CA Final May 2023 Suggested Answers Paper 4 Corporate and Economic Laws (Old Scheme)

FOR CA FINAL EXAM PREPARATION

CA Final 2023
Suggested Answers ·
Paper 4 Corporate and
Economic Laws (Old
Scheme)
EXAM YEAR TYPE

CA Final 2023 Suggested Answers
SUBJECT DATE

Paper 4 Corporate and Economic Laws (Old Scheme) May 2023

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER- 4 – CORPORATE AND ECONOMIC LAWS
Question No. 1 is compulsory.

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Answer any four out of the remaining five questions
Question 1
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. Ltd. proposes in May, 2023 to make investment of ` 40 Lakh in the equity se m
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eThe Sun l a
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(a) Moon Light

lasa on 31.3.2023 is furnished below: a g
shares of Shine Investment (Pvt.) Ltd. The face value of the equity shares is ` 20

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a Particulars
Lakh. financial data related to Moon Light Ltd. and Sun Shine Investment (Pvt.) Ltd.

Moon Light Ltd. Sun Shine
(` In Lakh) Investments (Pvt.)
Ltd. (` In Lakh)
I. Authorized Capital 400 200
II. Subscribed and Paid- up capital
(a) Equity shares 120 150

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(b) Preference shares 10 -
III. Free Reserves
. c o 10 15

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IV. Capital Reserves 10 -

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V. Borrowings from Public Financial 20 -

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Institution
(A) Moon Light Ltd. furnished the following information related to it as on the date of
proposition:
1. No other body corporate has invested any money in its share capital.
2. There is default of only interest for 2 months on the loan borrowed from Public
Financial Institution.
3. Moon Light Ltd. has granted guarantee to the tune of ` 50 Lakh to a Nationalized

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Bank in connection with the loan granted to Star Light Ltd.

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4. Moon Light Ltd. has granted housing loan of ` 10 Lakh to its employees, other

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than its Managing or Whole Time Director.

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lainvestment in shares
(B) Sun Shine Investment (Pvt.) Ltd. furnished the following other information

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it:

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1. The total assets as on 31.3.2023 were ` 165 Lakh including
& debentures of body corporate ` 100 Lakh.
2. The income derived from investment in shares & debentures was ` 15 Lakh out
of the gross income of ` 50 Lakh.

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2 FINAL EXAMINATION: MAY, 2023

Analyzing and referring to the relevant provisions of the Companies Act, 2013 and
relevant notifications/ circulars issued by the Ministry of Corporate Affairs:
(i) Identify the authority and the mode of approval for the investment proposal of
` 40 lakh in the equity shares in the above scenario.
(ii) Identify the authority and the mode of approval for the investment proposal in
case Moon Light Limited has provided security valuing ` 50 Lakh to Star Light
Ltd. instead of guarantee.
(iii) Whether approval of the Public Financial Institution is required for the
investment proposal?
(iv) Is there any exemption available to Moon Light Ltd. in case Moon Light Ltd. is a
private company?
(v) Whether Sun Shine Investment (Pvt.) Ltd. is an investment company based on
the data given above?
(b) AA Ltd. an unlisted company, is engaged in manufacturing ultra-powered guns. The
Company has 12 directors on its Board as on 31.3.2022. The Articles of Association of the
Company contain provisions for appointment of directors according to the principle of
proportional representation and enabling procedure. At the last Annual General Meeting
(AGM) held on 24th September, 2022, eight directors were appointed for a period of 3 years
according to the principle of proportional representation by a system of cumulative voting.
This is the first time the company adopted the principle of proportional representation. The
company has three independent directors complying the provisions of the Companies Act,
2013. A group of members has given a special notice of resolution to remove the following
three directors.
1. A (non- executive director), who was appointed according to the principle of
proportional representation at the AGM held on 24 th September, 2022.
2. B (non- executive Independent Director) who was appointed at the AGM held on
20th September, 2021 for a second term of 5 years.
3. C (non- executive Woman Director).
On receipt of the special notice of the resolution to remove the above three directors, the
company sought your opinion on the following matters in accordance with the provisions
of the Companies Act, 2013:
(i) Whether the appointment of eight directors according to the principle of proportional
representation at the AGM held on 24th September, 2022 is valid?
(ii) Can the above three directors be removed by the Company? If so, state the procedure
of removal?
(iii) Is it necessary for the Company to send the copy of the Special notice of resolution
to remove the directors to all the twelve directors?

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 3

Answer
(a) (i) Authority and the mode of approval for the investment proposal of ` 40 lakh in

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Sun Shine Investment (Pvt) Ltd.

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Section 186 of the Companies Act, 2013, (the Act) deals with the provisions relating

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to Loan and Investment by a Company. According to Section 186(2) of the Act, no
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s e(a) give any loan to any person or other body corporate; l a
Company shall directly or indirectly -

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l (b) give any guarantee or provide security in connection with a loan to any othera g
ag body corporate or person; and
(c) acquire, by way of subscription, purchase or otherwise, the securities of any
other body corporate,
exceeding sixty percent of its paid-up share capital (equity and preference), free
reserves and securities premium account or one hundred percent of its free reserves
and securities premium account, whichever is more.

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Prior approval by a Special Resolution for exceeding limit [Section 186(3)]:

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Where the aggregate of the loan and investment so far made, the amount for which

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guarantee or security so far provided to all or in all other bodies corporate along with

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the investment, loan guarantee or security proposed to be made or given by the

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Board, exceed the limits specified under Section 186(2) of the Act, no investment or

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loan shall be made or guarantee shall be given or security shall be provided unless
previously authorized by a special resolution passed in a general meeting.
Unanimous Resolution of the Board [Section 186(5)]
Any investment shall be made or loan or guarantee or security given by the Company
only after when the resolution sanctioning it is passed at a meeting of the Board with
the consent of all the directors present at the meeting.
The prior approval of the public financial institution concerned where any term loan is
subsisting shall also be obtained.

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Calculation

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c. o emand securities
According to the information given in the problem:

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60% of paid-up share capital (equity and preference), free reserves

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premium account is ` 84 Lakh

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(i.e. 60% of [` 120 + 10+10] = ` 84 Lakh) or
100% percent of its free reserves and securities premium account is ` 10 Lakh and
whichever is more = ` 84 Lakh without seeking prior authority by special
resolution passed in a general meeting.

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4 FINAL EXAMINATION: MAY, 2023

Moon Light Ltd. has already given guarantee to the tune of ` 50 Lakh to a Nationalized
Bank in connection with the loan granted to Star Light Ltd.
The aggregate of the loans and investments so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate, along with
the investments, loans, guarantee or security proposed to be made is ` 90 Lakh
(` 50 Lakh guarantee + proposed investment ` 40 Lakh= ` 90 Lakh) which is
exceeding the limit of ` 84 Lakh.
Conclusion: Therefore, the proposed investment shall be first approved by the Board
with the consent of all the directors present at the meeting and then approved by the
members by passing a special resolution.
Note: The MCA has clarified that loans and/or advances made by the companies to
their employees, other than the Managing or Whole-Time Directors are not governed
by the requirements of Section 186 of the Act.
(ii) Authority and the mode of approval for the investment proposal in case Moon
Light Limited has provided security of ` 50 Lakh to Star Light Ltd instead of
guarantee
Section 186 of the Act is applicable for providing security also. Hence, the answer will
remain the same as above. The investment proposal of ` 40 Lakh (with the existing
investment and loans) is exceeding the limits of investment i.e. 84 lakhs (i.e. 60 % of
the paid-up share capital, free reserves and securities premium account). No
investment shall be made even if security is given by the company instead of a
guarantee unless the resolution sanctioning it is passed at a meeting of the Board
with the consent of all the directors present at the meeting on the previously
authorized special resolution passed in a general meeting.
(iii) Approval of Public Financial Institution (PFI) for the investment proposal:
In terms of Section 186(5) of the Act, prior approval of the Public Financial Institution
(PFI) shall not be required where:
- the aggregate of the loan and investment so far made, the amount for which
guarantee or security so far provided to all or in all other bodies corporate along
with the investment, loan guarantee or security proposed to be made or given
by the Board, does not exceed the limits specified under Section 186(2) of the
Act and
- there is no default in repayment of loan instalments or payment of interest
thereon as per the terms and conditions of such loan to the PFI.
As per the facts given in the question, Moon Light Limited has defaulted in payment
of interest. Therefore, the prior approval of the PFI is required.

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 5

(iv) Exemption to Moon Light Limited, if it is a Private Company:
Section 186 of the Companies Act is applicable to both public and private companies.

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Hence, no exemption is available to Moon Light Ltd in case it is a private

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(v) Whether Sun Shine Investment (Pvt.) Ltd. is an Investment Company?

s eexpression ‘investment company” means a company whose principle business is the gl
is clarified by way of clause (a) of Explanation to Section 186 of the Act that the
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l acquisition of shares, debentures or other securities. a
a Further, a company will be deemed to be principally engaged in the business of
acquisition of shares, debentures or other securities, if its assets in the form of
investment in shares, debentures or other securities constitutes not less than fifty
per cent of its total assets or if its income derived from investment business
constitutes not less than fifty percent as a proposition of its gross income.
Investment Test
The total assets of Sun Shine Investment (Pvt) Ltd as on 31.03.2023 is ` 165 Lakh.

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Investment in shares and debentures of a body corporate is ` 100 lakh which is more

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than 50% of the total assets.
Income Test
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Income derived from investment in shares and debentures is ` 15 Lakh which is less

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than 50% of the gross income.
Since Sun Shine Investment (Pvt) Ltd. satisfies the Investment Test, hence, it is an
Investment Company.
(b) (i) Aappointment of eight directors according to the principle of proportional
representation:
Option to adopt principle of proportional representation for appointment of
directors [Section 163 of the Companies Act, 2013]: Notwithstanding anything

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contained in the Companies Act, 2013, the Articles of a Company need to contain

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provisions for the appointment of directors by proportional representation.

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The Article need to provide for the appointment of not less than two-thirds of the

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total number of the directors of a Company in accordance with the principle of

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proportional representation by using the following methods of voting:

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(a) Voting according to the single transferable vote.

a (b) Voting according to a system of cumulative voting or otherwise
and such appointments may be made once in every three years.

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6 FINAL EXAMINATION: MAY, 2023

Conclusion:Appointment of 8 eight directors by AA Ltd constitutes 2/3rd of the total
number of directors (12) and also for a period of three years. Further, as per Section
152 of the Companies Act, 2013, save as otherwise expressly provided in this Act,
every director shall be appointed by the Company in a general meeting. Accordingly,
appointment of said 8 directors at AGM, is valid.
(ii) Removal of three Directors by the Shareholders: Section 169 of the Companies
Act, 2013 contains provisions for removal of directors by the shareholders. The
procedure of removal may be in the following manner:
Requirement of an Ordinary Resolution: A Company may, by an ordinary
resolution, remove a director before the expiry of the period of his office except the
following:
(a) When a director is appointed by the Tribunal under Section 242 of the Act.
(b) When as per Section 163, two-thirds or more of the total number of directors are
appointed according to the principle of proportional representation, then such
directors cannot be removed.
An independent director re-appointed for a second term under Section 149(10) shall
be removed by the Company only by passing a special resolution.
In view of the above provisions,
Mr. A cannot be removed by the Company,
Mr. B can be removed by the Company by passing a special resolution and
Mr. C can be removed by passing an ordinary resolution in the members meeting.
Procedure:
(1) The director to be removed shall be given a reasonable opportunity of being
heard before his removal.
(2) A Special Notice as per Section 115 of the Companies Act, 2013 shall be
required for proposing any resolution to remove a director.
(3) The Director concerned may give a written representation to the Company and
request that it should be notified to members and the Company shall, do so.
(4) On receipt of the special notice of a resolution to remove a director, the
Company shall forthwith send a copy thereof to the director concerned, and the
director, whether or not he is a member of the Company, shall be entitled to be
heard on the resolution at the meeting [Section 169(3)].

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 7

(iii) Whether the Special Notice of resolution to remove the directors needs to be
sent to all the 12 directors?

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In view of the provisions of Section 169(3) of the Act as stated above, the Company

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is not required to send the copy of the Special Notice of resolution to remove the

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directors to all the 12 directors. It is required to be sent only to the three directors
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(A, B and C) sought to be removed.

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(a)g An investigation was ordered by the Central Government under Section 216 of the
Question 2
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a Companies Act, 2013 against KVS Ltd. for determining the true ownership to decide who
are really financially interested and who are in real control of the Company. In connection
with investigation, it appears to the Tribunal that there is good reason to find out the
relevant facts about two lakh equity shares issued by the Company on 10 th September,
2021. The Tribunal is of the opinion that unless restrictions are imposed on transfer of
equity shares, the purpose cannot be achieved. Accordingly, the Tribunal by an order,
directed the company that transfer of equity shares shall be subject to restrictions for a

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period of one year.

emto restrict transfer of equity shares for a period
Referring to the provisions of the Companies Act, 2013 examine and decide:

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(i) Whether the Tribunal has the power

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of one year?
(ii) Whether the Tribunal has the power to restrict further issue of equity shares for a
period of four years instead of restriction on transfer of equity shares for a period of
one year?
(iii) Whether the stakeholders of KVS Ltd. can make a complaint to the Tribunal to put
restrictions upon securities of the Company?
(b) Examine the merits of the following petitions made under the provisions of the Companies
Act, 2013 for relief in case of oppression and mismanagement in the light of the said Act

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and judicial pronouncements:

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(i) VR has been acting as Managing Director of ABC Limited, though he was not

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appointed by the Company as Managing Director. This fact is well known to a group

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of minority shareholders. The same group filed an application with the National

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Company Law Tribunal claiming that the functions discharged by VR amounted to

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oppression & mismanagement and sought relief.
(ii) IK, legal heir of the deceased shareholder of RSM Ltd. filed an application to the
National Company Law Tribunal seeking relief against oppression & mismanagement
in relation to RSM Ltd. IK is in the position of minority shareholder. But his name is

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8 FINAL EXAMINATION: MAY, 2023

not in the register of members of the company.
(iii) RR, a practicing advocate, representing all the depositors of On Road Limited, a listed
company, filed an application with the National Company Law Tribunal for relief as
they are of the opinion that the management of the company and affairs of the
company are being managed or conducted in a manner which is prejudicial to the
interest of the depositors and being oppressive.
(c) PSM Ltd. raised External Commercial Borrowings (ECB) with eligible lender through
approval route after proper vetting of the application by their AD Category-I Bank. The
Company failed to response for the e-mail numbering 8 sent by AD Category-I Bank during
the last 2 quarters. As per the records available with AD Category-I Bank, PSM Ltd. is not
found to be operative during the visit by the officials of AD Category-I Bank. However, the
Company is regular in submitting its Statutory Auditor's Certificate.
Referring to the provisions of the Foreign Exchange Management Act, 1999, examine and
decide:
(i) Whether PSM Ltd. is considered as an untraceable entity?
(ii) Whether it is necessary to inform Directorate of Enforcement about PSM Ltd. under
the above circumstances?
(d) AX, resident in India had gone to London [UK] on a temporary visit in August, 2022 and to
Bhutan in February, 2023. He brought in India at the time of his return, currency notes of
Government of India and RBI Notes ` 20,000 from London and ` 1,00,000 from Bhutan in
the denomination of ` 50. Referring to the provisions of the Foreign Exchange
Management Act, 1999, examine and decide:
(i) Whether import of Indian currency in the above situations are prohibited?
(ii) What would be your answer in case ` 1,00,000 from Bhutan was brought in the
denomination of ` 100 by AX?
Answer
(a) Imposition of restrictions upon Securities [Section 222 of the Companies Act, 2013]:
Where it appears to the Tribunal, in connection with any investigation under Section 216 or
on a complaint made by any person in this behalf, that there is good reason to find out the
relevant facts about any securities issued or to be issued by a Company and the Tribunal
is of the opinion that such facts cannot be found out unless certain restrictions, as it may
deem fit, are imposed, the Tribunal may, by order, direct that the securities shall be subject
to such restrictions as it may deem fit for such period not exceeding three years as may
be specified in the order.
Facts of the Case: In an investigation against KVS Ltd., it appears to the Tribunal that
there is a good reason to find out the relevant facts about two lakh equity shares issued
by the Company on 10th September, 2021. Accordingly, the Tribunal, by an order, directed

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 9

the Company that transfer of equity shares shall be subject to the restrictions for a period
of one year.

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Following are the answers to the questions:

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(i) Whether the Tribunal has the power to restrict transfer of equity shares for a

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period of one year?
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s eequity shares for a period of one year as the maximum period prescribed is 3 gl a
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As per the above provision, Yes, the Tribunal has the power to restrict transfer of

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a (ii) Whether the Tribunal has the power to restrict further issue of equity shares for
a period of four years?
As the provision deals with respect to “any securities issued or to be issued by a
company”, hence, Tribunal can also restrict further issue of equity shares subject to
a maximum period of 3 years instead of restriction on transfer of equity shares for a
period of 1 year. However, the Tribunal has no power to restrict further issue of
equity shares for a period of 4 years.

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(iii) Whether the stakeholders of KVS Ltd. can make a complaint to the Tribunal?

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Yes, as per law, any person can make a complaint. Therefore, stakeholders of KVS

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Ltd. can make a complaint to the Tribunal to put restrictions upon securities of

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ag sowithappointed,
the Company.
(b) (i) Where a person without being was acting as a Managing Director (MD)
and discharging his functions or without the knowledge of the members, then,
members cannot file an application with the Tribunal claiming it as an act of
oppression.
In this case, VR, has been acting as MD of ABC Limited, though not appointed by the
Company as MD. This was known to the group of shareholders. Later, an application
was filed by such group of shareholders before the NCLT claiming that the functions
discharged by him amounted to oppression & mismanagement and sought relief.

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Hence, the petition filed by the group of shareholders is not maintainable.

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(ii) IK, the legal heir of the deceased shareholder of RSM Ltd. filed a petition before the

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NCLT. Such legal heir was in the position of a minority shareholder. Here, the legal

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heir of the deceased shareholder with minority status is entitled to file the petition

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even if his name is not on the register of members of the Company.

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(iii) As per Section 245 of the Companies Act, 2013, such prescribed number of
member/s, depositor/s or any class of them, as the case may be, if they are of the
opinion that the management or conduct of the affairs of the Company are being
conducted in a manner prejudicial to the interests of the Company or its members or
depositors, can file an application before the Tribunal on behalf of the members.

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10 FINAL EXAMINATION: MAY, 2023

Accordingly, any person, group of persons or any association of persons representing
the persons affected by the act of omission, under Section 245(10) can file an
application before the Tribunal on behalf of the members or depositors for seeking
remedies. Hence, in this case, application filed by RR, a practicing advocate,
representing all the depositors, to the Tribunal, is maintainable.
(c) In the given instance, PSM Ltd. raised ECB to the eligible lenders in compliance with proper
vetting of the application by AD Category-I Bank. However, PSM Ltd. failed to respond for
email numbering 8 send by AD Category-I Bank during the last 2 quarters. As per AD
Category-I Bank, PSM Ltd. is not found to be operative during the visit by the officials of
AD Category-I Bank, but the company is regular in submitting its Statutory Auditor’s
Certificate.
Following are the answers:
(i) Definition of Untraceable Entity
Transactions on account of External Commercial Borrowings (ECB) are governed by
Section 6(3) (d) of the FEMA, 1999. Any borrower who has raised ECB will be treated
as ‘untraceable entity’ if the entity / auditor(s)/ director(s)/ promoter(s) of entity are
not reachable / responsive / reply in negative over email / letters / phone for a period
of not less than two quarters with documented communication / reminders numbering
6 or more and it fulfills both the following conditions:
(a) Entity not found to be operative at the registered office as per records available
with the AD Bank or not found to be operative during the visit by the officials of
AD Bank or any other agencies authorized by the AD bank for the purpose.
(b) Entities have not submitted Statutory Auditor’s Certificate for last two years or
more.
Whereas, in the given problem, the entity is regular in submitting its Statutory
Auditor’s certificate.
As the requirement of satisfying both the conditions as stated above is required to
call an entity as ‘untraceable entity’, it can be concluded that PSM Limited cannot be
considered as an untraceable entity.

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 11

(ii) Directorate of Enforcement should be informed whenever any entity is designated
‘untraceable’. In the given case, since PSM Ltd. is not considered as an

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‘untraceable entity’, it is not required to inform the Directorate of Enforcement.

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(d) As per Regulations related to Import of goods and services under FEMA:

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(1) Any person resident in India who had gone out of India on a temporary visit, may

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bring into India at the time of his return from any place outside India (other than from

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Nepal and Bhutan), currency notes of Government of India and Reserve Bank of

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a (2) A person may bring into India from Nepal or Bhutan, currency notes of Government
India notes up to an amount not exceeding ` 25,000 (Rupees Twenty Five Thousand
only).

of India and Reserve Bank of India for any amount in denominations up to ` 100/-
without any ceiling.
Accordingly, following are the answers:
(i) Import of Indian currency of ` 1,00,000 from Bhutan in the denomination of ` 50 is
not prohibited and without any ceiling. Also, import of currency notes of Government

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of India and RBI notes of ` 20,000 from London, is permissible.

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(ii) In case where, ` 1,00,000 is brought from Bhutan in the denomination of ` 100 by

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AX, it is not prohibited and without any ceiling.
Question 3
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(a) The Tribunal has passed an order for winding-up of Jagga Footwear Limited, a company
limited by shares, on 1st April, 2023. Examine the liability of the following past members of
the company, where present members are unable to satisfy the contributions required to
be made by them in pursuance of the Companies Act, 2013. It is to be noted that they
ceased to be the members of the company by way of transferring their partly unpaid shares
to the transferees.
(i) Liability of Jayanti towards a debt incurred by a company during the Financial Year
2021-22 where she has ceased to be the member on 31 st March, 2022.

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(ii) Liability of Nayana towards a debt incurred on 31st December, 2022 where she has

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ceased to be the member on 30th November, 2022.

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Liability of Chitra towards a debt incurred on 31st December, 2022 where she has

em (b) KRD Research Development Ltd. was registered in India underlthe a provisions of the
ceased to be a member on 1 January, 2023. st

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Companies Act, 2013. Its future project is to innovate unique business idea emerging from
research and development in a new area. Due to the recession in the industry, the
Company has no significant accounting transaction and business activities during the last
two financial years. However, the Company has been regular in filing its financial
statements and annual returns with the Registrar of Companies [RoC] by making payment

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12 FINAL EXAMINATION: MAY, 2023

of applicable fees. The Company decided to file the application for obtaining the status of
dormant company. The Company instead of passing a special resolution to this effect in
the general meeting of the Company, issued notice to all the shareholders of the Company
for this purpose and obtained consent of 80% of shareholders in value.
Referring the provisions of the Companies Act, 2013 and Rules made there under answer
the following:
(i) Whether the payment of filing fees to RoC could be considered as significant
accounting transaction under the said Act?
(ii) Whether the application made by KRD Research Development Ltd. is in order, in the
absence of passing a special resolution?
(c) Ranjeet of Lucknow was posted as Tehsildar in a Tehsil Headquarter near Lucknow. After
a year of his joining he purchased a ready built house in Lucknow in the name of his wife.
He ostensibly showed the business income of his wife and availed loan of 90% of the value
of house from a bank and also gave a guarantee of house loan. The Bank in this case, did
not ensure the business activity of his wife, (address of business place, Income tax Return
filed, how long she did business etc.) and solely relying that Ranjeet is giving the
guarantee, it sanctioned the loan. After availing the loan, he continued to deposit some
amount in the house loan account of his wife, regularly (apart from the EMI) and within a
year, liquidated the loan account. One of the employees in his office made compliant to ED
of taking of bribe/commission by him on regular basis and so liquidating the loan account
in just a year.
Examine whether Ranjeet was involved in the money laundering activity in the light of the
given facts as per the provisions of the Prevention of Money Laundering Act, 2002?
(d) OSK Bank Limited, a reporting authority, is under enquiry by the Director appointed under
the provisions of the Prevention of Money Laundering Act (PMLA), 2002. The Director
having regard to the nature and complexity of the case directed OSK Bank Limited to get
its records audited. The Chief Audit Officer, Head of Internal Audit Department of the Bank
audited the records and furnished the report to the Director.
Referring to the provisions of the PMLA, 2002 answer the following:
(i) Whether the reporting authority has complied with the provisions of the Act?
(ii) Who shall bear the expenses of audit?
Answer
(a) Section 285 of the Companies Act, 2013 deals with the ‘Settlement of List of Contributories
and Application of Assets’.
While settling the list of contributories, the Tribunal shall include every person, who is or
has been a member, who shall be liable to contribute to the assets of the company an
amount sufficient for payment of the debts and liabilities and the costs, charges and

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 13

expenses of winding up, and for the adjustment of the rights of the contributories among
themselves, subject to the following conditions, namely:—

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(a) a person who has been a member shall not be liable to contribute if he has ceased to

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be a member for the preceding one year or more before the commencement of the

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. who has been a member shall not be liable to contribute in respect of any se m
winding up; [Section 285(3)(a)]

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eto beora liability of the company if such debt or liability is contracted after he ceased la
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(b) a person

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debt

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member; [Section 285(3)(c)]

(i) Jayanthi has ceased to be a member one year (i.e on 31.03.2022) before the
commencement of the winding up (i.e on 1st April 2023) and hence she shall not be
liable towards the debt incurred during the period (FY 2021-22) she has been a
member even if, the shares were not fully paid-up at the time of transfer.
(ii) Nayana has ceased to be a member (i.e on 30.11.2022) prior to incurring the debt by
the Company (i.e on 31.12.2022) and hence, she will not be liable for the debt.

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(iii) Liability of Chitra towards a debt incurred on 31st December, 2022 shall subsist as

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she ceased to be a member on 1st January, 2023, just three months before the

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commencement of the winding up order (on 1st April, 2023). Chitra shall be liable to

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the extent of the amount remained unpaid on the shares.

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(b) (i) As per Section 455 of the Companies Act, 2013, where a Company is formed and
registered under this Act, for a future project or to hold an asset or intellectual property
and has no significant accounting transaction, such a company or an inactive
company may make an application to the Registrar for obtaining the status of a
dormant company.
According to Explanation to Section 455, “significant accounting transaction” means
any transaction other than:
- payment of fees by a Company to the Registrar;

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- payments made by it to fulfill the requirements of this Act, and

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Thus, payment of filing fees to the RoC cannot be considered as a. significant
- payments for maintenance of its office and records.

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Conclusion: Accordingly, in the given case, KRD ResearchlDevelopment
accounting transaction.

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eligible to apply to the Registrar of Companies to obtain the status of Dormant
company even if it has continued payment of fees to Registrar of Companies.
(ii) According to Rule 3 of the Companies (Miscellaneous) Rules, 2014, a Company
may make an application in prescribed form NSC -1 to the Registrar for obtaining
the status of a Dormant Company in accordance with the provisions of section 455

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14 FINAL EXAMINATION: MAY, 2023

after passing a special resolution to this effect in the general meeting of the company
or after issuing a notice to all the shareholders of the company for this purpose and
obtaining consent of atleast 3/4th shareholders (in value).
Conclusion: Thus, application made by KRD Research Development Ltd. is in
order, as a notice is issued to all the shareholders of the Company for this purpose
and obtained consent of 80% of shareholders in value which fulfills the requirement
of at least 3/4th shareholders (in value).
(c) As per Section 3 of the Prevention of Money Laundering Act, 2002 -
Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a
party or is actually involved in any process or activity connected with the proceeds of crime
including its concealment, possession, acquisition or use and projecting or claiming it as
untainted property shall be guilty of offence of money-laundering.
Section 2(1)(u) “proceeds of crime” means any property derived or obtained, directly or
indirectly, by any person as a result of criminal activity relating to a scheduled offence or
the value of any such property or where such property is taken or held outside the country,
then the property equivalent in value held within the country or abroad;
Section 2(1)(y) of the PML Act provides that – “scheduled offence” besides with other
offences, includes the offences specified under Part A of the Schedule;
Under Schedule -Part A - Paragraph 8: Offences under the Prevention of Corruption Act,
1988 specifies Section 7- Offence relating to public servant being bribed.
Conclusion: In the light of the above mentioned related legal provisions and if it has been
proved that Ranjeet has taken bribery, then the act of Ranjeet shall be a case of money
laundering i.e. converting of black income earned through bribe and efforts in converting it
into white money and raising the house loan in the name of his wife. Hence, Ranjeet would
be deemed to be involved in money laundering activity and liable under the PMLA,
2002.
(d) As per Section 13 of the PMLA, 2002, if at any stage of inquiry or any other proceedings
before him, the Director having regard to the nature and complexity of the case, is of the
opinion that it is necessary to do so, he may direct the concerned reporting entity to get its
records, audited by an accountant from amongst a panel of accountants, maintained by
the Central Government for this purpose.
The expenses of, and incidental to, any such audit shall be borne by the Central
Government.
Accordingly, following are the answers to the questions:
(i) No, the reporting authority has not complied with the direction of OSK Bank Limited
to get its records audited by competent authority as per the above provision. Records
need to be audited by an accountant from amongst a panel of accountants,

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 15

maintained by the Central Government and cannot be audited by the chief audit officer
of the Bank.

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(ii) The expenses of audit shall be borne by the Central Government.

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Question 4

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(a) Vijyan, a market intermediary was found to have violated the provisions of the Securities

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and Exchange Board of India (SEBI) Act, 1992 while dealing in securities of KGK Ltd. The
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SEBI, pending investigation for the reasons recorded in writing, proposed to attach the
Bank Accounts maintained by Vijyan. Two current Accounts are maintained by him. One
current account with Star Bank of India (SBI) where the proceeds involved in the dealing
of Securities of KGK Ltd. alone have been routed through and another current account with
Indian Domestic Bank (IDB) where his textile business transactions have been routed
through. The debit balance of current account with SBI is rupees one lakh and that of IDB
` 15 lakh. Referring to the provisions of the SEBI Act, 1992:
(i) Advise the SEBI regarding the attachment of Bank current Account maintained with
SBI or IDB or both.

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(ii) Whether SEBI has the power to investigate the affairs of Vijyan in relation to the

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securities market?

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(b) JKR Ltd., a listed company submitted the following Reports/ statement to the Stock

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Exchange:

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(i) Quarterly Compliance Report on Corporate Governance for the Quarter ended
31st December, 2022 on 18th January, 2023.
(ii) Annual Compliance Report on Corporate Governance for the financial year ended
31.3.2022 on 4th October, 2022 after filing the Quarterly Compliance Report on
Corporate Governance relating to the second quarter of the financial year 2022-23.
(iii) Statement of Grievance Redressal Mechanism showing only the number of investor
complaints remaining unresolved at the Quarter ended 31st December, 2022 on 20th
January, 2023.

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Referring to the SEBI (Listing Obligations and Disclosure Requirements) Regulations,

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2015, whether the Company has complied timelines requirements in the above cases

c. o (c) KK Medicare Trust in Hyderabad (India) was setup for poor class of ssociety
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and also the content requirement in respect of the statement of Grievance Redressal

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Mechanism.
e in the year
s e g l a regularly, out of
gla a and staff have been
2015. Since then, the trust has been receiving huge foreign contribution

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which the medical hospital and residential flats for medical officers
constructed. Trusties of KK Medicare Trust in its meeting held on 30 April, 2023 decided th

to dissolve the trust and dispose off the property and assets of the trust, including the
property created out of foreign contribution. Explain the trustees of KK Medicare Trust, the
provisions applicable for disposal of property of the Trust created out of funds of foreign

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16 FINAL EXAMINATION: MAY, 2023

contribution in light of the provisions of the Foreign Contribution (Regulation) Act, 2010.
(d) SAL and AFL enters into an Annual Maintenance Service contract on 10.1.2020 for a period
of 4 years. The contract contained a clause that in the event of a dispute between the
parties, such matter would be submitted to arbitration. A new Annual Maintenance Service
contract was entered between the parties on 30th December, 2022. The New Annual
maintenance service contract does not contain an arbitration clause as was in the contract
dated 10.1.2020.
Referring to the Provisions of the Arbitration and Conciliation Act, 1996, answer the
following:
(i) Whether the parties can refer any future dispute to Arbitration based on the contract
dated 10.1.2020?
(ii) Whether an arbitration agreement is discharged by the death of any party?
Answer
(a) As per Section 11 of the SEBI Act, 1992, the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or securities market, take any of the
measures provided therein the provision, either pending investigation or inquiry or on
completion of such investigation or inquiry.
According to the Section, Board may order for attachment, for a period not exceeding
ninety days, bank accounts or other property of any intermediary or any person associated
with the securities market in any manner involved in violation of any of the provisions of
this Act, or the rules or the regulations made thereunder.
Provided that the Board shall, within, ninety days of the said attachment, obtain
confirmation of the said attachment from the Special Court, established under Section 26
A, having jurisdiction and on such confirmations, such attachment shall continue during
the pendency of the aforesaid proceedings and on conclusion of the said proceedings, the
provisions of Section 28 A shall apply.
Provided further that only property, bank account or accounts or any transaction entered
therein, so far as it relates to the proceeds actually involved in violation of any of the
provisions of this Act, or the rules or the regulations made thereunder shall be allowed to
be attached.
(i) In view of the above provisions, SEBI has the power to attach the current account
maintained with Star Bank of India (SBI) involved in the securities of KGK Ltd have
been routed through it. SEBI cannot attach the current account maintained with
Indian Domestic Bank (IDB).

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 17

(ii) If any intermediary or any person associated with the securities market has violated
any of the provisions of SEBI Act, 1992 or the rules or the regulations made

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thereunder issued by the Board, it may at any time by order in writing, direct any

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person (referred to as the Investigating Authority) to investigate the affairs of such

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intermediary or persons associated with the securities market and to report thereon

eTherefore, an order for an investigation into the affairs of the Vijyan in relation glas
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to the Board.

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la to the securities market, may be initiated. a
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a(b) Following shall be the answers as per the SEBI (LODR) Regulations, 2015
(i) Quarterly Compliance Report on Corporate Governance
As per Regulation 27(2), a listed entity shall submit quarterly compliance report
on corporate governance in the format as specified by the Board from time to time
to the recognized stock exchange(s) within 21days from close of the quarter.
JKR Ltd. filed the report on 18th January, 2023. There is no violation of time line. It

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has been submitted before the stipulated time period i.e. by 21st of January, 2023.

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(ii) Annual Compliance Report on Corporate Governance (ACRCG).
The Annual Compliance Report oneCorporate

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ag The second
6 months from the end of the financial year and may be submitted along with
the second quarter report. quarter report was filed earlier to the Annual
Compliance Report on Corporate Governance and hence, the ACRCG was not filed
within the time frame as the time limit for filing is 30.09.2022 in this instance or along
with the second quarter report.
(iii) Regulation 13(3): Grievance Redressal Mechanism
The listed entity shall file with the recognized stock exchange(s) on a quarterly basis,
within 21 days from the end of each quarter, a statement giving the number of investor

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complaints pending at the beginning of the quarter, those received during the quarter,

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disposed of during the quarter and those remaining unresolved at the end of the

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quarter.

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a requirement in the
lcomplaints,
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In this case, time lines compliance is made by filing the statement

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Redressal Mechanism on 20th January 2023 , however, content

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statement (w.r.t number of pending complaints, received disposed
complaints and unresolved complaints during different stages of the quarter were not
furnished which is not in compliance as per the requirement of the provision.

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18 FINAL EXAMINATION: MAY, 2023

(c) In the given case, KK Medicare Trust in Hyderabad was setup in 2015. Trust was receiving
huge foreign contribution regularly. Trustees decided in its meeting held on 30th April, 2023
to dissolve the trust and dispose off the property and assets of trust, including the property
created out of foreign contribution.
Disposal of Assets created out of Foreign Contribution [Section 22]
Where any person who was permitted to accepted foreign contribution under this Act:
(a) Ceases to exist or has become defunct - in this case, all the assets of such person
shall be disposed of in accordance with the provision contained in any law for the
time being in force under which the person was registered or incorporated; and
(b) In the absence of any such law - the Central Government may, having regard to the
nature of assets created out of foreign contribution received under this Act, by
notification, specify that all such assets shall be disposed of by such authority, in such
manner and such procedure as may be prescribed.
Conclusion: Hence, the Trustees be advised to refer to the applicable clause in the trust
deed and its by-laws governing the disposal of assets in the event of dissolution of the
trust or if it is silent, the Government notification, if any, issued in this regard. The assets
created out of foreign contribution cannot be disposed of contrary to the procedure
laid down by the law.
(d) As per Section 7 of the Arbitration and Conciliation Act, 1996, “arbitration agreement”
means an agreement by the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a defined legal relationship,
whether contractual or not.
An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement. An arbitration agreement shall be in writing.
The reference in a contract to a “document containing an arbitration clause” constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
In said case,
(i) No, as per above provision, SAL and AFL cannot refer future dispute to Arbitration
based on the contract dated 10.1.2020, as the new Annual Maintenance Service
Contract which was entered on 30th December 2022 does not contain arbitration
clause neither reference in a contract to a “document containing an arbitration
clause”.
(ii) An arbitration agreement is not discharged by the death of any party. It shall be
enforceable by or against the legal representatives of the deceased.

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 19

Question 5
(a) (i) Global Commercial LLC is a foreign company having its place of business in Mumbai,

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India. On default of repayment in loan instalments, the lender bank in India wants to

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serve a notice on the LLC. Advise, whom and how the notice will be served on it as

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(ii) MNO. LLC (LLC), a foreign company, has failed to file its annual return and financial
per the provisions of the Companies Act, 2013?
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e2021-22 and the default continues. LLC has contracted for purchase of machinery gl a s
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l which has been delivered on 1 January, 2023. The vendor wants to sue LLC fora
statements with the Registrar of Companies, Delhi relating to the financial year

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a defaulting the payment terms of the contract. On the contrary, LLC is planning to sue
st

the vendor for supplying defective spare parts along with the machinery. Referring to
the provisions of the Companies Act, 2013 examine the entitlement of both the parties
to sue each other.
(b) The Registrar of Companies in the capacity of the Adjudicating officer, issued notice dated
10th March, 2023 to Straight Ltd. to show cause to reply within 10 days as to why the
penalty should not be imposed on the company for contravening of a provision of the

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Companies Act, 2013. The Company submitted its reply within the time frame in electronic

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mode. The Registrar was of the opinion that physical appearance was not required. The

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Registrar considering the merit of the reply passed an order on 25th April, 2023 imposing

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penalty on the Company. The Company contended that the Registrar has not passed the

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order within the time frame specified under section 454 of the Companies Act, 2013.

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Hence, the order is not valid.
Referring to the provisions of the Companies Act, 2013, answer the following:
(i) Whether the contention of the Company about the validity of the order is correct?
(ii) Identify the time frame for passing order in case physical appearance was found
required and authorized representative appeared before the Registrar.
(iii) Who is the authority to appoint Adjudicating Officer for adjudging penalty?
(c) (A) Oman Inc. (HUF) filed a Petition under Section 9 of the Insolvency and Bankruptcy

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Code, 2016 (IBC) for initiation of Corporate Insolvency Resolution Process (CIRP)

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against D Ltd., [Corporate Debtor]. The Adjudicating Authority admitted the Petition

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vide order dated 26.9.2022 and initiated CIRP and appointed PS as an Interim

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Resolution Professional (IRP). Subsequently PS (IRP) has been replaced by SKA

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Resolution Professional, on 10.1.2023. The Insurance of the assets of the CD was

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lapsing on 16.12.2022. The IRP recognizing the urgent need to get the insurance

ag renewed in order to safeguard the assets of the CD, decided to take new insurance
policy at a higher premium rate comparing the previous Insurance policy without the
prior consent of the Committee of Creditors. The IRP entered into the contract with
the Insurance Company for taking the new Insurance Policy.

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20 FINAL EXAMINATION: MAY, 2023

(B) MN has granted an interest free loan to AB Private Ltd. with a condition to repay the
loan within 3 years. AB Private Ltd. defaulted to repay the loan. MN filed a petition
under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate the
CIRP against AB Private Ltd. after complying the required formalities. The
Adjudicating Authority dismissed the Petition on the ground that it is an interest free
loan and the applicant is not a financial creditor.
Referring to the provisions of IBC, 2016 decide:
(i) Identify the date of commencement of CIRP in relation to CIRP initiated against
D Ltd.
(ii) Whether PS (IRP) has the authority in entering the new Insurance Policy?
(iii) Whether the rejection of the Petition made by MN on the ground mentioned
above is valid?
Answer
(a) (i) Global Commercial LLC has a place of business in Mumbai, India, hence it is a foreign
company and will be required to follow provisions as specified under the Companies
Act, 2013.
According to Section 383 of the Companies Act, 2013, any process, notice, or other
document required to be served on a foreign company shall be deemed to be
sufficiently served, if addressed to any person whose name and address have been
delivered to the Registrar under section 380 and left at, or sent by post to, the address
which has been so delivered to the Registrar or by electronic mode.
Conclusion: The lender bank can serve the notice to any person whose name and
address have been delivered to the Registrar under Section 380 and left at, or sent
by post to, the address which has been so delivered to the Registrar or by electronic
mode.
(ii) According to Section 393 of the Companies Act, 2013, any failure by a company to
comply with the provisions of Chapter XXII of the Companies Act, 2013, shall not
affect the validity of any contract, dealing or transaction entered into by the company
or its liability to be sued in respect thereof. However, the company shall not be entitled
to bring any suit, claim any set-off, make any counter-claim or institute any legal
proceeding in respect of any such contract, dealing or transaction, until the company
has complied with the provisions of the Companies Act, 2013, applicable to it.
In the given question, MNO LLC (LLC), a foreign company has failed to file its annual
return and financial statements with the Registrar for F.Y. 2021-2022, hence, it has
contravened the provisions of Chapter XXII. The vendor can sue MNO LLC for
defaulting the payment terms of contract. However, MNO LLC shall not be entitled to

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 21

bring any suit, claim any set-off, make any counter-claim or institute any legal
proceeding in respect of any such contract, dealing or transaction, until it has

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complied with the provisions of the Companies Act, 2013, applicable to it.

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(b) Period for passing the order: The Adjudicating Officer shall pass an order:

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(a) within 30 days of the expiry of the period or of such extended period, where physical

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appearance was not required;
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(b) within 90 days of the date of issue of notice, where any person appeared before the
Adjudicating Officer:
However, in case an order is passed after the aforementioned duration, the reasons of the
delay shall be recorded by the Adjudicating Officer and no such order shall be invalid
merely because of its passing after the expiry of such 30 days or 90 days as the case may
be.
(i) Whether the contention of the Company about the validity of the order is
correct?

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The said order was passed after 30 days of the date of issue of notice. However, the

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order passed is valid. Therefore, the contention of the company about the validity of

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the order that it has not passed the order within the time frame, is incorrect.

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gof issue of notice where any person appeared before the
a
(ii) Time Frame
Within 90 days of the date
Adjudicating Officer.
(iii) Authority to appoint Adjudicating Authority
The Central Government may appoint any of its officers, not below the rank of
Registrar, as Adjudicating Officers for adjudging penalty under the provisions of the
Act.

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(c) (i) Date of commencement of CIRP initiated against D Ltd.

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Application for initiating Corporate Insolvency Resolution Process (CIRP) by the

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Adjudicating Authority under Sections 7, 9 or 10 of the Insolvency and Bankruptcy

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Code, 2016, as the case may be [ Section 5(12)].

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Accordingly, the date of commencement of CIRP against D Ltd. shall be

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26.09.2022.
(ii) Whether PS(IRP) has the authority in entering the new Insurance Policy?
Financial service includes inter-alia with other services, effecting/ implementing
contracts of insurance.

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22 FINAL EXAMINATION: MAY, 2023

According to Section 16 of the Code, the interim resolution professional shall have
the authority to appoint accountants, legal or other professionals as may be
necessary and to enter into contracts on behalf of the corporate debtor or to amend
or modify the contracts or transactions which were entered into before the
commencement of Corporate Insolvency Resolution Process. Here, since CIRP is
commenced, so CoC’s approval is required to take new insurance policy at higher
premium rate.
PS (IRP) has entered into the new insurance policy without the approval of CoC and
after the commencement of CIRP.
Hence, PS (IRP) has no authority.
(iii) Whether the rejection of petition made by MN is valid?
As per Section 3(11) of the IBC, 2016, the term ‘debt’ means a liability in respect of
a claim which is due from any person and includes a financial debt and operational
debt. A ‘financial debt’ means a debt along with interest, if any, which is disbursed
against the consideration for the time value of money and includes money borrowed
against the payment of interest. The interest, if any, will be included in the financial
debt. Interest is not compulsory as per the meaning of Financial Debt. Therefore,
interest free loan given by MN is a financial debt and MN is a Financial Creditor.
The rejection of the application on this ground, is not valid.
Question 6
(a) (A) PK Ltd. is engaged in manufacturing of paper and paper boards. Brilliant was
appointed as a director representing small shareholders for a period of 3 years. After
one month from this appointment, Brilliant was appointed by White Ltd. as small
shareholder director for a period of 2 years. White Ltd. is engaged in manufacture of
Passenger Cars.
(B) Umesh was a small shareholder director of Slow Ltd. upto 15 th September, 2020.
Considering the professional expertise of Umesh, Slow Ltd. appointed him as
Manager (Human Resource) with effect from 10th February, 2023.
Referring to the provisions of the Companies Act, 2013 examine and decide:
(i) Validity of appointment of Brilliant as small shareholder director in White Ltd. for
a period of 2 years.
(ii) Validity of appointment of Umesh as Manager (Human Resources) in Slow Ltd.
(iii) Whether a small shareholder director is eligible for re-appointment?

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 23

OR

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(a) Net Profit of Sonata Goldmines Limited is ` 200 Lakh as per its Audited Financial

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Statement for the year ending 31st March, 2022. The Profit and Loss Account contains the

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following items:
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Sr. Particulars Treatment given in Profit INR (In lakh)

1s Subsidies received from a State Credit given
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No. and Loss Account

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a otherwise been directed by the
Central Government
2 Profits on sale of forfeited shares by Credit given 2
the Company
3 Directors' remuneration paid Deducted 10
4 Income-tax payable Deducted 30

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Referring to the provisions of the Companies Act, 2013 you are requested to compute the

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net profits for the purpose of managerial remuneration payable under section 197 of the

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Act.

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(b) King Global Limited (KGL) is a multinational

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KGL appointed JiK (an expatriate

` 5,40,000 during the financialgyear 2022-23 at the rate of ` 15,000 per month per child
managerial person) as its Executive Director and paid Children's Education Allowance of

a India, as per the terms & conditions of appointment. JiK
for three children studying outside
has spent ` 2,00,000 per child for study of his Children. Compute the amount of Children's
Education Allowance being perquisites which shall not be included in computation of the
ceiling on remuneration specified in Schedule V Managerial Remuneration of the
Companies Act, 2013 in the above scenario.
What would be your answer in case JiK is a person resident in India?

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(c) "The legal representative of the accused person will have no locus standi to continue the

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proceedings relating to attachment of property by order of the Special Court in the event

c. o se
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of death or insolvency of such person." Examine the validity of the statement referring to

em ainitiating Corporate
the provisions of the Prevention of Money Laundering Act, 2002.

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(d) After approval of an application made by the financial creditor for

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Insolvency Resolution Process against the corporate debtor, the Committee of Creditors
(CoC) has been constituted. Thereafter, the financial creditor wants to withdraw the
application but is not willing to put forth the justification thereof. Will he succeed under the
provisions of the Insolvency and Bankruptcy Code, 2016? Explain.

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24 FINAL EXAMINATION: MAY, 2023

Answer
(a) First Alternative
According to Section 151 of the Companies Act, a listed company may have one director
elected by the small shareholders.
(i) According to Rule 7 of the Companies (Appointment and Qualification of
Directors) Rules, 2014, no person shall hold the position of small shareholders’
director in more than two companies at the same time.
However, the second company in which he has been so appointed shall not be in a
business which is competing or is in conflict with the business of the first company.
In the instant case, Brilliant who was small shareholder director of PK Ltd. was
appointed by White Ltd. as Small Shareholder Director for a period of 2 years. As
White Ltd. is engaged in manufacture of passenger cars, hence, his appointment in
White Ltd. is valid as the business of White Ltd. is not competing with PK Ltd.
(ii) According to the said Rules, a Small Shareholders’ Director shall not be appointed in
or be associated with such company in any other capacity, either directly or indirectly
for a period of three years from the date on which he ceases to hold office as a small
shareholders’ director in a company.
In the instant case, Umesh ceases to hold office as a Small Shareholders’ Director of
Slow Ltd. on 15th September, 2020. He was appointed by the Company as Manager
(Human Resource) w.e.f. 10th February, 2023 i.e. within 3 years of cooling period,
hence his appointment is not valid.
(iii) The small shareholders director’s tenure shall not exceed a period of three
consecutive years, and on the expiry of the tenure, such director shall not be
eligible for re-appointment.
Important Note: Since the provisions of Section 151 of the Companies Act, 2013 along
with related Rules are applicable for Listed Company only, it is assumed in this question
that all the companies mentioned in it are Listed companies.
(OR)
Second Alternative
According to Section 198 of the Companies Act, 2013, net profits for any financial year for
the purpose of managerial remuneration payable under section 197 shall be calculated as
follows:
(i) Credit shall be given for Subsidies received from any Government unless and except
in so far as the Central Government otherwise directs.
(ii) Credit shall not be given for profits on sales by the company of forfeited shares;
(iii) Directors' remuneration shall be deducted;

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PAPER – 4 : CORPORATE AND ECONOMIC LAWS 25

(iv) Income-tax and super-tax payable by the company under the Income-tax Act, 1961
shall not be deducted.

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In the instant case, in line above stated provisions:

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Computation

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eProfit of Sonata Goldmines Ltd. a
Items INR

a s
(in Lakh)
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Net ` 200
a
a which has not otherwise been directed by the Central Government -

Credit shall be given. No further adjustment is required as credit has
already been given [Section 198 (2)]
Credit is given for Profits on sale of forfeited shares by the Company (2)
Credit should not be given as per the Companies Act, 2013 and hence
deducted [Section 198 (3)(b)]
Directors’ remuneration paid is deducted. NIL

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It has to be deducted as per the Companies Act, 2013. [Section

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198(4)(b)].

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Income tax payable is deducted 30

s
The said amount is not deductible as per Act and hence, added back.
Revised Net Profit
g a
lthe purpose of managerial remuneration payable under
228

a
Hence, the revised net profit for
Section 197 is ` 228 Lakhs.
(b) (i) As per Section IV of Schedule V to the Companies Act, 2013, an expatriate
managerial person (including a non-resident Indian) shall be eligible to the following
perquisites which shall not be included in the computation of the ceiling on
remuneration specified in Section II or Section III:
Children’s Education Allowance: In case of children studying in or outside India, an
allowance is limited to a maximum of ` 12,000 per month, per child, or actual

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expenses incurred, whichever is less. Such allowance is admissible up to a maximum

m Hence, the amount of Children’s Education Allowance being perquisites .shall not be
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of two children.

s emin Schedule V.
s em lalower of (12000 * 12
included in the computation of the ceiling on remuneration specified

months * 2 children) or 4,00,000 (2,00,000 * 2 children)] g
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According to the above provision, an amount of ` 2,88,000 [i.e

ag (ii) In case JiK is a person resident in India, there is no provision under Schedule V of
the Companies Act, 2013 to exclude Children’s Education Allowance in computing of
the ceiling on remuneration.

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26 FINAL EXAMINATION: MAY, 2023

Hence, the Children’s Education Allowance paid ` 5,40,000 to JiK will be considered
as perquisites in computing of the ceiling on remuneration.
(c) Continuation of proceedings in the event of death or insolvency [Section 72 of the
Prevention of Money Laundering Act, 2002 (the Act)]
Where -
(a) any property of a person has been attached under Section 8 of the Act and no appeal
against the order attaching such property has been preferred; or
(b) any appeal has been preferred to the Appellate Tribunal, and-
(i) in a case referred to in clause (a), such person dies or is adjudicated an insolvent
before preferring an appeal to the Appellate Tribunal; or
(ii) in a case referred to in clause (b), such person dies or is adjudicated an insolvent
during the pendency of the appeal,
then, it shall be lawful for the legal representatives of such person or the official
assignee or the official receiver, as the case may be, to prefer an appeal to the
Appellate Tribunal or as the case may be, to continue the appeal before the Appellate
Tribunal, in place of such person and the provisions of Section 26 shall, so far as may
be, apply, or continue to apply, to such appeal.
Conclusion: Hence, the statement “The legal representative of the accused person will
have no locus standi to continue the proceedings relating to attachment of property by
order of the Special Court in the event of death or insolvency of such person” is not valid.
(d) Withdrawal of Application:
Withdrawal of application shall be pursuant to Section 12A of the Insolvency and
Bankruptcy Code, 2016 read with Regulation 30A of the IBBI (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016.
Under Section 12 A of the Code, a scenario may arise for withdrawal of application after
constitution of Committee of Creditors (CoC) but before issue of Invitation for Expression
of Interest (EoI). Accordingly, an application for withdrawal shall be first considered by the
CoC within 7 days of its receipt. Such withdrawal application shall be approved by the CoC
with 90% voting share upon which the resolution professional shall submit withdrawal
application along with the approval of the Committee to the Adjudicating Authority on behalf
of the applicant within three days of such approval. The final approval shall be by way of
an order passed by the Adjudicating Authority.
Conclusion: Accordingly, the financial creditor will succeed in withdrawing the application
without giving justification, only if an application is made before issuing an invitation for
EoI and approved by the Adjudicating Authority. However, he will not succeed without
giving justification, if EoI has already been invited.

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