COMPANY LAW NEW SYLLABUS DECEMBER 2018

SUGGESTED ANSWERS
AMIT TALDA CLASSES
Time Allowed: 3 hours Maximum marks : 100
Total number of questions: 6 Total number of printed pages: 5

NOTE:
1. Answer ALL Questions.
2. All references to sections relate to the Companies Act, 2013 unless stated otherwise.

PART – I

1. Comment on the following:

(a) Raman Pvt. Ltd. has only two shareholders, X and Y. All shares were fully paid-up. X
sold all his shares to Y and the company carries on its business activities thereafter.

As per Section 3A of Companies Act, 2013 If at any time the number of members of a company
is reduced, in the case of a public company, below seven, in the case of a private company,
below two, and

the company carries on business for more than six months while the number of members is
so reduced,

every person who is a member of the company during the time that it so carries on business
after those six months and is cognizant of the fact that it is carrying on business with less
than seven members or two members, as the case may be,

shall be severally liable for the payment of the whole debts of the company contracted during
that time, and may be severally sued therefor.

As Mr. X has sold all his shares to Mr. Y, Number of members shall be reduced from two to
one. Now, All shares will be held by Mr. Y. So, Section 3A shall be applicable.

Company can carry on the business with one member but within 6 months it shall increase
the number of members to at least 2. Otherwise, Mr. Y shall be personally liable for all acts
done after 6 months without any limit on the amount of liability.

(b) Every company is required to disclose the details of vigil mechanism in the Board
Report.

No, Every Company is not required to disclose the details of Vigil Mechanism in the Board
Report.

Every listed company and the companies belonging to the following class or classes shall
establish a vigil mechanism for their directors and employees to report genuine concerns or
grievances:
(1) The companies which accept deposits from the public;

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(2) The companies which have borrowed money from banks and public financial institutions in
excess of ` 50 crore.

The companies which are required to constitute an audit committee shall oversee the vigil
mechanism through the committee and if any of the members of the committee have a
conflict of interest in a given case, they should recuse themselves and the others on the
committee would deal with the matter on hand.

In case of other companies, the Board of directors shall nominate a director to play the role
of audit committee for the purpose of vigil mechanism to whom other directors and employees
may report their concerns.

In case of other companies, the Board of directors shall nominate a director to play the role
of audit committee for the purpose of vigil mechanism to whom other directors and employees
may report their concerns.

In case of repeated frivolous complaints being filed by a director or an employee, the audit
committee or the director nominated to play the role of audit committee may take suitable
action against the concerned director or employee including reprimand.

(c) A public company may issue secured irredeemable debentures.

A Debenture, in which no time is fixed for the company to pay back the money, is an
irredeemable debenture. The debenture holder cannot demand payment as long as the
company is a going concern and does not make default in making payment of the interest. But
all debentures, whether redeemable or irredeemable become payable on the company going
into liquidation. However, after the commencement of the Companies Act, 2013, now a
company cannot issue perpetual or irredeemable debentures.

Period of Redemption of Debenture:

The date of its redemption shall not exceed 10 (ten) years from the date of issue.
The following classes of companies may issue secured debentures for a period exceeding 10
(ten) years but not exceeding 30 (thirty) year
i. Companies engaged in setting up of infrastructure projects;

ii. ‗Infrastructure Finance Companies‘ as defined in clause (viia) of sub-direction (1) of

direction 2 of Non-Banking Financial (Non-deposit accepting or holding) Companies Prudential
Norms (Reserve Bank) Directions, 2007;

iii. Infrastructure Debt Fund Non-Banking Financial companies‘ as defined in clause of (b)
direction 3 of Infrastructure Debt Fund Non-Banking Financial Companies (Reserve Bank)
Directions, 2011.]

(d) Chief Financial Officer is responsible to maintain books of account of the company.
(5 marks each)

Every company shall keep proper books of account of the company. The main features of the
proper books of account are as under :-
(a) The company must keep the books of account.,
(b) The books of account must show all money received and expended, sales and purchases of
goods and the assets and liabilities of the company.
(c) The books of account must be kept on accrual basis and according to the double entry
system of accounting.
(d) The books of account must give a true and fair view of the state of the affairs of the
company or its branches.
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The following persons are responsible to take all reasonable steps to secure compliance by the
company with the requirement of maintenance of books of accounts:
(a) Managing Director,
(b) Whole – Time Director, in charge of finance,
(c) Chief Financial Officer,
(d) Any other person of a company charged by the Board.

Hence, it can be said that only Chief Financial Officer is not responsible for Proper
maintenance of books of account but all the persons mentioned above will be responsible.

Attempt all parts of either Q. No. 2 or Q. No. 2A

2.
(a) Any expenditure incurred for the benefit of the society will be considered as
expenditure in pursuance of corporate social responsibility policy. Comment with
reference to the provisions of the Companies Act, 2013. (3 marks)

As per section 135 of the Companies Act, 2013, certain class of companies must constitute a
CSR Committee for formulation and implementation of CSR policy.

The Committee formulate a CSR Policy and recommend to the Board which shall indicate the
activities to be undertaken by the company in areas or subject specified in Schedule VII.

SCHEDULE VII:
Activities which may be included by companies in their Corporate Social Responsibility Policies
Activities relating to:—
Social Welfare Work: Eradicating poverty and malnutrition, providing preventive health care
and sanitation including Contribution to Swatch Bharat Kosh set up by CG for promotion of
Sanitation and making available safe drinking water;

Thus, from the above provisions it can be said that any expenditure incurred for the benefit of
society will not be considered as expenditure in pursuance of CSR. It should be related to the
areas as mentioned above.

(b) Minutes of the meetings of the company shall be preserved for a period of not less
than eight years. Comment with reference to the provisions of the Companies Act, 2013.
(3 marks)

Minutes Books shall be kept at the Registered Office of the company.

Minutes of all Meetings shall be preserved permanently in physical or in electronic form with
Timestamp.

Office copies of Notices, scrutiniser‘s report and related papers shall be preserved in good
order in physical or in electronic form for as long as they remain current or for eight financial
years, whichever is later and may be destroyed thereafter with the approval of the Board.

Minutes Books shall be kept in the custody of the Company Secretary.

Where there is no Company Secretary, Minutes shall be kept in the custody of any Director
duly authorised for the purpose by the Board.

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If any default is made in complying with the provisions of this section in respect of any
meeting, 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 `5,000/-.

(c) If a company has appointed a Company Secretary then his signature is mandatory on
the share certificate issued by the company. Analyse with reference to the provisions of
the Companies Act, 2013. (3 marks)
Every certificate shall specify the shares to which it relates and the amount paid-up thereon
and shall be signed by two directors or by a director and the company secretary, wherever the
company has appointed company secretary:

Provided that in case the company has a common seal it shall be affixed in the presence of
persons required to sign the certificate.

After considering the above provisions it can be said that company has two options of signing
the Share Certificate:
1. By Two Directors or
2. A director and Company Secretary wherever the company has appointed company
secretary;

So, if Company takes the signature of two directors then there is no need of the Signature of
Company Secretary.

(d) The concept of treasury shares in United Kingdom is same as buy-back of shares in
India. Examine. (3 marks)

Where qualifying shares are purchased by a company out of distributable profits, the company
may (a) hold shares (or any of them) or (b) deal with any of them, at any time, in accordance
with section 727 or 729 for disposal and cancellation of treasury shares. When shares are held
under (a) above, then the name of the company must be entered in the register as the member
holding those shares. For the purpose of the Act, references to a company holding shares as
treasury shares are references to the company holding shares which (a) were (or are treated as
having been) purchased by it in circumstances in which this section applies, and (b) have been
held by the company continuously since they were so purchased. (or treated as purchase).

Where a company has shares of only one class, the aggregate nominal value of shares held as
treasury shares must not at any time exceed 10 per cent of the nominal value of the issued
share capital of the company at that time.

Hence, treasury shares are not same as buy back of shares. In buy back company has to
cancel the shares after buy back and there is also prohibition of buy back in certain cases.
Company cannot hold shares bought back.

(e) Filing of financial statements in XBRL, mode and by using XBRL, taxonomy is
mandatory to certain companies. Discuss, referring to the provisions of the Companies
Act, 2013. (3 marks)

The following class of companies shall file their financial statement and other documents
under section 137 of Act, with ROC in e-form AOC 4 XBRL on or after 01.04.2014 using XBRL
namely:

(i) All companies listed on any stock exchange in India and their Indian Subsidiaries;
(ii) All companies having paid up capital of ` 5 Crores or above;
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(iii) All companies having turnover of ` 100 Crores or above;
(iv) all companies which are required to prepare their financial statements in accordance
with Companies (Indian Accounting Standards) Rules, 2015

Provided that the companies in Banking, insurance, Power Sector and NBFC are exempted from
XBRL Filing.

OR (Alternate question to Q. No. 2)

2A.

(i) On 3rd December, 2018 the Registrar of Companies applied to the Regional Director
for seeking sanction to file a winding up application against a company. On next day. i.e.
on 4th December, 2018 the Regional Director granted its sanction. Examine the validity
of Regional Director’s action. (3 marks)

As per Section 270 of Companies Act 2013 The winding up of a company may be either— (a)
by the Tribunal; or (b) voluntary.

As per Section 271 of Companies Act 2013; if on an application made by the Registrar or any
other person authorised by the Central Government by notification under this Act, the
Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent
manner or the company was formed for fraudulent and unlawful purpose or the persons
concerned in the formation or management of its affairs have been guilty of fraud, misfeasance
or misconduct in connection therewith and that it is proper that the company be wound up;

Hence, after considering the above provisions, it can be said that power of winding up is
conferred to Tribunal and not Central Government (Regional Director). Hence, Regional
Directors approval is invalid.

(ii) A company declared dividend on 21st November, 2018. It reports on 22nd

December, 2018 that it could not pay dividend to 46 members as they are not traceable
for last three years. Advise the company with regard to unpaid dividend under the
provisions of the Companies Act, 2013. (3 marks)

Dividend should be paid within thirty days of declaration.

In any reason, the dividend has not been paid to the members, the company has to open a
special account ―unpaid dividend account of ABC Ltd.‖, and transfer the unpaid or unclaimed
dividend account to the special account. The unpaid or unclaimed dividend amount shall be
kept in this account for 7 years from the date of transfer.

In case of any default in transfer of the unpaid or unclaimed dividend within 7 days from the
expiry of 30 days of declaration, the company shall be liable to pay interest at the rate of 12%
on remaining unpaid amount.

After 7 years, the company has to transfer the entire unpaid or unclaimed amount to the
Investors Education and Protection fund.

The company shall send a statement of the details of such transfer to the authority which
administers the said Fund and that authority shall issue a receipt to the company as evidence
of such transfer.

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Before transferring any amount to the Investor Education and Protection Fund, the
company should give individual intimation to the Members in respect of whose unclaimed
Dividend the amount is being transferred, at least three months before the due date of
such transfer. (SS 3)

Any interest earned on the Unpaid Dividend Account should be transferred to the Investor
Education and Protection Fund.

(iii) A member of an incorporated company becomes insolvent. He claimed right to vote

and receive dividend from the company. Referring to the provisions of the Companies
Act, 2013 discuss whether his claim is valid. (3 marks)
As per the Case Law Morgan v. Gray, An insolvent may be a member of a company as long as
he is on the register of members. He is entitled to vote, but he loses all beneficial interest in
the shares and company will pay dividend on his shares to the Official Assignee or Receiver.

Hence, Member can vote at the meeting till his name is removed from register of members but
cannot claim Dividend on Shares. Dividend shall be paid to the Official Assignee or Receiver.
Hence, Member‘s Claim is valid for Voting not for Payment of Dividend.

(iv) In a case pertaining to oppression and mismanagement, the respondents pleaded

that the legal heirs of a deceased member whose name is still on the register of
members are not entitled to apply before Tribunal, as only member of the company can
complain about oppression and mismanagement. Thus, legal heirs have no locus standi.
Examine this argument in the light of decided cases. (3 marks)

As per the relevant cases as mentioned below, Legal Heirs of a deceased member is eligible to
apply before Tribunal for oppression & mismanagement.

The legal representatives of a deceased member whose name is still on the register of members
are entitled to file a petition under Sections 397 and 398 of the Companies Act, 1956, for relief
against oppression or mismanagement, Worldwide Agencies Pvt. Ltd. and Another v. Mrs.
Margaret T. Desor and Others;

The legal heirs to be registered on probate or will are also entitled to apply. [K.S. Mothilal v.
K.S. Kasimaris Ceranique (P) Ltd]

A shareholder dies and his heirs apply for transmission of shares while their application for
succession certificate was pending before the Civil Court. The legal heirs alleged illegal
allotment of shares by respondent to themselves, reducing the legal heirs to minority. It has
held that the legal heirs are entitled to file a petition alleging oppression and mismanagement.
[Rajkumar Devraj & Aur. v. Jai Mahal Hotels Pvt. Ltd. & Others]

(v) The Board of directors of Wood Ltd. are authorized to borrow money upto ` 2 crore.
The Board of directors got sanctioned a loan of ` 30 lakh from a Bank for payment of
debt liability of the company. But the Board of directors used this amount towards
payment of their travelling & tour expenses. Will Wood Ltd. be held liable for repayment
of the loan? Discuss. (3 marks)

The company will be liable to such borrowing if the borrowing is within the director‘s
ostensible authority and the lender acted in the good faith or if the transaction was ratified by
the company.

Case Law: V.K.R.S.T Firm vs. Oriental Investment Trust Ltd (1944)
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Facts: Under the authority of the company, its Managing Director borrowed large sums of
money and misappropriated it. Such borrowed amount is within the limit of paid up share
capital and free reserves of the company.

Judgment: in this case, the company was held liable stating that where the borrowing is
within the powers of the company, the lender will not be prejudiced simply because its officer
have applied the loan to unauthorized activities provided the lender had no knowledge of the
intended misuse.

Hence, applying the above Judgement, it can be said that Company shall be liable.

3.

(a) Ram is a practicing Chartered Accountant and partner of two audit firms namely
PYMG and YE. In the immediately preceding financial year, PYMG has completed its
two terms of five consecutive years in Gayatri Pvt. Ltd. having paid-up share capital
of ` 60 crore. Now Gayatri Pvt. Ltd. is considering appointed YE firm as its statutory
auditors. Can Gayatri Pvt. Ltd. appoint YE firm as its auditors?
What will be your answer in the following cases?
(i) If appointing company is a one person company?
(ii) If appointing company is a small company. (5 marks)

As per Section 139 (2) of Companies Act, 2013 No listed company or a company belonging to
such class or classes of companies as mentioned above, shall appoint or re-appoint-
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years: Provided that -
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for
re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-
appointment as auditor in the same company for five years from the completion of such term.

As per rules prescribed in Companies (Audit and Auditors) Rules, 2014, for applicability of
section 139(2) the class of companies shall mean the following classes of companies excluding
one person companies and small companies:-
(I) all unlisted public companies having paid up share capital of rupees ten Crore or more;
(II) all private limited companies having paid up share capital of rupees Fifty Crore or more;
(III) all companies having paid up share capital of below threshold limit mentioned in (a) and
(b) above, but having public borrowings from financial institutions, banks or public deposits of
rupees fifty Crores or more.

As on the date of appointment, no audit firm having a common partner or partners to the
other audit firm, whose tenure has expired in a company immediately preceding the financial
year, shall be appointed as auditor of the same company for a period of five years

In the instant case, Ram is the common partner in both the firms. So, YE firm shall not be
eligible for appointment as auditor for 5 years.

If the appointing company is a One person company or Small Company, then this restriction
shall not apply as rotation of auditors is not applicable on these companies. So, in that case,
YE firm can be appointed as an Auditor.

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(b) Premium Ltd. is considering buy-back of its shares without using any proceeds of
shares or other specified securities. The balance sheet of Premium Ltd. shows the
following status as on 31st March, 2018:
Asset/Liabilities Amount
Share Capital:
1,00,000 Equity shares of ` 10 each (fully paid) ` 10,00,000
Free reserves ` 5,00,000
Unsecured debt ` 7,00,000
Secured debt ` 15,00,000
Determine the maximum quantum of buy-back of shares with the shareholders’
approval as on 1st April, 2018. (5 marks)

Determination of Buyback of maximum no. of shares as per the Companies Act, 2013
1. Shares Outstanding Test
Particulars (Shares)
Number of shares outstanding 1,00,000
25% of the shares outstanding 25,000

2. Resources Test: Maximum permitted limit 25% of Equity paid up capital + Free Reserves
Particulars
Paid up capital (Rs.) 10,00,000
Free reserves (Rs.) 5,00,000
Shareholders‘ funds (Rs.) 15,00,000
25% of Shareholders fund (Rs.) 3,75,000
Buy back price per share Rs. 10
Number of shares that can be bought back (shares) 37,500

3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy Back
Particulars Rs.
(a) Loan funds (Rs.) (7,00,000+15,00,000) = 22,00,000
(b) Minimum equity to be maintained after buy back in
the ratio of 2:1 (a/2) = 11,00,000
(c) Present equity/shareholders fund = 15,00,000
(d) Maximum permitted buy back of Equity [(c) – (b)] = 4,00,000
(f) Maximum number of shares that can be bought back
@Rs. 10 per share 40,000 shares

Summary statement determining the maximum number of shares to be bought back

Particulars Number of shares
Shares Outstanding Test 25,000
Resources Test 37,500
Debt Equity Ratio Test 40,000

Maximum number of shares that can be bought back [least of the above] 25,000 Company
qualifies all tests for buy-back of shares and came to the conclusion that it can buy maximum
25,000 shares on 1st April, 2015.

In absence of buy back price, Rs. 10 has been assumed as buy back price.

(c) The Board of directors of XYZ Ltd. wants to delegate all or any of their powers to any
of the directors of the company or any person even not in the employment of the

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 company for transfer of securities. Referring to the provisions of the Companies Act,
2013 advise in the mater. (5 marks)

It is the articles of the company which authorise the Board of directors to accept or refuse
transfer of securities, at their discretion. The Board further have the power to delegate all or
any of their powers to any of the directors of the company or any person even not in the
employment of the company. Therefore, the articles of association should authorise the Board
of directors to delegate the powers suitably. Only in the case of refusal to register a transfer,
the directors are required to exercise their discretion.

So, Company has to provide for such power in the Articles of Association, then Board of
Directors can delegate all or any of the powers to any of directors or any person even not in
the employment of company for transfer of securities.

PART – II
4.

(a) Anil, a shareholder holding 9% equity shares of the company, who is not holding any
directorship wants to stand for directorship in Pritam Ltd. in its next annual general
meeting. State the procedure for appointment of Anil as per the provisions of the
Companies Act, 2013. (5 marks)

Notice: A person who is not a retiring director shall be eligible for appointment as director
shall give notice not less than 14 days before the general meeting at the registered office of the
company.

Deposits: The notice must be in writing under his hand signifying his candidature along with a
deposit of ` 1,00,000/- which shall be refunded to such person if the person proposed gets
elected as a director or gets more than 25% of the valid votes casted.

Provided that requirements of deposit of amount shall not apply in case of appointment of:
(1) An independent director or
(2) a director recommended by the Nomination and Remuneration Committee, if any,
constituted under sub-section (1) of section 178 or
(3) a director recommended by the Board of Directors of the Company, in the case of a
company not required to constitute Nomination and Remuneration Committee.

7 days’ advance Notice: The Company shall inform its members of the candidature of a person
for the office of a director or the intention of a member to propose such person as a candidate
for that office, at least 7 days before the general meeting by serving individual notices to
members through e-mail and by post.

Advertisement: If a company advertises such candidature in a vernacular newspaper in the

principal vernacular language of the registered office‘s district and also in English language
not less than 7 days before the General Meeting then there is no requirement for serving
individual notices to the members.

(b) Articles of Reality Ltd. provides that directors participating through audio-visual
means in its Board meetings shall always be counted for quorum. Examine the
validity of this provision with reference to the Companies Act, 2013. (5 marks)

As per Section 174 of Companies Act, 2013 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
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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;

A Board Meeting may be conducted physically or also through video conferencing or other
audio visual mode.

Every Company shall make necessary arrangements to avoid failure of video or audio visual
connection during the Board Meeting.

However, Audio Visual means is available only for board meetings & not for general meetings.
Directors attending general meetings through audio visual means shall not be counted for
quorum.

Hence, the articles are invalid to that extent.

(c) Logical Solutions Ltd., a listed company, is having a Corporate Social Responsibility
(CSR) committee constituted with the following members:
Rohan - Whole-time director & Chairman of CSR committee and Board
Sohan - Non-executive director
Mohan - Independent director
Can company constitute a Nomination and Remuneration committee consisting of same
three members of CSR committee with same composition? Discuss. (5 marks)
The nomination and Remuneration Committee helps the Board relating to the appointment of
the members of the Board. This Committee finalizes the conditions of employment and
remuneration of senior management, and to management‘s and personnel‘s remuneration and
incentive schemes.

Constitution of nomination Committee: The following companies are required to constitute a

nomination Committee:
1. Every listed Public Companies, or
2. Unlisted public companies having;
(a) Paid up capital of ` 10 Crores or more;
(b) Turnover of ` 100 Crores or more;
(c) Aggregate, outstanding loans or borrowings or debentures or deposits exceeding ` 50
Crores or more.

Note: The calculation of above paid – up share capital or turnover or outstanding loans etc.
shall be based on the last audited Financial Statements.

Members: This committee shall consist of 3 or more non – executive directors out of which not
less than ½ shall be independent directors.

Applying the above provisions, Nomination & remuneration committee cannot have same
constitution. It requires all member be non executive directors and at least half be
Independent Directors. So, Mr. Rohan cannot be a member of committee as it is an Executive
Director. 2 out of 3 members shall be independent directors.

(d) Draft an appropriate resolution to authorize the Board to borrow for company’s
business upto a limit beyond paid-up share capital and free reserves. Assume facts
and figures. (5 marks)

―RESOLVED THAT pursuant to the provisions of Section 180(1)(c) and other applicable
provisions, if any, of the Companies Act, 2013, and subject to such approval as may be
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necessary, consent of the company be and is hereby accorded to the Board of directors of the
company for borrowing, from time to time, such sum of money as may not exceed Rs.100
Crores for the purpose of the business of the company, notwithstanding that the moneys to be
borrowed together with the monies already borrowed (apart from temporary loans obtained
from the company‘s bankers in the ordinary course of business) will exceed the aggregate of
the paid-up capital of the company and its free reserves, that is to say, the reserves not set
apart for any specific purpose, provided that the total amount upto which the monies may be
borrowed by the Board of directors of the company shall not exceed the aggregate of the paid-
up capital and free reserves of the company by more than the sum of Rs. 25 Crores at any one
time.

Resolved further that the Board be and is hereby authorized to do all the acts, deed and things
as it may in its absolute discretion deem necessary and appropriate to give effect to the above
resolution‖

Attempt all parts of either Q. No. 5 or Q. No. 5A

5.

(a) Kirti Ltd. has total paid-up share capital of ` 23 crore and its annual general meeting
is scheduled on 27th December, 2018. Ritik is holding paid-up share capital having
nominal value of ` 3 crore and Sonu is holding paid-up share capital having nominal
value of ` 2.4 crore. On 24th December, 2018 both Ritik and Sonu wanted to issue
proxy in favour of Rohit to attend meeting on their behalf. Rohit is not a member of
any company. Decide under the provisions of the Companies Act, 2013 whether both
Ritik and Sony can appoint Rohit as their proxy. (4 marks)

A person who is appointed by a member to attend and vote at a meeting in the absence of the
member at the meeting is termed as proxy. Thus proxy is an agent of the member appointing
him. The term ‗proxy‘ is also used to refer to the instrument by which a person is appointed as
proxy. Section 105 of the Companies Act, 2013 provides that a member, who is entitled to
attend to vote, can appoint another person as a proxy to attend and vote at the meeting on his
behalf.

A person appointed as proxy shall not act as proxy on behalf of more than fifty members and
members holding in the aggregate more than ten percent of the total share capital of the
company carrying voting rights.

A member holding more than 10% of the total share capital of the company carrying voting
rights may appoint a single person as proxy, provided that such person shall not act as proxy
for any other person or shareholder.

Considering the above provisions, if Rohit is appointed as proxy for both, it will exceed 10% of
total share capital. So, Rohit can be appointed as a proxy only by one of them but not for both.

(b) In Pallavi Chemicals Ltd. resolution for issue of bonus shares in the general meeting
was put to remote e-voting and requisite majority has approved but quorum is not,
present at the general meeting. What would be the implications? (4 marks)

Quorum refers to the minimum number of members required to constitute a valid meeting.
Members need to be personally present at a meeting to constitute the quorum. Proxies shall be
excluded for determining the quorum.

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Members who have voted by remote e-voting have the right to attend the General Meeting and
accordingly their presence shall be, counted for the purpose of quorum.

The stipulation regarding the presence of a quorum does not apply with respect to items of
business transacted through postal ballot.

If the quorum is not present within half-an-hour from the time appointed for holding a
meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next week at the same time and
place, or to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists (under section 100), shall stand cancelled:

In the Instant Case, as there is no quorum, meeting shall get adjourned as stated above.

(c) Assume yourself as Company Secretary in practice and secretarial auditor of Rama
Ltd. which is having its annual general meeting scheduled on 17th August, 2018 at its
registered office in Mumbai. On 16th August, 2018 you have a business meeting fixed
at Kochi and return flight to Mumbai in the evening of 16th August, 2018. But due to
bad weather conditions all flights departing from Kochi are declared cancelled.
Discuss the alternatives available to you with regard to the annual general meeting
of Rama Ltd. (4 marks)

The Secretarial Auditor, unless exempted by the company shall, either by himself or through
his authorised representative, attend the Annual General Meeting and shall have the right to
be heard at such Meeting on that part of the business which concerns him as Secretarial
Auditor.

The authorised representative who attends the General Meeting of the company shall also be
qualified to be a Secretarial Auditor

Alternatives available are as under:

1. Apply to the Company for granting exemption from attending the AGM on grounds of bad
weather conditions.
2. Find some other way of transport if possible so as to reach the venue on time.
3. Appoint authorised representative at Kochi who is Qualified to be a secretarial auditor.

(d) A Board meeting of a listed public company was called at shorter notice to transact
an urgent business. None of the Independent directors could attend the meeting.
Examine the validity of resolution(s) passed at the meeting referring to the provisions
of the Companies Act, 2013. (4 marks)

Board meeting to transact urgent business, the Notice, Agenda and Notes on Agenda may be
given at shorter period of time than stated above, subject to following conditions:

(A) If the company is required to have independent director:

● Presence of at least one Independent director is required.
● In case of absence of independent director, decision taken at such meeting shall be
circulated to all the directors, and shall be final only on ratification thereof by at least one
Independent director.

(B) If the company does not require appointing independent director, meeting can be called up
at a shorter notice without any conditions to be complied with.

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As per SS-1, In case the company does not have an Independent Director, the decisions shall
be final only on ratification thereof by a majority of the Directors of the company, unless such
decisions were approved at the Meeting itself by a majority of Directors of the company. The
fact that the meeting is being held at a shorter notice shall be stated in the notice.

In the instant case, company is a listed public company which is required to appoint 1/3 rd of
total directors as independent directors. Hence, ratification of at least one Independent
Director is necessary otherwise the resolution passed at such meeting shall be treated as
invalid.

(e) Fashion Ltd. holds a general meeting for passing a special resolution regarding
appointment of Shyamal aged 72 years as Managing Director of the company. Out of
the 50 members present in the meeting 25 voted in favour, 15 against and 10
members did not cast their vote. Can company appoint Shyamal as Managing
Director of the company? Discuss. (4 marks)

No company shall appoint or continue the employment of any person as its MD, WTD or
Manager who:
(a) Is less than 21 years or has attained the age of 70 years;

A person, who has attained 70 years, may be appointed 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;

Votes cast in favor i.e 25 are not at least 3 times of Votes cast against i.e 15. So, Special
resolution is not passed. So, Company cannot appoint Shyamal as Managing Director.

However, there has been an amendment in the above provision w.e.f 12th September 2018 vide
Companies Amendment Act, 2017.

Provided further that 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;

So, considering the amendment, votes cast is favor i.e 25 is more than votes cast against i.e
15. So, company can apply to Central Government on an application by board of directors and
if CG grants the approval then Company can appoint Shyamal as Managing Director.

OR (Alternative question to Q. No. 5)

5A.

(i) In a general meeting, a motion was put for removal of small shareholders’ director. A
small shareholder contended that only small shareholders are entitled to vote on this
motion as it is related to removal of small shareholders’ director and motion should be
passed as special resolution. Is the argument valid? Analyse with reference to the
provisions of the Companies Act, 2013. (4 marks)

A small shareholders director may be removed by passing an ordinary resolution in the

general meeting in accordance with the provisions of section 169 of the Act. At the time of

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voting on such resolution, every equity shareholders shall have a right to vote irrespective of
the fact as to whether he is a small shareholder or not.

Section 169 is not applicable on following directors:

(a) Directors appointed by the Central Government under section 161(3) of the Act.

(b) Directors appointed by the Tribunal under section 242 of the Act.

(c) Directors appointed by way of proportional representation under section 163 of the Act.
Example: Where a company has appointed 4 directors out of total 6 directors, by way of
proportional representation, only these 4 directors cannot be removed; the remaining 2
directors may be removed under section 169 of the Act.

(d) Nominee directors appointed by any financial institution constituted under a special Act of
Parliament, if the provisions contained in the special Act restrain removal of such nominee
directors by the members.

Small Shareholder Director appointed u/s 151 is not included in this exclusion list. Hence,
Section 169 is applicable for removal of Small Shareholder Director by way of Ordinary
Resolution. In Ordinary Resolution all members can vote and there is no specific provision
regarding voting only by small shareholders. Hence, the argument is not valid.

(ii) On 4th September, 2018 Varun was appointed as Managing Director of Astha Ltd. by
the Board of directors subject to the approval of the members at the next general
meeting. On 10th September, 2018 Varun in the capacity of managing director executed
an agreement with Shabeer to purchase some machines. On 3rd October, 2018
members in the general meeting did not approve the appointment of Varun. Later on
company refuses to accept delivery of machines from Shabeer on the ground that
agreement was executed by Varun whose appointment is not approved by the
members. Is refusal of company valid on the said ground? Examine. (4 marks)

Section 196(4) of the Companies Act, 2013 provides that subject to the provisions of section
197 and Schedule V, a managing director, whole-time director or manager shall be appointed
and the terms and conditions of such appointment and remuneration payable be approved by
the Board of Directors at a meeting which shall be subject to approval by a resolution at the
next general meeting of the company and by the Central Government in case such
appointment is at variance to the conditions specified in Schedule V. Approval of the Central
Government is not necessary if the appointment is made in accordance with the conditions
specified in specified in Part I of Schedule V to the Act.

Section 196(5) provides that subject to the provisions of this Act, where an appointment of a
managing director, whole-time director or manager is not approved by the company at a
general meeting, any act done by him before such approval shall not be deemed to be invalid.

Applying the above provisions in the situation as given in question, Company‘s refusal to
accept the contracts is not valid.

(iii) SRM Ltd. has paid ` 15 lakh as an insurance premium on behalf of its Company
Secretary and Managing Director for indemnifying any of them against any liability in
respect of any negligence, default, misfeasance, breach of duty or breach of trust for
which they may be guilty in relation to the company. Can the company pay such
insurance premium? Discuss referring to the provisions of the Companies Act, 2013. (4
marks)
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As per the various provisions contained in Section 197 of Companies Act, 2013 Where any
insurance is taken by a company on behalf of its MD, WTD, Manager, CEO, CFO or CS for
indemnifying against any liability in respect of any negligence, default, or breach of trust for
which they may be guilty in relating to the company, such insurance premium shall not be
treated managerial remuneration.

Note:If such KMP is proved to be guilty, the premium paid on such insurance shall be treated
as part of the remuneration.

Hence, the company can pay the insurance premium.

(iv) Director, Ravi, was appointed on 1st July, 2018.On 2nd July, 2018 he wrote to
Managing Director of the company to inspect the minutes of the board meeting held on
1st August, 2017. The Managing Director refused as he was not a director at that time.
Ravi attended a meeting held on 1st September, 2018 and resigned on 3rd October,
2018. On 4th October, 2018 he wrote to the Managing Director to send him a copy of the
signed minutes of the meeting held on 1st September, 2018. Again, the Managing
Director refused. Are the actions of Managing Director valid under Companies Act,
2013/Secretarial Standards? Comment. (4 marks)

As per SS 1 Revised on Board Meetings, The Minutes of Meetings of the Board and any
Committee thereof can be inspected by the Directors.

A Director is entitled to inspect the Minutes of a Meeting held before the period of his
Directorship.

A Director is entitled to inspect the Minutes of the Meetings held during the period of his
Directorship, even after he ceases to be a Director.

The Company Secretary in Practice appointed by the company, the Secretarial Auditor, the
Statutory Auditor, the Cost Auditor or the Internal Auditor of the company can inspect the
Minutes as he may consider necessary for the performance of his duties.

Inspection of Minutes Book may be provided in physical or in electronic form.

While providing inspection of Minutes Book, the Company Secretary or the official of the
company authorised by the Company Secretary to facilitate inspection shall take all
precautions to ensure that the Minutes Book is not mutilated or in any way tampered with by
the person inspecting.

A Member of the company is not entitled to inspect the Minutes of Meetings of the Board.

Considering the above provisions, it can be said that actions of Managing Director are not
valid as per Secretarial Standard 1.

(v) On 5th January, 2018 in a general meeting a motion for removal of a director was put
to vote. The Chairman declared the motion passed as ordinary resolution by show of
hands. In the next general meeting held on 28th September, 2018, a member questioned
the validity of the said resolution which was declared as passed by the Chairman
alleging that majority votes were against the motion and asked the chairman to disclose
number of votes cast in favour of and against the said resolution. Referring to the

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provisions of the Companies Act, 2013 discuss if the demand of member is tenable. (4
marks)

At any general meeting, a resolution put to the vote of the meeting shall in the first instance be
decided on a show of hands, unless-
(a) A poll is demanded under section 109 of the Act.
(b) Voting is carried out electronically under section 108 of the Act.

A declaration by the Chairman of the meeting of the passing of a resolution (that the
resolution has been passed or failed, as the case may be) on show of hands and an entry to
that effect in the minutes book shall be conclusive evidence of the fact of passing of such
resolution.

No proof of numbers of votes casts in favor of and against the resolution is required.

The Calcutta High Court in case of Dhakeswari Cotton Mills Ltd vs. Nil Kamal Chakravorty
and others [AIR 1937 Cal 645 173 Ind Cas 622] observed that ―if there is no dispute about the
Chairman‘s declaration, no difficulty arises, but if there is a dispute, the court has to
determine on evidence what the declaration was‖

In Indian Zoedone Co [(1884) 26 Ch D 70 (CA)], it was held that if there is a fraud or improper
exclusion of votes, the resolution can be struck down as invalid by a court of law.

Considering the above provisions, there is no specific right to member to ask for disclosure of
votes cast for and against.

PART – III

6.

(a) Shalini, practicing Company Secretary, has disclosed information acquired in the
course of her professional engagement to a person other than the client, without the
consent of such client. Can she do so? Can she retain the digital signature of her
client for uploading e-forms on MCA portal? (5 marks)

As per Clause 1 of Part 1 of Second Schedule to Companies Secretaries Act,

a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if
he—
―Discloses information acquired in the course of his professional engagement to any person
other than the client so engaging him, without the consent of such client, or otherwise than as
required by any law for the time being in force.‖

Such information has to be kept confidential unless consent of the client has been obtained to
disclose the same or the disclosure is required by any law.

So, Shalini cannot disclose information without the permission of Client.

It is observed these days that PCS retains the digital signature of his client along with the
password for the administrative convenience of uploading the forms from the office of PCS. It
is suggested that in such a situation PCS should retain a formal letter signed by his client
authorising PCS to make use of his Digital signature. The reason being once the forms are
uploaded they appear on MCA portal and come to public domain. In order to avoid any future
possible controversy, such authority letter would come handy for PCS.

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So, if shalini takes a formal letter from client, then she can retain the digital signature.

(b) Rakesh practicing Company Secretary, has accepted the position of Secretarial
Auditor previously held by another Company Secretary in practice by
communicating through SMS. He also used designation ‘Company Law Consultant’ in
his visiting cards. Examine with reference to the relevant provisions of Company
Secretaries Act, 1980 and/or Companies Act, 2013 whether these are in order. (5
marks)

Clause 7 of Part 1 of First Schedule to Company Secretaries Act provides that:

a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if
he—
―advertises his professional attainments or services, or uses any designation or expressions
other than Company Secretary on professional documents, visiting cards, letterheads or
signboards, unless it be a degree of a University established by law in India or recognised by
the Central Government or a title indicating membership of the Institute of Company
Secretaries of India or of any other institution that has been recognised by the Central
Government or may be recognised by the Council.

Provided that a member in practice may advertise through a write up setting out the services
provided by him or his firm and particulars of his firm subject to such guidelines as may be
issued by the Council.‖

Designations like Company Law Consultant, Income Tax Consultant, Corporate Adviser,
Investment Adviser, Management Consultant etc. are prohibited.

Hence, by using the designation of Company Law Consultant Rakesh has violated the Clause.

Clause 8 of Part 1 of First Schedule to Company Secretaries Act provides that:

a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if
he—
―accepts the position of a Company Secretary in Practice previously held by another Company
Secretary in Practice without first communicating with him in writing.‖

With the advent of use of the technology, it would proper communication in this regard made
by any other electronic medium viz., SMS, Whats App and such other Messenger apps is also
permitted, provided the sender (the PCS taking up the assignment) is able to establish that the
message is delivered to the recipient before he or she takes up the assignment. Needless to
mention, that a reasonable time should be given to the previous incumbent to offer his
response, if any, and it is not just a kind of formality. For sake of better clarity, the new
incumbent should express clearly in the communication the details of assignment being taken
up by him.

Has by communicating through SMS Rakesh has not violated the clause.

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