PAPER – 2:

CORPORATE AND OTHER

LAWS

QUESTIONS

DIVISION A: MULTIPLE CHOICE QUESTIONS

Case Scenario
ABC Limited, was incorporated on 1st January, 2023. It operates in the
manufacturing sector and aims to expand its business model to include e-
commerce operations. ABC Limited’s first financial year ended on 31st March,
2024, and the board is preparing for its first Annual General Meeting (AGM) to
present the financial statements and discuss the new business model. ABC
Limited’s current board consists of five directors, including two independent
directors appointed in line with best corporate governance practices.
The company has a wholly owned subsidiary, XYZ Limited, which is primarily
involved in research and development for new products. XYZ Limited's
financial year also ended on 31st March, 2024. Additionally, ABC Limited has a
30% stake in an associate company, MNO Limited, which provides logistics
and distribution services. The board is assessing if it is required to prepare
consolidated financial statements (CFS) that combine the financials of ABC
Limited, XYZ Limited, and MNO Limited, considering the exemptions available
under the Companies Act, 2013.
The AGM agenda includes:
1. Approval of the financial statements for the financial year 2023-24.
2. Discussion of a special resolution to adopt a new e-commerce business
model, which requires a threefold majority approval.
3. Approval of consolidated financial statements, if required.

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4. Appointment of auditors and other general meeting proceedings.

The board has provided notice to all members about the AGM agenda,
including the proposal for the special item requiring special resolution. This
notice was sent by email and registered post to ensure compliance with
statutory notice requirements. All shareholders, including minority
stakeholders, received this notice with proof of delivery available with the
company.
Solve the MCQs (1-5) on the basis of the Companies Act, 2013.
1. Given that ABC Limited’s first financial year ended on 31st March, 2024,
and it was incorporated on 1st January, 2023, what is the latest date by
which ABC Limited must hold its first AGM?
(a) 30th September, 2024.
(b) 31st December, 2024.
(c) 31st March, 2025.
(d) 30th June, 2025.
2. Suppose ABC Limited holds its first AGM on 15th December, 2024. By
when must it hold its subsequent AGM to remain compliant?
(a) 15th December, 2025.
(b) 30th September, 2025.
(c) 30th June, 2025.
(d) 31st March, 2025.
3. Under the Companies Act, 2013, does ABC Limited need to prepare
consolidated financial statements (CFS) to present at the AGM?
(a) Yes, because it has one wholly owned subsidiary and an associate
company.
(b) No, because it qualifies for exemption as a wholly owned
subsidiary.
(c) Yes, only if XYZ Limited and MNO Limited are listed companies.
(d) No, if shareholders provide written consent exempting it from CFS
preparation.

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4. What must ABC Limited ensure to pass the special resolution approving
the adoption of a new e-commerce business model at the AGM?
(a) The resolution must have more than 50% of votes in favor.
(b) The resolution must be stated as special in the notice, and votes in
favor must be three times the votes against.
(c) The resolution can be passed if votes in favor exceed votes against
without being stated as special.
(d) The resolution must have unanimous support from the board of
directors.
5. Under which conditions would ABC Limited be exempt from preparing
consolidated financial statements?
(a) If ABC Limited is a wholly owned subsidiary, all members agree in
writing to the exemption, and proof of delivery of this intimation is
available.
(b) If XYZ Limited’s shareholders unanimously agree to waive CFS
requirements.
(c) If MNO Limited’s financials are not significant to ABC Limited’s
overall financial position.
(d) If ABC Limited’s board decides to skip CFS preparation with a
simple majority vote.
Independent MCQs
6. XYZ LLP is a consulting firm where four partners—A, B, C, and D—are
responsible for various functions. Partner B, without consulting the other
partners, enters into a contract with a third party, Mr. P, for a high-value
procurement deal on behalf of XYZ LLP. It is later found that Partner B
did not have authority to engage in such deals, and XYZ LLP has no
history of involvement in procurement. Mr. P, who is an experienced
business- person, was aware that Partner B was not authorized to enter
into procurement deals for XYZ LLP.
In this scenario, which of the following is correct based on the Limited
Liability Partnership Act, 2008?

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(a) XYZ LLP is bound by the contract because partner B is a partner in

the LLP.
(b) XYZ LLP is bound by the contract as Mr. P believed partner B was
authorized to act on behalf of the LLP.
(c) XYZ LLP is bound by the contract because Mr. P is a third party and
was not aware of the internal matters of XYZ LLP.
(d) XYZ LLP is not bound by the contract as partner B lacked authority,
and Mr. P knew of this lack of authority.
7. ABC LLP was incorporated with two partners, Mr. Raj and Ms. Rani. Due
to certain differences, Ms. Rani resigned from the LLP on 1st January,
2024, leaving Mr. Raj as the sole partner. Mr. Raj continued running the
business without admitting a new partner and was aware that he was the
only remaining partner. On 1st August of the same year, ABC LLP
incurred a debt of ` 5 lakh from a vendor. Given the provision in the
Limited Liability Partnership Act, 2008, which of the following statements
correctly describes Mr. Raj's liability in this situation?
(a) Mr. Raj will not be personally liable for the ` 5 lakh debt as the
debt was incurred by the LLP.
(b) Mr. Raj will be personally liable for the ` 5 lakh debt since he was
the sole partner of the LLP for more than six months.
(c) Mr. Raj and Ms. Rani will both be liable for the ` 5 lakh debt as
they were originally partners.
(d) The LLP will be automatically dissolved after six months, and no
personal liability will arise for Mr. Raj.
8. Mr. Amit, a Chartered Accountant, is the appointed auditor of Grey
Limited. Mrs. Anita, Mr. Amit’s wife, recently acquired equity shares in
Grey Limited with a face value of ` 1 lakh. Which of the following
statements is correct regarding M/s Amit & Co. eligibility to continue as
the auditor of Grey Limited?
(a) M/s Amit & Co. must vacate the position of auditor immediately
due to the disqualification arising from his wife’s holding of shares.

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(b) M/s Amit & Co. can continue as the auditor only if Mrs. Anita
divests her shares within 30 days.
(c) M/s Amit & Co. can continue as the auditor since the shares held
by Mr. Amit's wife do not exceed the limit specified under the
Companies (Audit and Auditors) Rules, 2014.
(d) M/s Amit & Co. cannot continue as the auditor, as any acquisition
of shares by a relative leads to automatic disqualification.
9. XYZ Limited is a company with 51% of its equity shares held by the State
Government of Maharashtra and 49% by private investors. The Board of
XYZ Limited seeks to appoint an auditor for the upcoming financial year.
As per the Companies Act, 2013, which of the following statements is
correct regarding the appointment of the auditor?
(a) The Board of XYZ Limited has the authority to appoint the auditor
through a board resolution.
(b) The Comptroller and Auditor General (CAG) of India will appoint
the auditor for XYZ Limited.
(c) The shareholders of XYZ Limited will appoint the auditor in the
annual general meeting.
(d) The State Government of Maharashtra, holding the majority stake,
will appoint the auditor.
10. X purchased a car from Y, believing that Y was the legitimate owner.
Although X paid the full purchase price and took possession of the car,
he did not check the Registration Certificate (RC) of the car to verify the
authenticity of Y’s ownership. Later, it was discovered that Y was not the
rightful owner, and the car had been stolen. In the context of “good
faith” as defined in the General Clauses Act, 1897, determine the validity
of X’s ownership claim over the car.
(a) X holds valid ownership of the car because he paid the full price
and believed Y to be the legitimate owner.
(b) X does not hold valid ownership because his purchase was made
without due care and attention, even though he acted honestly.

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(c) X holds valid ownership because he had no knowledge of the car

being stolen, showing he acted in “good faith.”
(d) X’s ownership is valid because he did not act negligently, and his
actions were deemed “in good faith.”
Descriptive Questions
11. XYZ Limited issued a prospectus to raise funds for a new manufacturing
project. After successfully raising the funds, the company identified an
investment opportunity in a different industry six months later, requiring
a significant portion of the funds. The proposed investment involved
trading in equity shares of other listed companies.
The board of directors suggested varying the original objectives for
which the funds were raised to allow this new investment and
recommended passing a special resolution in the company’s general
meeting. While the promoters and controlling shareholders supported
this change, some shareholders expressed concerns, particularly
regarding the deviation from the initially stated purpose of the funds.
Based on the provisions of the Companies Act, 2013, advise on the
validity of the proposal to redirect the funds toward this new
investment.
12. XYZ Tech Solutions Limited is a growing technology company that has
seen significant contributions from its employees and directors in the
development of a ground breaking software product. To reward these
key contributors, the board proposed issuing sweat equity shares to
certain employees and directors. XYZ Tech Solutions Limited already has
issued ordinary equity shares but has never issued sweat equity shares
before.
The company has a paid up equity share capital ` 20 crore. The company
has proposed to issue sweat equity shares worth ` 4 crore of face value.
The company’s board has drafted a special resolution outlining the
proposed issuance of sweat equity shares and including specific details,
such as the number of shares, the current market price, consideration (if
any), and the classes of directors and employees eligible to receive the
shares.

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The company has approached you to advise them about the issue of the
said sweat equity shares, in line with the provisions of the Companies
Act, 2013.
13. PQR Limited, a manufacturing company, is in the process of expanding
its operations. To support this expansion, PQR Limited has acquired a
plot of land along with the buildings on it from ABC Limited, another
company in the same industry. The property, however, is subject to an
existing charge, created in favor of a bank as security for a loan taken by
ABC Limited. This charge had been registered by ABC Limited at that
time. The directors of PQR Limited are of the opinion that as the charge
for the property was already created, there is no further obligation to be
fulfilled from the side of PQR Limited.
After negotiations, the bank, as the charge holder, consents to the sale
and transfer of the property to PQR Limited with the condition that PQR
Limited must register a new charge over the acquired property as
security for its own loan obligations.
Advise whether the contention of directors of PQR Limited is correct.
Give your answer in terms of the provisions of the Companies Act, 2013.
14. Vishal Limited is an unlisted public company, having five directors in its
board which includes two independent directors.
Sam (P) Limited, is subsidiary company of Vishal Limited, actively
carrying on its business, having paid up capital of ` 1.5 crore with 40
members and turnover of ` 18 crore, respectively and the said company
is not a start-up company.
It is also provided that Sam (P) Limited is not a start up company.
In the context of aforesaid case-scenario, please answer to the following
question(s):-
Whether Sam (P) Limited is mandatorily required to prepare cash flow
statement for the financial year as a part of its financial statements?
Provide your answer by analyzing Sam (P) Limited into following
category of companies:-
(i) Small company, and

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(ii) Dormant company, respectively.

15. Pran Limited is an unlisted company, having its registered office at
Agartala. The company scheduled its Annual General Meeting (AGM) on
31st July, 2024 in Goa. The meeting commenced at 3:00 PM and
concluded at 6:00 PM.
It is also provided that by 1st July, 2024, the company had obtained
written consent from all members via email, agreeing to hold the AGM
at this out-of-state location. As per the Companies Act, 2013, evaluate
whether the AGM was validly conducted.

16. HD Software Limited is engaged in the business of providing software

services. The company appointed its statutory auditors (not the first
auditor). The Board of directors of the company informed the auditor
that the fees shall be fixed by the Board of directors only.
But the auditor objected to the same. Now the directors have
approached you to advise them whether they can solely fix the
remuneration of the auditor.
The Limited Liability Partnership Act, 2008
17. Amit and Priya are partners in XYZ LLP, a consulting firm. Recently, Priya
moved to a new address but forgot to notify the LLP within the required
period. A month later, Amit’s cousin, Ramesh, expressed interest in
joining XYZ LLP as a partner, and after a few discussions, he was
accepted as a new partner.
However, XYZ LLP did not immediately update the Registrar of
Companies (RoC) regarding Priya’s address change or Ramesh’s
admission as a partner. Two months after Ramesh joined, the LLP filed a
notice with the RoC about these changes.
Advise the LLP about the default on part of LLP about the non
compliance in respect to not informing the ROC about:
(i) Priya’s address change
(ii) Ramesh’s admission as a partner.

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The General Clauses Act, 1897

18. The Parliament recently passed the Environment Protection Amendment
Act, 2024, to strengthen regulations on industrial waste disposal. The Act
specified the commencement date as 1st September, 2024. The President
gave assent to the Act on 15th July, 2024.
Green Earth Limited, an industrial company, is uncertain about when the
provisions of the Environment Protection Amendment Act, 2024, will
start to apply. The company’s legal team has raised question on whether
they need to immediately comply with the new regulations or if they
have a grace period until the commencement date. Give your answer in
reference to the provisions of the General Clauses Act, 1897.
Interpretation of Statutes
19. At the time of interpreting a Statute what will be the effect of ‘Usage’ or
‘customs and Practices’?
The Foreign Exchange Management Act, 1999
20. Ravi, an Indian citizen, works as a software engineer for an international
company. During the previous financial year (2023-2024), Ravi resided in
India for 200 days. However, in April of the current financial year, he
accepted a job offer in Canada and left India with a long-term work visa,
planning to settle in Canada indefinitely.
Analyse the residential status of Ravi for the financial year 2024-2025, as
per the provisions of the Foreign Exchange Management Act, 1999.

SUGGESTED ANSWERS/HINTS

Multiple Choice Questions

MCQ No. Most Appropriate

Answer
1. (b)
2. (b)
3. (a)

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4. (b)
5. (a)
6. (d)
7. (b)
8. (c)
9. (b)
10. (b)

Descriptive questions
11. According to section 27(1) of the Companies Act, 2013, the terms of a
contract referred to in the prospectus or objects for which the
prospectus has been issued can be varied, but only with the authority of
the company given by it in general meeting by way of special resolution.
The second proviso to sub-section (1) prescribes that such company is
not to use any amount raised by it through the prospectus for buying,
trading or otherwise dealing in equity shares of any other listed
company.
In the given question, XYZ Limited, is planning to use the amount
initially raised for investing in a different industry, which also involves
trading in equity shares of other listed companies.
Though XYZ Limited has passed a special resolution for the said
proposal but it cannot use any amount raised by it through the
prospectus for buying, trading or otherwise dealing in equity shares of
any other listed company. Hence, the said proposal for new investment
is not valid.
12. According to section 54(1) of the Companies Act, 2013, a company may
issue sweat equity shares if all of the following conditions are fulfilled:
a. Share of that class must be already issued
b. Issue is authorised by a special resolution passed by the company;
c. Resolution specifies the details regarding the number of shares,
the current market price, consideration, if any, and the class or

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classes of directors or employees to whom such equity shares are

to be issued;
The special resolution authorising the issue of sweat equity shares shall
be valid for making the allotment within a period of not more than 12
months from the date of passing.
During a year, the maximum amount/limit for which sweat equity shares
can be issued is higher of:
a. 15% of the existing paid up equity share capital or
b. Shares of the issue value of rupees 5 crore.
The issuance of sweat equity shares (cumulative, including all previous
issues, if any) shall not exceed 25% of the paid-up equity capital of the
company at any time.
In the given question, the company has proposed to issue sweat equity
shares to the tune of ` 4 crore. However, the maximum limit to which it
can issue such shares is- Higher of:
a. 15% of the issued paid up share capital, i.e. ` 3 crore, or
b. 5 crore
Thus, company can issue sweat equity shares to the tune of ` 5 crore.
However, the company cannot issue such shares more than 25% of the
paid-up equity capital= 25% of ` 20 crore= ` 5 crore.
Hence, the company can issue sweat equity shares of ` 4 crore.
13. The provisions of section 77 relating to registration of charges shall, so
far as may be, apply to:
a. a company acquiring any property subject to a charge within the
meaning of that section; or
b. any modification in the terms or conditions or the extent or
operation of any charge registered under that section.
According to section 79(a) of the Companies Act, 2013, in case of a
property where charge is already registered and if it is sold with the
permission of the holder of charge, it shall be the duty of the company
acquiring it to get the charge registered in accordance with section 77.

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According to the provisions of section 77, when a company acquires

property that is subject to an existing charge, it is the duty of the
acquiring company (PQR Limited in this case) to register the charge as
its own. This means that PQR Limited must create a fresh charge over
the acquired property and register it with the Registrar of Companies
(RoC) as per section 77.
Now upon acquisition, it is PQR Limited’s responsibility to ensure that
the previous charge is effectively discharged and that the new charge is
registered in its name, reflecting PQR Limited as the current owner and
debtor of the charge. Hence, the contention of directors of PQR Limited
that since the charge for the property was already created, there is no
further obligation on part of PQR Limited, is not correct.
14. According to section 2(10) of the Companies Act, 2013,
Financial statement in relation to a company, includes:
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on
any activity not for profit, an income and expenditure account for
the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any
document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to one person
company, small company, dormant company and private company (if
such private company is a start-up) may not include the cash flow
statement.
For considering the applicability of preparation of cash flow statement in
case of Sam (P) Limited, it is required first to analyze that Sam (P)
Limited does not fall in the following categories:
(i) Small company – A company which is a subsidiary company cannot
be categorized as a small company as per proviso to section 2(85).
Thus, even though its paid up capital and turnover are within the

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prescribed limits, as Sam (P) Limited is a subsidiary company of

Vishal Limited, it cannot be considered as small company.
(ii) Dormant company – It is given that the company is actively
carrying on its business, so it cannot be also categorized as a
dormant company based upon the facts given.
So, Sam (P) Limited shall be deemed to be a public company as it is
subsidiary of Vishal Limited, an unlisted public company and so it will
not fall into this category of exemption as well.
Thus, it can be concluded that Sam (P) Limited is mandatorily required
to prepare cash flow statement for the financial year as a part of its
financial statements as it does not fall in any of the categories of
companies mentioned under proviso to section 2(10) of the Companies
Act, 2013.
15. Section 96(2) of the Companies Act, 2013, states that every annual
general meeting shall be called during business hours, that is, between
9 AM and 6 PM on any day that is not a National Holiday and shall be
held either at the registered office of the company or at some other
place within the city, town or village in which the registered office of the
company is situated.
Provided that annual general meeting of an unlisted company may be
held at any place in India if consent is given in writing or by electronic
mode by all the members in advance.
In the given question, Pran Limited is an unlisted company and consent
of all members to conduct the AGM at Goa has been received in
advance (by 1st July, 2024). Also, the meeting was started well within the
prescribed time i.e. at 3.00 PM. Hence, the meeting was validly called.
16. Section 142 of the Companies Act, 2013, provides for remuneration of
auditors. According to this section the remuneration of the auditors of a
company shall be fixed by the company in general meeting or in such
manner as the company in general meeting may determine. However,
the Board may fix remuneration of the first auditor appointed by it.
The remuneration shall, in addition to the fee payable to an auditor,
include the expenses, if any, incurred by the auditor in connection with
the audit of the company and any facility extended to him but does not

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include any remuneration paid to him for any other service rendered by
him at the request of the company.
As per the facts of the question and stated provision, remuneration of
the appointed statutory auditors of a company shall be fixed by the
company in general meeting or in such manner as the company in
general meeting may determine as they are not the first auditor.
Hence, the contention of the Board of directors that they can fix the
remuneration of the auditor on their own is not valid.
17. According to section 25 of the Limited Liability Partnership Act, 2008,

(1) Every partner shall inform the LLP of any change in his name or
address within a period of 15 days of such change.
(2) A LLP shall—
(a) where a person becomes or ceases to be a partner, file a
notice with the Registrar within 30 days from the date he
becomes or ceases to be a partner; and
(b) where there is any change in the name or address of a
partner, file a notice with the Registrar within 30 days of such
change.
(3) A notice filed with the Registrar under sub-section (2)—
(a) shall be in such form and accompanied by such fees as may
be prescribed;
(b) shall be signed by the designated partner of the LLP and
authenticated in a manner as may be prescribed; and
(c) if it relates to an incoming partner, shall contain a statement
by such partner that he consents to becoming a partner,
signed by him and authenticated in the manner as may be
prescribed.
(i) Priya’s Address Change: Under the provision, Priya was required
to inform XYZ LLP of her address change within 15 days of the
move. Following that, XYZ LLP was required to file a notice with
the RoC within 30 days of being notified of Priya's new address. As

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Priya did not inform the LLP about change of address and
consequently LLP did not file a notice regarding the change in
address of Priya with the Registrar, XYZ LLP is not in compliance
with the required timeline.
(ii) Ramesh’s Admission as a Partner: For new partners, XYZ LLP
must file a notice with the RoC within 30 days of a person
becoming a partner. This notice should include Ramesh’s consent
statement, signed by him and authenticated as prescribed. The
delay in filing means XYZ LLP did not meet the 30-day
requirement.
18. According to section 5 of the General Clauses Act, 1897, where any
Central Act has not specifically mentioned a particular date to come into
force, it shall be implemented on the day on which it receives the assent
of the Governor General in case of a Central Acts made before the
commencement of the Indian Constitution and/or, of the President in
case of an Act of Parliament.
In the given question, the Environment Protection Amendment Act,
2024, received assent of President of India on 15th July, 2024. The
commencement date is prescribed as 1st September 2024. Accordingly,
the Environment Protection Amendment Act, 2024, shall come into
enforcement 1st September, 2024.
19. Effect of usage: Usage or practice developed under the statute is
indicative of the meaning recognized to its words by contemporary
opinion. A uniform notorious practice continued under an old statute
and inaction of the Legislature to amend the same are important factors
to show that the practice so followed was based on correct
understanding of the law. When the usage or practice receives judicial or
legislative approval it gains additional weight.
In this connection, we have to bear in mind two Latin maxims:
(i) 'Optima Legum interpres est consuetude' (the custom is the best
interpreter of the law); and
(ii) ‘Contemporanea Expositio est optima et fortissinia in lege’ (the best
way to interpret a document is to read it as it would have been
read when made).

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Therefore, the best interpretation/construction of a statute or any other

document is that which has been made by the contemporary authority.
Simply stated, old statutes and documents should be interpreted as they
would have been at the time when they were enacted/written.
Contemporary official statements throwing light on the construction of a
statute and statutory instruments made under it have been used as
contemporanea expositio to interpret not only ancient but even recent
statutes in India.
20. As per section 2(v) of the Foreign Exchange Management Act, 1999, the
term ‘person resident in India’ means the following entities:
A person who resides in India for more than 182 days during the
preceding financial year.
The following persons are not persons resident, in India even though
they may have resided in India for more than 182 days.
A. A person who has gone out of India or stays outside India for any
of the three purposes given below,
B. A person who has come to or stays in India otherwise than for any
of the three purposes given below;
Three Purposes
(1) For or on taking up Employment
(2) For carrying on a business or Vacation
(3) For any other purpose in such circumstances as would indicate
stay for an uncertain period.
Ravi's Residential Status: Ravi resided in India for more than 182 days
in the preceding financial year, which would typically qualify him as a
"person resident in India." However, his decision to leave India for long-
term employment in Canada changes his status. According to the
provision, a person who has left India for the purpose of employment
abroad is not considered a "person resident in India" even if they meet
the 182-day requirement. Thus, Ravi does not qualify as a resident for
the current financial year.

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