Test Series: October, 2018

MOCK TEST PAPER - 2

INTERMEDIATE (NEW): GROUP – I
PAPER – 2: CORPORATE AND OTHER LAWS
SUGGESTED ANSWERS/HINTS

1. (a) As per the Section 8 of the Companies Act, 2013, the Central Government may by order revoke
the licence of the company where the company contravenes any of the requirements or the
conditions of this sections subject to which a licence is issued or where the affairs of the company
are conducted fraudulently, or violative of the objects of the company or prej udicial to public
interest.
Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or amalgamated
with another company registered under this section.
Where a licence is revoked and where the Central Government is satisfied that it is essential in the
public interest that the company registered under this section should be amalgamated with another
company registered under this section and having similar objects, then, the Central Government
may, by order, provide for such amalgamation to form a single company with such constitution,
properties, powers, rights, interest, authorities and privileges and with such liabilities, duties a nd
obligations as may be specified in the order.
According to the given situation, on revocation of licence, the Central Government ordered for the
amalgamation of the company with the separate entity registered under the section 8 of the
Companies Act, 2013. However, an object for which both the Companies formed were promoting
different objects. Accordingly, the order passed by the Central Government after the revocation of
license, is not in compliance of the Section 8 of the Companies Act, 2013.
(b) (i) The given problem is based on the proviso provided in the section 127 (d) of the Companies
Act, 2013. As per the law where the dividend is declared by a company and there remains
calls in arrears and any other sum due from a member, in such case no offenc e shall be
deemed to have been committed where the dividend has been lawfully adjusted by the
company against any sum due to it from the shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of Rs. 10
Lakhs and has not paid an amount of Rs. 1 lakh towards call money on shares. Referring to
the above provision, Mr. A is eligible to get Rs. 1.20 lakh towards dividend, out of which an
amount of Rs. 1 lakh can be adjusted towards call money due on his shares. Rs. 20,000 can
be paid to him in cash or by cheque or in any electronic mode.
(ii) According to section 123(5), dividend shall be payable only to the registered shareholder of
the share or to his order or to his banker. Facts in the given case state that Ms. N, the holder
of equity shares transferred the shares to Mr. R whose name has been registered on 20 th May
2017. Since, he became the registered shareholder before the declaration of the dividend in
the Annual general meeting of the company held on 20 th September 2017, so, Mr. R will be
entitled to the dividend.
(c) Section 133 of the Indian Contract Act, 1872 deals with the provision related to the discharge of
the surety. Provisions states that where there is any variance in the terms of contract between the
principal debtor and creditor without surety's consent it would discharge the surety in respect of all
transactions taking place subsequent to such variance.

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 Following is the answer in the light of the above provision:
(i) In case where, Mr. Ram has manipulated the funds of the company since the time of his
appointment. In this case Mr. Janak is liable as a surety for the loss suffered by the Swaraj
Company due to manipulation of the funds by Mr. Ram during the three years of his service.
(ii) In case where,Mr. Ram has manipulated the funds of the company since from few months
before when he accepted to continue the job on lower salary. In this case, variance in the
terms of the contract (i.e., to work on lower salary) was made without surety's consent. F or
all the transactions taking place subsequent to such variance, shall discharge the surety for
the loss suffered by the Swaraj company.
(d) As per the provisions of Section 9 of the General Clauses Act, 1897, in any legislation or regulation,
it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of
time to use the word “from” and for the purpose of including the last in a series of days or any other
period of time, to use the word “to”.
Section 127 of the Companies Act, 2013 uses the words, thirty days from. Thus, in the given
situation Excel Ltd. is required to pay declared dividend within 30 days from the date of declaration
i.e. from 01/10/2017 to 30/10/2017. In this series of 30 days, 30/09/2017 will be excluded and last
30th day i.e. 30/10/2017 will be included.
2. (a) (i) According to section 141 (3)(d) (i), an auditor is disqualified to be appointed as an auditor if
he, or his relative or partner holding any security of or interest in the company or its subsidiary,
or of its holding or associate company or a subsidiary of such holding company:
In the present case, Mr. A. is holding security of Rs. 900 in the XYZ Ltd, therefore he is not
eligible for appointment as an Auditor of “XYZ Ltd”.
(ii) As per section 141 (3)(d)(i), an auditor is disqualified to be appointed as an auditor if he, or
his relative or partner holding any security of or interest in the company or its subsidiary, or
of its holding or associate company or a subsidiary of such holding company: Further as per
proviso to this Section, the relative of the auditor may hold the securities or interest in the
company of face value not exceeding of Rs. 1,00,000.
In the present case, Mr. Q. (relative of Mr. P, an auditor), is having securities of Rs. 90,000
face Value in the ABC Ltd., which is as per requirement of proviso to section 141 (3)(d)(i),
Therefore, Mr. P will not be disqualified to be appointed as an auditor of ABC Ltd.
(b) Section 83 of the Companies Act, 2013 provides powers to the registrar to make entries with
respect to the satisfaction and release of charges where no intimation has been received by him
from the company.
(i) The Registrar may, on evidence being given to his satisfaction with respect to any registered
charge,—
(a) that the debt for which the charge was given has been paid or satisfied in whole or in
part; or
(b) that part of the property or undertaking charged has been released from the charge or
has ceased to form part of the company’s property or undertaking,
- enter in the register of charges a memorandum of satisfaction in whole or in part, or of the
fact that part of the property or undertaking has been released from the charge or has
ceased to form part of the company’s property or undertaking, as the case may be, despite
the fact that no intimation has been received by him from the company.
(ii) The Registrar shall inform the affected parties within thirty days of making the entry in the
register of charges kept under section 81(1).

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 According to the Companies (Registration of Charges) Rules, 2014 with respect to the
satisfaction of charge –
(1) A company shall within a period of thirty days from the date of the payment or satisfaction
in full of any charge registered, give intimation of the same to the Registrar along with
the fee.
(2) Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance
of section 82 or 83, he shall issue a certificate of registration of satisfaction of charge.
(c) (i) According to section 9 of the Negotiable Instruments Act, 1881 'holder in due course' means
any person who for consideration becomes the possessor of a promissory note , bill of
exchange or cheque if payable to bearer or the payee or endorsee thereof, if payable to order,
before the amount in it became payable and without having sufficient cause to believe that
any defect existed in the title of the person from whom he derived his title.
As 'A' in this case prima facie became a possessor of the bill for value and in good faith before
the bill became payable, he can be considered as a holder in due course.
But where a signature on the negotiable instrument is forged, it becomes a nullity. The holder
of a forged instrument cannot enforce payment thereon. In the event of the holder being able
to obtain payment in spite of forgery, he cannot retain the money. The true owner may sue on
tort the person who had received. This principle is universal in character, by reason where of
even a holder in due course is not exempt from it. A holder in due course is protected when
there is defect in the title. But he derives no title when there is entire absence of title as in the
case of forgery. Hence 'A' cannot receive the amount on the bill.
(ii) According to Section 42 of the Negotiable Instruments Act, 1881 an acceptor of a bill of
exchange drawn in a fictitious name and payable to the drawer's order is not, by reason that
such name is fictitious, relieved from liability to any holder in due course claiming under an
instrument by the same hand as the drawer's signature, and purporting to be made by the
drawer.
The word "fictitious payee' means a person who is not in existence or being in existence, was
never intended by the drawer to have the payment. Where drawer intends the payee to have
the payment, then he is not a fictitious payee and the forgery of his signature will affect the
validity of the cheque.
On applying the above, in this case Mr. Bonafide (drawer), can rec over the amount of the
cheque from Payee's bankers because Payee's title was derived through forged endorsement .
3. (a) Meaning of Abridged Prospectus: - According to Section 2(1) of the Companies Act, 2013, an
abridged prospectus means a memorandum containing such salient features of a prospectus as
may be specified by the Securities and Exchange Board by making regulations in this behalf.
Circumstances under which the abridged prospectus need not accompany the application
forms: Section 33 (1) of the Companies Act, 2013 states that no application form for the purchase
of any of the securities of a company can be issued unless such form is accompanied by an
abridged prospectus. In terms of the Proviso to section 33 (1) an abridged prospectus need not
accompany the application form if it is shown that the form of application was issued:
(i) In connection with a bona fide invitation to a person to enter into an underwriting agreement
with respect to such securities; or
(ii) Where the securities are not offered to the public.
Penalties in case of contravention of provision: a company makes any default in complying
with the provisions of this section, it shall be liable to a penalty of fifty thousand rupees for each
default.

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 (b) According to section 130 of the Companies Act, 2013,
(1) On Filing of an application: A company shall not re-open its books of account and not recast
its financial statements, unless an application in this regard is made by the Central
Government, the Income-tax authorities, the Securities and Exchange Board, any other
statutory regulatory body or authority or any person concerned and an order is made by a
court of competent jurisdiction or the Tribunal to the effect that— (i) the relevant earlier
accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were
mismanaged during the relevant period, casting a doubt on the reliability of financial
statements:
Provided that the court or the Tribunal, as the case may be, shall give notice to the Central
Government, the Income-tax authorities, the Securities and Exchange Board or any other
statutory regulatory body or authority concerned or any other person concerned and shall take
into consideration the representations, if any, made by that Government or the authorities,
Securities and Exchange Board or the body or authority concerned or the other person
concerned before passing any order under this section.
(2) Nature of Revised Accounts: The accounts so revised or re-cast shall be final.
(3) Time Period: No order shall be made in respect of re-opening of books of account relating to
a period earlier than eight financial years immediately preceding the current f inancial year:
Provided that where a direction has been issued by the Central Government under the proviso
to sub-section (5) of section 128 for keeping of books of account for a period longer than eight
years, the books of account may be ordered to be re-opened within such longer period.
(c) “Making of rules or bye-laws and issuing of orders between passing and commencement of
enactment” [Section 22]: Where, by any Central Act or Regulation which is not to come into force
immediately, on the passing thereof, a power is conferred to make rules or bye-laws, or to issue
orders with respect to the application of the Act or Regulation or with respect to the establishment
of any Court or the appointment of any Judge or officer thereunder, or with respect to the person
by whom, or the time when, or the place where, or the manner in which, or the fees for which,
anything is to be done under the Act or Regulation, then that power may be exercised at any time
after passing of the Act or Regulation; but rules, bye-laws or orders so made or issued shall not
take effect till the commencement of the Act or Regulation.
(d) Dictionary Definitions: First we have to refer to the Act in question to find out if any particular
word or expression is defined in it. Where we find that a word is not defined in the Act itself, we
may refer to dictionaries to find out the general sense in which that word is commonly understood.
However, in selecting one out of the several meanings of a word, we must always take into
consideration the context in which it is used in the Act. It is the fundamental rule that the meanings
of words and expressions used in an Act must take their colour from the context in which they
appear. Further, judicial decisions laying down the meaning of words in construing statutes in ‘pari
materia’ will have greater weight than the meaning furnished by dictionaries. However, for technical
terms reference may be made to technical dictionaries.
4. (a) (i) For the sake of avoiding confusion and mixing up, the resolutions are generally moved
separately in the Annual General Meeting. However, there is nothing illegal if the Chairman
of the meeting desires that two or more resolutions should be moved together, unless any
member requires that each resolution should be put to vote separately or unless a poll is
demanded in respect of any.
Where notice has been given of several resolutions, each resolution must be put separately.
However, if the meeting unanimously adopts all the resolutions, this would not be illegal
barring a few occasions.

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 One resolution which should be moved separately is relating to appointment of directors at a
general meeting of a public or private company, where two or more directors cannot be
appointed as directors by a single resolution.
Hence, in the instant case, all the nine businesses cannot be moved together as two
businesses were regarding appointment of Mr. S and Mr. P as directors. Besides these two
resolutions, other seven resolutions can be moved together if the members unanimously
agree.
(ii) Under section 102(2)(b) in the case of any meeting other than an AGM, all business
transacted thereat shall be deemed to be special business.
Further under section 102 (1), a statement setting out the following material facts concerning
each item of special business to be transacted at a general meeting, shall be annexed to the
notice calling such meeting, namely:—
(1) the nature of concern or interest, financial or otherwise, if any, in respect of each items,
of:
(i) every director and the manager, if any;
(ii) every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);
(2) any other information and facts that may enable members to understand the meaning,
scope and implications of the items of business and to take decision thereon.
Thus, the objection of the shareholder is valid since the details on the item to be
considered are lacking. The information about the amount is a material fact with
reference to the proposed increase of share capital. The notice is, therefore, not a valid
notice under Section 102 of the Companies Act, 2013.
(b) Section 146 of the Companies Act, 2013 provides for auditors to attend general meeting. According
to this section:
(i) All notices of, and other communications relating to, any general meeting shall be forwarded
to the auditor of the company.
(ii) The auditor shall, unless otherwise exempted by the company, attend either by himself or
through his authorised representative, who shall also be qualified to be an auditor, any general
meeting.
(iii) The auditor shall have right to be heard at such meeting on any part of the business which
concerns him as the auditor.
(c) Marginal Notes: Although there is difference of opinion regarding resort to Marginal Notes for
construing an enactment, the generally held view is that the Marginal Notes appended to a Section
can not be used for construing the Section. In C.I.T. vs. Ahmedbhai Umarbhai & Co. (AIR 1950 SC
134 at 141), Patanjali Shastri, J., had declared: “Marginal notes in an Indian statute, as in an Act,
of Parliament cannot be referred to for the purpose of construing the statute”, and the same view
has been taken in many other cases. Many cases show that reference to marginal notes may be
permissible in exceptional cases for construing a section in a statute. [ Deewan Singh v. Rajendra
Pd. Ardevi, (2007)10 SCC , Sarabjit Rick Singh v. Union of India, (2008) 2 SCC]
However, marginal notes appended to Articles of the Constitution have been held to be part of the
Constitution as passed by the Constituent Assembly and therefore have been made use of in
construing the Articles.
Example: Article 286 of the constitution furnishing “prima facie”, some clue as to the meaning and
purpose of the Article [Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC]

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 (d) 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.
Hence, in the given question, SEBI (Issue of Capital and Disclosure Requirements) (Fifth
Amendment) Regulations, 2015 shall come into enforcement on 1 st January, 2016 rather than the
date of its notification in the gazette.
5. (a) As per section 2(84) of the Companies Act, 2013, X Ltd. is a subsidiary company of ABZ Ltd. as
ABZ Ltd. controls the composition of the Board of Directors of X Ltd.
Further, section 19 of the companies Act provides that no company shall, either by itself or through
its nominees, hold any shares in its holding company and no holding company shall allot or transfer
its shares to any of its subsidiary companies and any such allotment or transfer of shares of a
company to its subsidiary company shall be void.
Provided that this sub-section shall not apply-
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company
of the holding company
On the basis of the above provisions, following are the answers:
(i) In the given case, X ltd. already holds shares in ABZ Ltd. before becoming its subsidiary. The
given situations falls within the purview of the exceptions when such transfer of shares by
holding company to its subsidiary is permissible. So this transfer of shares by ABZ Ltd. to
X Ltd. is valid.
(ii) This situation falls within the purview of exemption stating that such subsidiary company who
holds such shares as the legal representative of a deceased member of the holding company,
are entitled to hold the shares of the holding company. So Mr. N being the legal representative
of the deceased member of the Holding company, was entitled for the holding of shares of
ABZ Ltd.
(b) A Proxy is an instrument in writing executed by a shareholder authorizing another person to attend
a meeting and to vote thereat on his behalf and in his absence. As per the provisions of Section
105 of the Companies Act, 2013, every shareholder who is entitled to attend and vote has a
statutory right to appoint another person as his proxy. It is not necessary that the proxy be a
member of the company. Further, any provision in the articles of association of the company
requiring instrument of proxy to be lodged with the company more than 48 hours before a meeting
shall have effect as if 48 hours had been specified therein. The members have a right to revoke
the proxy’s authority by voting himself before the proxy has voted but once the proxy has voted the
member cannot retract his authority.
Where two proxy instruments by the same shareholder are lodged of in such a manner that one is
lodged before and the other after the expiry of the date fixed for lodging proxies, the former will be
counted.
Thus, in case of member X, the proxy Y will be permitted to vote on his behalf as form for appointing
proxy was submitted within the permitted time.
However, in the case of Member W, the proxy M (and not Proxy N) will be permitted to vote as the
proxy authorizing N to vote was deposited in less than 48 hours before the meeting.

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 (c) The statement is correct. Normally, a sub-agent is not appointed, since it is a delegation of power
by an agent given to him by his principal. The governing principle is, a delegate cannot delegate’.
(Latin version of this principle is, “delegates non potest delegare”). However, there are certain
circumstances where an agent can appoint sub-agent.
In case of proper appointment of a sub-agent, by virtue of Section 192 of the Indian Contract Act,
1872 the principal is bound by and is held responsible for the acts of the sub -agent. Their
relationship is treated to be as if the sub-agent is appointed by the principal himself.
However, if a sub-agent is not properly appointed, the principal shall not be bound by the acts of
the sub-agent. Under the circumstances the agent appointing the sub-agent shall be bound by
these acts and he (the agent) shall be bound to the principal for the acts of the sub -agent.
(d) According to section 154 of the Indian Contract Act, 1872, if the bailee makes any use of the goods
bailed, which is not according to the conditions of the bailment, he is liable to make compensation
to the bailor for any damage arising to the goods from or during such use of them.
Hence, Bimal is liable to make compensation to Amit for the injury done to the horse.
6. (a) The Companies Act, 2013 by virtue of provisions as contained in Section 39 (1) and (2) regulates
and restricts the minimum subscription and the application money payable in a public issue of
shares as under:
Minimum subscription [Section 39 (1)]
No Allotment shall be made of any securities of a company offered to the public for subscrip tion;
unless; -
(i) the amount stated in the prospectus as the minimum amount has been subscribed; and
(ii) the sums payable on application for such amount has been paid to and received by the
company-
Application money: Section 39 (2) provides that the amount payable on application on each
security shall not be less than 5% of the nominal amount of such security or such amount as
SEBI may prescribe by making any regulations in this behalf.
Further section 39 (3) provides that if the stated minimum amount is not received by the
company within 30 days of the date of issue of the prospectus or such time as prescribed by
SEBI, the company will be required to refund the application money received within such time
and manner as may be prescribed.
In case of any default under sub-section, the company and its officer who is in default shall
be liable to a penalty, for each default, of one thousand rupees for each day during which
such default continues or one lakh rupees, whichever is less.
Section 40 (3) provides that all moneys received on application from the public for subscription
to the securities shall be kept in a separate bank account maintained with a scheduled bank.
(b) Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign and keep
minutes of proceedings of every general meeting, including the meeting called by the requisitionists
and all proceedings of meeting of any class of shareholders or creditors or Board of Directors or
committee of the Board and also resolution passed by postal ballot within thirty days of the
conclusion of every such meeting concerned. Minutes kept shall be evidence of the proceedings
recorded in a meeting.
By virtue of Rule 25 of the Companies (Management and Administration ) Rules 2014 read with
section 118 of the Companies Act, 2013 each page of every such book shall be initialled or signed
and the last page of the record of proceedings of each meeting or each report in such boo ks shall
be dated and signed by, in the case of minutes of proceedings of a general meeting, by the
chairman of the same meeting within the aforesaid period of thirty days or in the event of the death

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 or inability of that chairman within that period, by a director duly authorized by the Board for the
purpose.
Therefore, the minutes of the meeting referred to in the case given above can be signed in the
absence of Mr Venkat, by any director who is authorized by the Board .
(c) According to section 150 of the Indian Contract Act, 1872, the bailor is bound to disclose to the
bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with
the use of them, or expose the bailee to extraordinary risks; and if he does not make su ch
disclosure, he is responsible for damage arising to the bailee directly from such faults.
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was
not aware of the existence of such faults in the goods bailed.
Hence, in the given case B is responsible to compensate A for the injuries sustained even if he
was not aware of the defect in the carriage.
(d) According to section 143 of the Negotiable Instruments Act, 1881,
(1) Trial of Offence: Notwithstanding anything contained in the Code of Criminal Procedure,
1973, all offences under this Chapter shall be tried by a Judicial Magistrate of the first class
or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of
the said Code shall, as far as may be, apply to such trials:
In case of summary trial: Provided that in the case of any conviction in a summary trial
under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for
a term not exceeding one year and an amount of fine exceeding five thousand rupees:
In case where no summary trial can be made: Provided further that when at the
commencement of, or in the course of, a summary trial under this section, it appears to the
Magistrate that the nature of the case is such that a sentence of imprisonment for a term
exceeding one year may have to be passed or that it is, for any other reason, undesirable to
try the case summarily, the Magistrate shall after hearing the parties, record an order to that
effect and thereafter recall any witness who may have been examined and proceed to hear
or rehear the case in the manner provided by the said Code.
(2) Speedy Trial: The trial of a case under this section shall, so far as practicable, consistently
with the interests of justice, be continued from day to day until its conclusion, unless the Court
finds the adjournment of the trial beyond the following day to be necessary for reasons to be
recorded in writing.
(3) Speedy and efficient Disposal: Every trial under this section shall be conducted as
expeditiously as possible and an endeavor shall be made to conclude the trial within six
months from the date of filing of the complaint.

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