private Limited

2. In the above cases scenario, Somam Commercial being financial creditor

has initiated corporate insolvency resolution process (CIRP) against M/s.
Sahashtravali Private Limited. As referred to clauses (a) and (b) of
subsection (6A) of section 21 of the Act, an application for initiating
Corporate Insolvency Resolution Process (CIRP) against the corporate
debtor shall be filed jointly by not less than ……………of such financial
creditor in the same class or not less than ……. of the total number of such
creditor in the same class, whichever is less.
Fill in the above blanks with correct option.
(a) 50, 10%
(b) 100, 10%
(c) 50, 5%
(d) 100, 5%
3. After choosing the correct option from above, why do you think that
Somam Commercials has met the requirement of clauses (a) and (b) of
subsection (6A) of section 21 of the Act.
(a) Min 50 or 10% of 50 allotees who have not been allotted i.e. 5.
Application filed by 17. So Somam Commercial has met the
requirement
(b) Min 100 or 10% of total 96 allotees i.e.10. Application filed by 17.
So Somam Commercial has met the requirement
(c) Min 50 or 5% of total 50 allotees who have not been allotted i.e.3.
Application filed by 17. So Somam Commercial has met the
requirement
284 CORPORATE AND ECONOMIC LAWS

(d) Min 100 or 5% of total 96 allotees i.e. 5. Application filed by 17. So

Somam Commercial has met the requirement

4. NCLT, at first, has rejected the application of financial creditors and

ordered them to rectify the defect. Why was application defective as per
the provisions of IBC, 2016?

(a) Adjudicating Authority has not ascertained the existence of default.

(b) The amount of default is less than one crore rupees.
(c) The name of the Insolvency professional to act as an interim
resolution professional was not proposed.
(d) The application has been filed by less than minimum number of
applicants as required U/s. 21 (6A) of the Code, IBC 2016.

5. Why the appointment of Mr. Achyutam was ineligible and replaced by

CoC?
(a) He made public announcement after the due date
(b) Mr. Achyutam was a related party of corporate Debtor
(c) He is not eligible to be appointed as independent director of the
corporate debtor.

(d) Mr. Achyutam was an employee of the firm of secretarial auditors of

the M/s. Sahashtravali Private Limited in the last three years
6. Regulation 40B of the CIRP regulations require an IRP/RP to file set of
forms from CIRP 1 to CIRP 6 within seven days of completion of specific
activities. If specific activity is not completed then there would be no filing
of CIRP 1 to 6. This makes monitoring of progress difficult. So, the
regulation requires filing of form CIRP 7 within three days of due date of
completion of any activity. On the basis of above regulation, please
identify which of the activities require filing of CIRP 7.

(a) Specified date of making public announcement is upto 3rd day of

Insolvency commencement date so CIRP 7 need to be filed
(b) Information memorandum required to be issued within 51 days of
public announcement so CIRP 7 need to be filed.
 CASE SCENARIOS 285

(c) CIRP need to completed by 180th day of Insolvency commencement

day so CIRP 7 need to be filed

(d) Two creditors submitted their claim after the date mentioned in
public announcement so CIRP 7 need to be filed
7. Can Achyutam builders initiate Corporate Insolvency Resolution Process
against M/s. Sahashtravali Private Limited?
(a) Yes, as the Achyutam builder is Operational creditor
(b) No, Achyutam builder is not financial creditor

(c) No, as resolution plan has already been approved for M/s.
Sahashtravali Private Limited, 12 months preceding the date of
making application by Achyutam builders
(d) Yes, as 6 months has lapsed since when last resolution plan has been
approved

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a)
Reason

Corporate Debtor Financial Creditor Operational Creditor

a M/s. Sahashtravali Allottees of Kailash Creditors for Raw

Private Limited Niwas, Secured Material
Loan

2. Option (b)
Reason
As per section 7 of the IBC, 2026, an application for initiating a Corporate
Insolvency Resolution Process (CIRP) must be filed jointly by at least 100
financial creditors in the same class. Alternatively, the application can be
filed by at least 10% of the total number of creditors in the same class,
whichever is less.
286 CORPORATE AND ECONOMIC LAWS

3. Option (b)
Reason
In the light of above reasoning.
4. Option (c)
Reason
The name of Insolvency professional to act as an interim resolution
professional was not proposed. As per the procedure to be followed by
financial creditor, the name of the Insolvency professional to act as an
interim resolution professional shall be furnished along with the
application.
5. Option (d)
Reason
Mr. Achyutam was an employee of the firm of secretarial auditors of the
M/s. Sahashtravali Private Limited in the last three years. As per the
information given in the case law, Mr. Achyutam has been awarded best
employee of the year award in 2021 that is why, he is ineligible as per
Regulation 3 of Insolvency and Bankruptcy Regulations, 2016
6. Option (a)
Reason
Specified date of making public announcement is up to 3rd day of
Insolvency commencement date so CIRP 7 need to be filed. Public
announcement has to be made by 04.02.2023 and actually made on
09.02.2023 so CIRP has to filed on 07.02.2023 i.e. due date + 3 days.
Information memorandum need to be published within 51 days from the
date of public announcement i.e. 01.04.2023 but it has been done on
26.03.2023 so no CIRP needed.
CIRP need to be completed within 180 days of insolvency commencement
date i.e.30.07.2023. it was duly completed on 28.07.2023 so no CIRP
needed.
 CASE SCENARIOS 287

Delay in submission of claim by Sundry creditors is not specified activity

so no CIRP needed.

7. Option (c)
Reason
No, as resolution plan has already been approved for M/s. Sahashtravali
Private Limited, 12 months preceding the date of making application by
Achyutam builders. Application can be made after 12 months.
288 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 46

Mr. Ayur and Mr. Veda are planning to float a company under the name of M/s.
Ayurveda limited. Being the promoter and founder of the company, Mr. Ayur is
thinking of becoming Managing director of the Company. Mr. Ayur is 24-year-
old and did MBA from IIM. He has been convicted of an offence involving moral
turpitude and sentenced to imprisonment for 6 month 16 days in the year May
2009. Mr. Veda is planning to become Whole time Director. The company duly
registered and incorporated in the year Jan 2016. Mr. Ayur and Mr. Veda
appointed Mr. Peace as an independent director. Three more directors have
been added to the board. They also appointed Mrs. Pink as women director.
Finally, Ayurveda limited constituted its board with 7 directors including 1
independent and 1 woman director. Managerial remuneration was paid as per
sec 197 of the act. By virtue of the articles of the company, Mr. Ayur and Mr.
Veda has substantial powers to manages the company’s budget and allocate its
resources, interact with client and company shareholders. Mr. Ayur also creates
strategic business plans for meeting the company’s goals and affix the common
seal of the company to some documents without any authorization by the
board. Perseverance and devotion of the directors toward the company was the
driving force to reappoint them in the board for another next term of five years
in the AGM. Now, Mr. Ayur, Mr. Veda, Mrs. Pink, Mr. Healthy and Mr. Peace got
their reappointment in Jan 2021. As Mr. Veda is going to turn 70 in 2023, he
wants Board to reappoint them again for next five years. Board denied the
request. Since then, he is irregular in attending board meeting but since Nov
2022, he did not attend any meeting of board without seeking leave of absence.
The company has recorded the highest turnover of ` 146 crores in 2022. In view
of increasing turnover and added responsibilities, Mr. Peace inform the board
that it is mandatory now to appoint Company Secretary for smooth functioning
of company. In Dec 2023, the company received offer of amalgamation with the
renowned company of the same line of business. Offer was accepted by board
and shareholders as well. In that amalgamation, Mr. Ayur has become Whole
time director of the resultant company, Mr. Peace has been elected as an
independent director and Mrs. Pink again as woman director. Mr. Veda and
Mr. Healthy had to vacate the office. Mr. Veda and Mr. Healthy are asking for
compensation for loss of the office as per sec 202 of Companies Act, 2013.
 CASE SCENARIOS 289

Following is the extract of Audited Balance sheet of the M/s. Ayurveda Limited
as on

31.12.2024 31.12.2023
Particulars (Liabilities) Amount (Crore) Amount (Crore)
Paid up Share Capital 26.00 16.00
Loan from Banks 106.00 116.00

Following is the Audited Profit & Loss Account of M/s. Ayurveda limited for the
year ended

Particulars Amount (`) Amount (`)

Income 31.12.2024 31.12.2023
Turnover 160.00 Cr 146.00 Cr
Gross Profit 60,26,000
Subsidy from State Govt 1,60,000
Total Income 61,86,000
Salaries and Wages 6,60,000
Depreciation 4,90,000
Managerial Rem 5,60,000
Total 17,10,000
Net Profit 44,76,000

Depreciation as per the Companies Act was ` 3,96,000.00.

MULTIPLE CHOICE QUESTIONS

1. As per the fact given in above case study, Mr. Ayur has been convicted of
an offence involving moral turpitude and sentenced to imprisonment for
6 month 16 days in the year 2009. Though he has been imprisoned for
more than 6 months, he is not disqualified for appointment as per sec 164
of companies act, 2013. Why?
(a) Because as per sec 164 of the act, 5 years has been elapsed from the
date of expiry of the sentence.
290 CORPORATE AND ECONOMIC LAWS

(b) Because as per sec 164 of the act, imprisonment was for less than 5
yrs.

(c) Because as per sec 164 of the act, 7 years has been elapsed from the
date of expiry of the sentence.
(d) Because as per sec 164 of the act, imprisonment was for less than 7
yrs.
2. Mr. Ayur has been entrusted with substantial powers of management.
Which of the act undertaken by Ayur shall not be deemed to include the
power to do such administrative acts of routine nature as per sec 2(54) of
the Act?
(a) To manages the company’s budget and allocate its resources
(b) To interact with client and company shareholders
(c) To creates strategic business plans for meeting the company’s goals
(d) To affix the common seal of the company to some documents
3. How many directors were required to retire by rotation in the above
scenario in Jan 2021?
(a) 2
(b) 1
(c) 4
(d) 3

4. Are Mr. Veda and Mr. Healthy eligible to get compensate for loss of office
in accordance with sec 202 of the Companies Act? Choose the correct
option from table below.

(a) Mr. Veda Eligible He is Whole Time Director and Act

provide compensation for loss of
office of WTD.
(b) Mr. Veda Not Eligible He absents himself from all the
meeting of the Board of directors
during a period of 12 months (Nov
2032-Dec 2024)
 CASE SCENARIOS 291

Mr. Healthy Not Eligible He is other than MD, WTD or Manager

(c) Mr. Veda Eligible He has been in the board for more
than 5 years
Mr. Healthy Not Eligible He is other than MD, WTD or Manager
(d) Mr. Healthy Eligible He has not resigned but retired due to
amalgamation.

5. On which basis does sec 204 of the Act containing provision for secretarial
Audit and sec 203 containing provision for appointment of Key
managerial personnel are applicable to Ayurveda Limited?
(a) Sec 203 – Appointment of CS - Public company having paid up share
capital of 15 crore
Sec 204 – Secretarial Audit -Every company having outstanding
loans or borrowings from bank of 50 crore rupees or more
(b) Sec 203 – Appointment of CS - Public company having paid up share
capital of 5 crore
Sec 204 – Secretarial Audit -Every company having turnover of 100
crore rupees or more
(c) Sec 203 – Appointment of CS - Public company having paid up share
capital of 6 crore
Sec 204 – Secretarial Audit -Every company having paid up share
capital of 100 crore
(d) Sec 203 – Appointment of CS - Public company having paid up share
capital of 10 crore or more
Sec 204 – Secretarial Audit -Every company having outstanding
loans or borrowings from bank of 100 crore rupees or more
6. Calculate the maximum limits of the managerial remuneration as per
Companies Act, 2013
(a) ` 560000
(b) ` 492360
(c) ` 564300
(d) ` 447600
292 CORPORATE AND ECONOMIC LAWS

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a)

Reason
Because as per sec 164 of the act, 5 years has been elapsed from the date
of expiry of the sentence. As per 164(1)(d) of the Act, a person shall not
be appointed a director, if he has been convicted by court of any offence,
whether involving moral turpitude or otherwise, and sentenced to
imprisonment for not less than 6 months and a period of 5 years has not
elapsed from the date of expiry of the sentence. So, in the above case
though imprisonment was for more than 6 months but 5 years has already
expired from the date of expiry of sentence.
6 months 16 days from May 2009 will expire in Dec 2009 and he has been
appointed as director in Jan 2016 after expiry of 6 years.
2. Option (d) To affix the common seal of the company to some documents.

3. Option (b)
Reason
As per 152(6) regarding retirement of director states that 2/3rd of the
total number of director shall be liable to retire by rotation and 1/3rd shall
retire. Independent directors are non-rotational director and does not
retire by rotation.

So out of 7, 1 is independent director. Hence 7-1 = 6 *2/3 = 4 liable to

retire by rotation and 1/3*4=1 need to actually retire.
4. Option (b)
Reason

(b) Mr. Veda Not Eligible He absents himself from all the
meeting of the Board of directors
during a period of 12 months
(Nov 2023-Dec 2024)
Mr. Healthy Not Eligible He is other than MD, WTD or
Manager
 CASE SCENARIOS 293

As per sec 202 of Companies Act, 2013, a company may make payment
only to MD, WTD or Manager by means of compensation for loss of office
but payment shall not be made where the office of that WTD or MD or
Manager is vacated under sec 167(1) of the Act.
In the above case though, Mr. Veda was WTD but he absents himself from
all meetings of board during 12 months i.e. from Nov 2022 to Dec 2023
made him ineligible for compensation
Similarly, this provision is applicable only for MD, WTD or Manager and
Mr. Healthy is neither of those so not eligible for compensation.
5. Option (d)
Reason
Sec 203 – Appointment of CS - Public company having paid up share
capital of 10 crore or more.
Sec 204 – Secretarial Audit -Every company having outstanding loans or
borrowings from bank of 100 crore rupees or more.
Sec 204 - As per the latest audited balance sheet of the company,
Outstanding loans and borrowings from bank is 106 crores i.e. more than
100 crores, so applicable.
Sec 203 - As per the Act, if paid up share capital of any company is more
than 10 crores then KMP or CS has to be appointed. Here paid-up capital
is more than 10 crores so applicable.
6. Option (c)
Reason

` 564300. It will be (Net Profit + excess depreciation over Companies act

+ managerial remuneration) *11% = {4476000+(490000-396000)
+560000} *11% = 5130000*11% = 564300.
294 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 47

Background
Company Name: Gamma Electronics Pvt. Ltd.
Creditor: Delta Components Ltd.
Industry: Gamma Electronics manufactures electronic gadgets. Delta
Components supplies microchips required for these gadgets.

Contractual Relationship:
On June 1, 2023, Gamma Electronics and Delta Components entered into a
contract for the supply of microchips.

Delta Components agreed to deliver 50,000 microchips monthly at `1,000 per

chip.
Payment terms: Net 45 days from the date of invoice.
Facts of the Case
Supply and Invoicing: Delta Components delivered microchips as per the
agreement from June to October 2023.
Total invoiced amount for these months: `2.5 crores.
Payments for the months of August, September, and October, amounting to
`1.5 crores, remained unpaid as of December 31, 2023.

Initial Communication:
On January 10, 2024, Delta Components sent a reminder email to Gamma
Electronics requesting payment of the overdue amount.
Gamma Electronics replied on January 15, 2024, stating financial constraints and
requested a deferred payment plan.
Demand Notice:

Delta Components issued a Demand Notice under Section 8 of the IBC on

February 1, 2024, demanding payment of `1.5 crores along with accrued
interest.

The notice was sent in the prescribed Form 3.

 CASE SCENARIOS 295

Response to Demand Notice:

On February 10, 2024, Gamma Electronics responded, alleging that the
microchips supplied in September and October were defective, causing
production losses. They claimed a set-off of ` 1 crore for the alleged defective
goods.

Creditor’s Rebuttal:
Delta Components refuted the defect claims, asserting that Gamma Electronics
had not raised any quality concerns at the time of delivery or within the
stipulated period in the contract.
Delta Components claimed that the alleged defects were fabricated excuses to
delay payment.

Action Taken
Filing of Application:
On March 1, 2024, Delta Components filed an application under Section 9 of
the IBC with the National Company Law Tribunal (NCLT), Bengaluru Bench, to
initiate a Corporate Insolvency Resolution Process (CIRP) against Gamma
Electronics.
The application included details of the contract, invoices, the demand notice,
and all communications.
Tribunal’s Deliberation:

The NCLT considered whether the debt was due and if there was any substantial
dispute regarding the defects claimed by Gamma Electronics.
Tribunal's Decision
Outcome: The NCLT determined that the defect claims were not raised within
the appropriate time and lacked credible evidence.
The tribunal admitted the application, commencing the CIRP against Gamma
Electronics, and appointed an Interim Resolution Professional (IRP).
Moratorium: A moratorium was declared under Section 14 of the IBC, freezing
all claims and proceedings against Gamma Electronics.
296 CORPORATE AND ECONOMIC LAWS

MULTIPLE CHOICE QUESTIONS

1. When did Delta Components issue the Demand Notice to Gamma

Electronics?
(a) January 15, 2024
(b) February 1, 2024

(c) March 1, 2024

(d) December 31, 2023
2. What was the primary reason for Gamma Electronics’ non-payment,
according to their response?
(a) Financial constraints
(b) Disputed quantity of goods
(c) Alleged defects in the microchips
(d) Change in contract terms
3. Under which section of the IBC did Delta Components file the application
to initiate CIRP?
(a) Section 7
(b) Section 8
(c) Section 9
(d) Section 14
4. What was the total outstanding amount Delta Components claimed in the
Demand Notice?
(a) ` 1 crore
(b) ` 2 crores

(c) ` 2.5 crores

(d) ` 1.5 crores
 CASE SCENARIOS 297

5. Which document was essential for Delta Components to file under Section
9 of the IBC?

(a) Financial statements of Gamma Electronics

(b) Demand Notice in Form 3

(c) Certificate of Incorporation of Gamma Electronics

(d) Contract between the parties

6. What role did the NCLT play in this scenario?

(a) Approved the new payment plan proposed by Gamma Electronics

(b) Rejected the claims of Delta Components

(c) Determined the presence of a genuine dispute and dismissed the

application

(d) Commenced CIRP and appointed an IRP

7. What is a key requirement under Section 9 of the IBC for an operational

creditor before filing an application?

(a) Prove the financial incapacity of the debtor

(b) Issue a Demand Notice and wait for the debtor’s response

(c) Obtain approval from other creditors

(d) File a police complaint against the debtor

8. Why did the NCLT reject Gamma Electronics’ defense regarding the
defects?

(a) Lack of evidence and delay in raising the issue

(b) The contract did not allow claims for defects

(c) The NCLT found the microchips to be of high quality

(d) Delta Components admitted the defects

298 CORPORATE AND ECONOMIC LAWS

TO MULTIPLE CHOICE QUESTION

1. Option (b)

Reason
Delta Components issued the Demand Notice under Section 8 of the
Insolvency and Bankruptcy Code (IBC) on February 1, 2024, as explicitly
mentioned in the facts provided. The notice was for the overdue amount
of `1.5 crore and was issued in the prescribed Form 3.
2. Option (c)
Reason
Gamma Electronics claimed that the microchips supplied in September
and October 2023 were defective, which led to production losses. This
was the reason they provided for not making the payment, although Delta
Components refuted the claim, asserting that no quality concerns were
raised at the time of delivery.
3. Option (c)
Reason
Delta Components, being an operational creditor, filed an application
under Section 9 of the IBC, which allows operational creditors to initiate
the Corporate Insolvency Resolution Process (CIRP) against a
defaulting company. Section 7 applies to financial creditors, whereas
Section 9 is for operational creditors like Delta Components.
4. Option (d)
Reason

The total outstanding amount claimed in the Demand Notice was `1.5
crores. This was the amount that Gamma Electronics owed for the months
of August, September, and October 2023 as per the agreed terms of
supply, and it had remained unpaid as of December 31, 2023.
 CASE SCENARIOS 299

5. Option (b)
Reason
To initiate a CIRP under Section 9 of the IBC, an operational creditor must
first issue a Demand Notice in Form 3 to the debtor. Delta Components
issued this notice on February 1, 2024, before filing the application with
the NCLT.
6. Option (d). Reasoning: The National Company Law Tribunal (NCLT)
assessed the application and concluded that there was no genuine
dispute regarding the debt. The NCLT admitted the application and
commenced the Corporate Insolvency Resolution Process (CIRP)
against Gamma Electronics. It also appointed an Interim Resolution
Professional (IRP) to oversee the process.
7. Option (b) Issue a Demand Notice and wait for the debtor’s response
Reason
Section 9 of the IBC requires that before an operational creditor can file
an application for CIRP, the creditor must issue a Demand Notice and
wait for the debtor's response. The debtor has 10 days to respond, failing
which the creditor can proceed with filing the application with the NCLT.
8. Option (a)
Reason
The NCLT rejected Gamma Electronics’ defense because they failed to
provide credible evidence of the alleged defects and did not raise the
issue in a timely manner. Under the contract, any claims for defective
goods should have been made within the stipulated period (as per the
contract terms). Since Gamma Electronics raised the defect claim too late
(after months of non-payment), the NCLT found it to be a delayed excuse
to avoid payment and dismissed the claim.
300 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 48

Born and brought up in the environs of the magnificent Kanchanchanga amidst

the idyllic and scenic surroundings of hills and the tea plantations of Darjeeling,
Samanvay who successfully completed his MBA from Sikkim University, has over
the years developed a deep passion for God’s gift for mankind - Darjeeling hills,
Darjeeling Tea and Golden Leaves Private Limited, the company founded by his
grandfather at the time when tea estates were sold to business houses by the
Britishers soon after India’s independence.
The tea estate, owned by Golden Leaves Private Limited, is presently managed
by Samanvay’s father Harendra who is company’s Chairman and Managing
Director (CMD). In addition, following persons are acting as directors of the
company:
1. Parmendra (Elder paternal uncle of Samanvay);
2. Yogendra (Younger paternal uncle of Samanvay);
3. Shailesh and Nilesh (Sons of Parmendra);
4. Shubhasheesh and Shubham (Sons of Yogendra);
5. Viswas (College friend of Nilesh).
Samanvay also joined as director of the company in May, 2021.

The Authorised capital of Golden Leaves Private Limited is ` 15,00,00,000

(divided into 1,50,00,000 equity shares of ` 10 each). Its paid-up capital was
increased from ` 8,00,00,000 (80,00,000 equity shares of ` 10 each) to
` 12,00,00,000 (divided into 1,20,00,000 of ` 10 each) when equity shares worth
` 4,00,00,000 were allotted to the existing members in the month of April, 2023.
The tea estate is spread over 180 hectares at a height of 2100 mts. above sea
level. The range of teas cultivated by the company includes black tea, white tea,
green tea, etc. The directors of the company make sure that their teas are as
fresh as in the gardens when they reach their clients. Their tea plantation is
hand-cultivated and produced with a tremendous level of care, experience and
expertise in handling and manufacture of pure Darjeeling tea leaves.
The tea cultivated by the company, after due process, is sold in packs of 10 gms,
20 gms, 50 gms, 100 gms, 250 gms, 500 gms and 1000 gms. Their tea business
 CASE SCENARIOS 301

is a flourishing one. Samanvay wants to take the golden legacy forward by

popularising the concept of the finest and most exotic tea from Darjeeling
across the world in countries like Japan, Canada, Germany, etc. Currently, the
company is registered with Tea Board of India.
The business is growing by and by. However, it was noticed that Viswas, one of
the directors of Golden Leaves Private Limited, was involved in certain activities
which were not conducive to the growth of the company and accordingly, it was
decided to ask Viswas to resign from the office of director. Though Viswas
resigned but he demanded compensation for loss of office as director.
On patriotic front, Golden Leaves Private Limited always wanted to do
something for the nation as a whole. In the current financial year 2023-24,
Samanvay’s father Harendra, CMD, is desirous of contributing ` 8,00,000 to the
National Defence Fund though his elder brother Parmendra is of the view that
the company can contribute maximum upto ` 5,00,000 to the said Fund.
It is noteworthy that Golden Leaves Private Limited is mulling upon the issue of
merger of Big Horizon Marketing Private Limited with itself. For this purpose, it
is contemplating filing a petition with the jurisdictional National Company Law
Tribunal (NCLT).
Amrit is Production Manager of Golden Leaves Private Limited. He has applied
for a loan of ` 15,00,000 for the marriage of his daughter Sneha. However,
according to Akhil, the Finance Manager of the company, limits provided under
Section 186 (2) in respect of loan etc. have already been exceeded.

MULTIPLE CHOICE QUESTIONS

1. According to the case scenario, Viswas resigned as director since it was

noticed that his activities were not conducive to the growth of the
company. However, he demanded compensation for loss of office as
director. Which option do you think is correct:

(a) Being an ordinary director, Viswas would not be paid any

compensation for loss of office as director.

(b) Since Viswas was asked by the company to resign as director, he

would be compensated for loss of office as director maximum upto
302 CORPORATE AND ECONOMIC LAWS

50% of the amount payable to other directors during the remaining

tenure of Viswas after his resignation.

(c) Since Viswas was asked by the company to resign as director, he

would be compensated for loss of office as director maximum upto
60% of the amount payable to other directors during the remaining
tenure of Viswas after his resignation.

(d) Since Viswas was asked by the company to resign as director, he

would be compensated for loss of office as director maximum upto
75% of the amount payable to other directors during the remaining
tenure of Viswas after his resignation.

2. The case scenario does not state about the appointment of a whole-time
company secretary by Golden Leaves Private Limited. Is it necessary for
the company to appoint a whole-time company secretary? Choose the
correct option from those given below:

(a) Golden Leaves Private Limited is a private company and therefore,

it is not necessary for it to appoint a whole-time company secretary.

(b) Golden Leaves Private Limited is required to appoint a whole-time

company secretary since its paid-up capital has exceeded the
threshold limit of ` 10,00,00,000.

(c) Golden Leaves Private Limited is not required to appoint a whole-

time company secretary since its paid-up capital has not exceeded
the threshold limit of ` 15,00,00,000.

(d) Golden Leaves Private Limited is not required to appoint a whole-

time company secretary since its Authorised capital has not
exceeded the threshold limit of ` 20,00,00,000.

3. The case scenario states that Amrit, the Production Manager of Golden
Leaves Private Limited has applied for a loan of ` 15,00,000 for the
marriage of his daughter Sneha. However, according to Akhil, the Finance
Manager, limits provided under Section 186 (2) in respect of loan etc. have
already been exceeded Select the correct option from those given
hereunder:
 CASE SCENARIOS 303

(a) Keeping in view that limits provided under Section 186 (2) in respect
of loan etc. have already been exceeded, a special resolution needs
to be passed for granting loan of ` 15,00,000 to Amrit.

(b) Though limits provided under Section 186 (2) in respect of loan etc.
have already been exceeded, yet there is no need to pass a special
resolution for granting loan of ` 15,00,000 to Amrit.

(c) Keeping in view that limits provided under Section 186 (2) in respect
of loan etc. have already been exceeded, an ordinary resolution
needs to be passed for granting loan of ` 15,00,000 to Amrit.

(d) Keeping in view that limits provided under Section 186 (2) in respect
of loan etc. have already been exceeded, prior permission of
jurisdictional Registrar of Companies needs to be obtained for
granting loan of ` 15,00,000 to Amrit.

4. On the question of making contribution to the National Defence Fund,

there is some controversy between Harendra, CMD and his elder brother
Parmendra, one of the directors of the company. You are required to
select the correct option from those given below:

(a) It is within the discretion of the company to contribute such amount

as it thinks fit to the National Defence Fund.

(b) Parmendra’s view point that the company can contribute maximum
upto ` 5,00,000 to the National Defence Fund is correct.

(c) Parmendra’s view point would have been correct if he had advised
for contribution of maximum ` 6,00,000 to the National Defence
Fund.

(d) Parmendra’s view point would have been correct if he had advised
for contribution of maximum ` 7,50,000 to the National Defence
Fund.

5. According to the case scenario, the company is mulling upon the issue of
merger of Big Horizon Marketing Private Limited with itself. Select the
correct option which you think is applicable:
304 CORPORATE AND ECONOMIC LAWS

(a) The company will be required to alter its Memorandum of

Association to get empowered for merger of Big Horizon Marketing
Private Limited with itself.

(b) The company will not be required to alter its Memorandum of

Association for merger of Big Horizon Marketing Private Limited
with itself.

(c) The company will be required to alter its Memorandum of

Association and to seek permission from jurisdictional Registrar of
Companies to get empowered for merger of Big Horizon Marketing
Private Limited with itself.

(d) The company will be required to add a specific clause in the Articles
of Association in respect of merger.

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (a) Being an ordinary director, Viswas would not be paid any
compensation for loss of office as director.
Reason
Section 202 states that a company may make payment to a managing
director or whole-time director or manager, but not to any other director,
by way of compensation for loss of office, or as consideration for
retirement from office or in connection with such loss or retirement.]
2. Option (b) Golden Leaves Private Limited is required to appoint a whole-
time company secretary since its paid-up capital has exceeded the
threshold limit of ` 10,00,00,000.
Reason
Refer Section 203. Also refer Rule 8A of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014, which states that
every private company which has a paid-up share capital of ten crore
rupees or more shall have a whole-time company Secretary.]
 CASE SCENARIOS 305

3. Option (b) Though limits provided under Section 186 (2) in respect of
loan etc. have already been exceeded, yet there is no need to pass a
special resolution for granting loan of ` 15,00,000 to Amrit.
Reason
Refer Explanation to Section 186 (2) which mentions that for the purpose
of Section 186 (2), the word ‘person’ does not include any individual who
is in the employment of the company.
4. Option (a) It is within the discretion of the company to contribute such
amount as it thinks fit to the National Defence Fund.
Reason
Refer Section 183 of the Companies Act, 2013 which provides for
contribution of any amount to the National Defence Fund.
5. Option (b) The company will not be required to alter its Memorandum of
Association for merger of Big Horizon Marketing Private Limited with
itself.
Reason
Refer Section 232 of the Companies Act, 2013 which is a complete code
in respect of merger and amalgamation of companies. It fully empowers
National Company Law Tribunal (NCLT) to sanction merger and
amalgamation of companies irrespective of whether the ‘objects clause’
of Memorandum of Association contains such empowerment or not.
306 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 49

Background
Company Name: Omega Constructions Ltd.
Applicant: Epsilon Bank Ltd.
Industry: Omega Constructions Ltd. is a large construction company involved in
various infrastructure projects.

Financial Situation:
• Omega Constructions borrowed `200 crores from Epsilon Bank in 2021 for
the development of a commercial real estate project.
• Due to economic downturns and project delays, Omega Constructions
defaulted on its loan repayments in November 2023.
Facts of the Case

1. Initiation of CIRP:
Epsilon Bank issued a demand notice under Section 7 of the Insolvency and
Bankruptcy Code (IBC), 2016, and subsequently filed an application with the
National Company Law Tribunal (NCLT), Delhi Bench, on February 15, 2024,
to initiate a Corporate Insolvency Resolution Process (CIRP) against Omega
Constructions.

2. Admission of Application:
The NCLT admitted the application on March 15, 2024, based on the
evidence of default provided by Epsilon Bank.

The tribunal appointed an Interim Resolution Professional (IRP) and declared

a moratorium under Section 14 of the IBC, 2016.
3. Moratorium Provisions:
As per Section 14, the moratorium period began immediately upon
admission of the application. The provisions included:
 Prohibition on Institution of Suits: No new legal proceedings against
Omega Constructions can be initiated.
 CASE SCENARIOS 307

 Stay on Existing Proceedings: All existing legal proceedings against

Omega Constructions are stayed.
 Prohibition on Transfer of Assets: Omega Constructions is
prohibited from transferring, encumbering, or disposing of any assets.
 No Recovery Actions: Creditors cannot recover or enforce any
security interest against the assets of Omega Constructions during the
moratorium.
4. Challenges Faced During Moratorium:

Legal Proceedings: A subcontractor, Zeta Services Ltd., had a pending

arbitration against Omega Constructions for non-payment of `10 crores for
services rendered. The arbitration was stayed as per the moratorium.
Recovery Actions: Delta Finance Ltd., which holds a charge on Omega
Constructions’ machinery, attempted to repossess the machinery due to loan
default but was barred by the moratorium.
Operational Issues: Omega Constructions' suppliers demanded immediate
payment for ongoing supplies but were informed that payments could not
be made due to the moratorium.

5. Interim Resolution Professional's Actions:

The IRP took control of Omega Constructions' operations, ensured continuity
of essential projects, and negotiated with suppliers to provide goods and
services on a credit basis during the moratorium.
6. Lifting of Moratorium:
The moratorium will end upon approval of a resolution plan or upon passing
an order for liquidation by the NCLT if no viable resolution plan is approved
within the stipulated time frame.
Tribunal's Deliberation and Actions
• Tribunal’s Consideration:
The NCLT evaluated the compliance of the IRP’s actions with the moratorium
provisions and addressed various creditors' concerns regarding their inability
to take enforcement actions during this period.
308 CORPORATE AND ECONOMIC LAWS

The NCLT reinforced the importance of the moratorium to ensure a fair and
equitable resolution process without disruption from individual creditor
actions.
• Outcome:
The NCLT maintained the moratorium, upheld the IRP’s actions, and
continued the CIRP proceedings.

MULTIPLE CHOICE QUESTIONS

1. What was the primary purpose of the moratorium imposed on Omega

Constructions Ltd.?
(a) To allow creditors to recover dues
(b) To enable Omega Constructions to sell assets freely

(c) To protect the interests of creditors and ensure a structured

resolution process
(d) To allow Omega Constructions to merge with another company
2. When did the NCLT admit the application for CIRP against Omega
Constructions?
(a) February 15, 2024
(b) March 15, 2024
(c) November 15, 2023
(d) December 15, 2023
3. Which action is NOT prohibited under the moratorium declared under
Section 14?
(a) Initiating new legal proceedings against Omega Constructions
(b) Transferring assets of Omega Constructions
(c) Enforcing security interests against Omega Constructions' assets
(d) Continuing essential business operations of Omega Constructions
 CASE SCENARIOS 309

4. What happens to existing legal proceedings against Omega Constructions

during the moratorium?

(a) They continue as usual

(b) They are dismissed automatically
(c) They are stayed until the moratorium ends

(d) They are transferred to the IRP for resolution

5. Which party took control of Omega Constructions’ operations during the
moratorium?

(a) The original management of Omega Constructions

(b) Epsilon Bank Ltd.
(c) The Interim Resolution Professional (IRP)

(d) The NCLT

6. How did the moratorium affect Delta Finance Ltd.’s attempt to repossess
machinery from Omega Constructions?

(a) Delta Finance Ltd. successfully repossessed the machinery

(b) Delta Finance Ltd. was prohibited from repossessing the machinery
(c) Delta Finance Ltd. sold the machinery to recover dues
(d) Delta Finance Ltd. received payment in full during the moratorium
7. When does the moratorium period typically end according to the IBC,
2016?

(a) When the IRP completes its term

(b) Upon approval of a resolution plan or order for liquidation by the
NCLT

(c) After one year from the date of imposition

(d) When all creditors are paid off
8. Which entity is responsible for ensuring compliance with the moratorium
provisions?
(a) The original management of the debtor company
310 CORPORATE AND ECONOMIC LAWS

(b) The creditors of the debtor company

(c) The Interim Resolution Professional (IRP)
(d) The NCLT directly

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (c) To protect the interests of creditors and ensure a structured

resolution process
Reason
The moratorium was imposed to prevent any individual creditor from
taking independent action during the Corporate Insolvency Resolution
Process (CIRP). This ensures that the resolution process is fair, equitable,
and conducted in a structured manner. It prevents disruptions from
creditors attempting to enforce claims while the CIRP is ongoing.
2. Option (b) March 15, 2024
Reason
The National Company Law Tribunal (NCLT) admitted the application to
initiate the CIRP against Omega Constructions on March 15, 2024. This
admission was based on the evidence of default provided by Epsilon Bank,
the financial creditor.
3. Option (d) Continuing essential business operations of Omega
Constructions
Reason
The moratorium prohibits the initiation of new legal proceedings, the
transfer of assets, and the enforcement of security interests. However, it
allows the continuation of essential business operations (like negotiating
with suppliers), as the IRP took control of operations and worked to
maintain business continuity.
4. Option: (c) They are stayed until the moratorium ends
Reason
During the moratorium, any existing legal proceedings against the debtor
are stayed (put on hold). This includes the pending arbitration case with
 CASE SCENARIOS 311

Zeta Services Ltd., which was stayed during the CIRP. The purpose of the
moratorium is to prevent any disruptions in the resolution process while
the company is under the IRP’s control.
5. Option (c) The Interim Resolution Professional (IRP)
Reason
Under the Insolvency and Bankruptcy Code (IBC), when the CIRP is
initiated, the Interim Resolution Professional (IRP) takes control of the
company's operations. The IRP is responsible for managing the company's
affairs, ensuring continuity of operations, and negotiating with creditors
and suppliers during the moratorium period.
6. Option(b) Delta Finance Ltd. was prohibited from repossessing the
machinery
Reason
The moratorium prohibits creditors, such as Delta Finance Ltd., from
taking any recovery actions or enforcing security interests against the
assets of the debtor. In this case, Delta Finance Ltd. was barred from
repossessing the machinery under the provisions of the moratorium.
7. Option (b) Upon approval of a resolution plan or order for liquidation by
the NCLT
Reason
The moratorium period ends when either a resolution plan is approved by
the NCLT or when the NCLT orders liquidation of the company. The
moratorium is designed to provide a period of stability for the resolution
process to occur, without interference from creditors.
8. Option (c) The Interim Resolution Professional (IRP)
Reason

The IRP is responsible for overseeing the debtor company's operations

during the moratorium period and ensuring compliance with all the
provisions of the IBC. This includes enforcing the moratorium restrictions
and managing the company’s affairs while the CIRP is underway.
312 CORPORATE AND ECONOMIC LAWS

CASE SCENARIO 50

Toastea Ltd. is a company engaged in activities that were registered under the
Foreign Contribution (Regulation) Act (FCRA), 2010. The Central Government,
after providing Toastea Ltd. an opportunity to be heard, has canceled its
certification of registration on the grounds that such cancellation was in the
public interest. This cancellation occurred two and a half years ago. The
company has since submitted a written declaration stating that it will not
engage in such activities again and is now requesting the restoration of its FCRA
registration.
In light of the Foreign Contribution (Regulation) Act, 2010, Toastea Ltd. wishes
to know whether it is eligible to re-register or if it can obtain prior permission
for receiving foreign contributions despite the previous cancellation of
registration.
Meanwhile, other scenarios require an examination of the FCRA, 2010
provisions, particularly concerning the receipt of foreign contributions in
various situations. These scenarios involve:
M/s KG & Co., a partnership firm, obtaining a loan from a club registered in
London.
Hello FM, a registered association, receiving funds from a foreign company to
establish a radio station.
Mr. Happy, who receives a wristwatch as a gift from his uncle, a citizen of the
USA, and whether it qualifies as foreign contribution.
Mr. Ramakant Hathi, an IAS officer, who receives foreign hospitality in the
form of medical treatment while in Germany.
XYZ Foundation, a society under the Societies Registration Act, 1860, which
received foreign contribution and is now considering investing its proceeds in
mutual funds.

MULTIPLE CHOICE QUESTIONS

1. Can Toastea Ltd. apply for re-registration under the FCRA after its
registration was canceled 2.5 years ago?
(a) Yes, without any restrictions
 CASE SCENARIOS 313

(b) Yes, only if the company provides a valid reason for its non-
compliance with the FCRA rules during the past period
(c) No, it can never apply for re-registration
(d) Yes, but it must apply for prior permission before receiving foreign
contributions
2. M/s KG & Co., a partnership firm, obtains a loan from a foreign club
registered in London. Is this loan considered a foreign contribution under
the FCRA, 2010?
(a) Yes, since it is a foreign loan
(b) No, loans do not qualify as foreign contributions under the FCRA
(c) Yes, it qualifies as foreign contribution if the loan is provided for
business purposes
(d) No, because loans are not typically given under the FCRA
3. Is Hello FM, a registered association, permitted to receive funds from a
foreign company for establishing a Frequency Modulation (FM) radio
station to broadcast audio news?
(a) Yes, since Hello FM is a registered association under FCRA
(b) No, as broadcasting is a restricted activity under FCRA
(c) Yes, if the foreign company is not engaged in prohibited activities
(d) No, as foreign companies cannot contribute to broadcasting
projects under the FCRA
4. Mr. Happy receives a wristwatch worth ` 25,000 from his uncle, a citizen
of the USA, as a marriage anniversary gift. Does this qualify as foreign
contribution under the FCRA?
(a) Yes, as it is a gift from a foreign source
(b) No, personal gifts from relatives do not qualify as foreign
contributions
(c) Yes, it is considered a foreign contribution since the sender is a
foreign citizen
(d) No, since the value is below ` 50,000, it is not foreign contribution
314 CORPORATE AND ECONOMIC LAWS

5. Mr. Ramakant Hathi, an IAS officer, received foreign hospitality of

INR 65,000 during his visit to Germany. Does he need to report this under
the FCRA, 2010?
(a) Yes, as the amount exceeds INR 25,000
(b) No, since he is an official of the Indian government
(c) Yes, since it is foreign hospitality received during an official visit
(d) No, foreign hospitality is not reportable under FCRA
6. XYZ Foundation, registered under the Societies Registration Act, 1860,
received foreign contributions from Mala Company LLC, a company
incorporated in Singapore. The Foundation intends to invest the maturity
proceeds of the deposits in mutual funds. Is this permissible under the
FCRA?
(a) Yes, XYZ Foundation can invest in mutual funds as long as the funds
are from foreign contributions
(b) No, foreign contributions cannot be invested in mutual funds under
the FCRA
(c) Yes, but only if the mutual funds are part of an approved
government scheme
(d) No, because the funds were deposited in a bank and earned interest,
which is restricted under the FCRA

ANSWER TO MULTIPLE CHOICE QUESTION

1. Option (d) Yes, but it must apply for prior permission before receiving
foreign contributions
Reason
Under the FCRA, 2010, once the registration of an organization is
canceled, the organization cannot receive foreign contributions until its
registration is restored. Since Toastea Ltd. was registered under FCRA but
had its registration canceled, it must apply for prior permission before it
can receive any foreign contribution, even though it has pledged not to
engage in prohibited activities again. The two and a half-year period does
 CASE SCENARIOS 315

not automatically restore the company's eligibility for receiving foreign

contributions without re-registration or prior permission.

2. Option (b) No, loans do not qualify as foreign contributions under the
FCRA
Reason

Under the FCRA, 2010, a foreign contribution is defined as any amount

or article received from a foreign source, but loans are explicitly
excluded from the definition of foreign contribution. The fact that M/s
KG & Co. received a loan for business purposes from a foreign club does
not make it a foreign contribution under the Act. Foreign contributions
are restricted to donations or grants, not loans.
3. Option (b) No, as broadcasting is a restricted activity under FCRA
Reason
Under the FCRA, 2010, associations engaged in certain activities such as
broadcasting, news media, or other mass communication projects are
subject to strict regulation. In this case, Hello FM receiving funds from a
foreign company to establish a radio station is likely considered a
prohibited activity unless it has specific permission for such purposes. The
Act generally restricts foreign contributions for activities that may
influence public opinion in India, such as media broadcasts.

4. Option (b) No, personal gifts from relatives do not qualify as foreign
contributions
Reason
The FCRA, 2010 does not treat personal gifts from relatives as foreign
contributions. Since Mr. Happy received a gift from his uncle, a foreign
citizen, it is considered a personal gift and not a foreign contribution
under the provisions of the Act. The FCRA regulates donations and grants
but does not apply to personal, non-business gifts between individuals.
5. Option (b) No, foreign contributions cannot be invested in mutual funds
under the FCRA
316 CORPORATE AND ECONOMIC LAWS

Reason
Under the FCRA, 2010, any Indian public servant, including an IAS
officer, who receives foreign hospitality exceeding INR 25,000 must
inform the Government of India. The amount of INR 65,000 for medical
treatment in Germany qualifies as foreign hospitality and must be
reported under the FCRA rules.
6. Option (b)
Reason
Under the FCRA, 2010, foreign contributions can only be used for specific
purposes that align with the objectives for which the contributions were
received. The investment of foreign contributions in speculative or
non-aligned ventures such as mutual funds is not allowed under the Act.
The funds must be used for the objectives of the society or organization
and cannot be used for activities not directly related to the purpose for
which the foreign contributions were received.