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Questions at CA Final Examination The paper covers Companies Act (section 146 to end), MRTP, FERA, SEBI, SICA, interpretation of statutes and secretarial procedure and practices. CA FINAL November 2002 Old Syllabus Question No 1, 2 and 3 are compulsory. Answer any four questions from the rest. Q 1. Answer any two of the following - (a) The promoters of a Public Company propose to have the strength of the Board of Directors as eleven. They also propose to make the Managing Director and whole-time Directors as Directors not liable to retire by rotation. They seek your advice on the following matters. (i) Maximum number of persons, who can be appointed as Directors not liable to retire by rotation. (ii) How many of the remaining Directors will have to retire by rotation every year at the Annual General Meeting? Advice explaining the relevant provisions of the Companies Act, 1956. (b) Explain the rule of “Ejusdem Generis” with regard to Interpretation of Statutes. (c) Shri Ranjan Lal, Managing Director of RLM Limited is also a Director of Modern Technologies Limited. On coming to know that the later company will issue bonus shares shortly, he persuaded the Board of Directors of RLM Limited to invest in Equity Shares of Modern Technologies Limited to the extent of Rs. 5 lakhs at the rate of Rs. 500 per share by passing a board resolution on 27th May, 2002. Will Shri Ranjan Lal be liable under the Securities and Exchange Board of India Act, 1992; even though he has not directly dealt in Equity Shares of Modern Technologies Limited? Examine with reference to the relevant provisions SEBI Act. [6x2 = 12 marks] Q. 2. Answer any two of the following (a) (i) Annual General Meeting of a Public Company was held on 28th December, 2000. This was adjourned to 31st March, 2001 and then held. Thereafter the next Annual General Meeting was held on 28th February, 2002. An action is brought against the company for not holding an Annual General Meeting in 2001. It is contended on behalf of the company that a meeting was held in that year. Decide giving reasons. (ii) Notices were posted on October 16, for a General Meeting of a “Listed Public Company” to be held on November 7. The validity of the notice is challenged. Decide. (b) Explain Briefly SEBI guidelines relating to mode of operation of public issue of securities through Stock Exchange on line system. (c) What is the effect of a Proviso? Does it qualify the main provisions of an Enactment? Does an explanation added to a section widen the ambit of the section? [6x 2 = 12 marks] Q 3. Answer any two of the following (a) Explain the meaning of the term ‘Capital Account Transaction’ under the Foreign Exchange Management Act, 1999. State whether there are any restrictions in respect of the following transactions (i) Drawal of Foreign Exchange for payments due on account of Amortization of Loan. (ii) Purchase of Shares of a company engaged in plantation activities by a person Resident Outside India. (b) Adjudicating Authority imposes a penalty under the provisions of Foreign Exchange Management Act, 1999 on ABC Limited for failure of realize and repatriate to India Foreign Exchange due on its exports. ABC Limited, being aggrieved by this penalty, seeks your advice as to the authority to which appeal can be made under the provisions of FEMA and the time limit for making such appeals. Advise. (c) (i) Mr. X resided in India during the Financial Year 2000-2001 for less than 183 day. He came to India on 1st April, 2001 for employment. What would be his residential status during the Financial Year 2001-2002 under FEMA 1999? (ii) Mr. X resided in India during the Financial Year 1999-2000. He left India on 1st August, 2000 for United States of America for pursuing Higher Studies for three years. What would be his residential status during the Financial Year 2000-2001 under FEMA 1999? [8x2 = a6 marks] Q 4 (a) A mortgage was created over the property of a Public Company. The loan was advanced by the wife of a Director. The fact was already known to all other Directors. Thus the Director was interested in the transaction. But he neither disclosed his interest nor abstained from voting. The company brings an action for setting aside the mortgage on the ground that since the interested Director voted on the matter the contract is void. Decide: (i) Whether the contract is void? (ii) Whether there is a ban on such a contract? (b) According to Section 294 of the Companies Act, 1956, “The Board of Directors of a company shall not appoint a Sole Selling Agent for any area, except subject to the condition that the appointment shall cease to be valid, if it is not approved by the company in the First General Meeting held after the date on which the appointment is made”. Explain the consequences, if a Sole Selling Agency agreement does not contain such a condition. Explain briefly the distinction between ‘Mandatory’ and ‘Directory’ provisions in a statute and also the basis on which the court may decide whether a particular provision is ‘Mandatory’ or ‘Directory’. [8+7 = 15 marks]. Q 5. (a) Discuss the conditions to be fulfilled by a company for declaring interim dividend and penal provisions under the Companies Act, 1956 in case of default in payment of the same. (b) Can a person holding any security of a company be appointed as an Auditor of that Company? What will be the position, if his relative holds such securities? [8+7 = 15 marks] Q 6. (a) Examine the validity of the following: (i) Proceedings of Annual General Meeting of a Public Company not held in time. (ii) Appointment of a proxy by a person authorized to represent a Body Corporate at a General Meeting of Company of which the body corporate is a member. (iii) Fresh Proxies deposited by members in respect of adjourned Annual General Meeting (iv) Casting vote by the Chairman of a General Meeting of a Company in respect of a Special Resolution (b) Explain the term ‘Reconstruction’. State the different methods by which reconstruction of companies may be effected. [8+7 = 15 marks] Q 7 (a) State the circumstances under which Company Law Board can prevent change in Board of Directors likely to affect the company prejudicially. Who is eligible to make an application to Company Law Board in this regard? (b) Draft ‘Director’s Responsibility Statement’ which forms part of the Board’s Report of a Company. Who is authorized to sign the Board’s report? [8+7 = 15 marks] Q 8. (a) PQR Limited had taken a Loan of Rs. 2 crores from a Bank secured by some of its Assets. The company has defaulted in the matter of payment of some instalments of loan as per terms of the Loan Agreement. The Bank has filed a petition in the High Court on the ground that the Company is unable to pay its debts. The Company opposes the petition for winding-up on the ground that it has employed 1,000 workers, paid their salaries regularly and that it has paid all the Tax dues to the Government. The company has further contended that if the company is compelled to repay the loan immediately, it will cripple the company causing hardship to employees and other persons having business dealings with the company. The company is also supported by some major creditors. Explain the circumstances under which a company may be ordered to be wound –up by the Court on the ground of inability to pay its debts and whether the Bank will succeed in this case. (b) The official liquidator of the Bogus Limited (in liquidation) has realized Rs. 50 lakhs by selling the land owned by the Company. The company owes Rs. 1 crore to its Bankers towards a loan secured by the company’s land and factory buildings. The Bank has claimed that the amount realized by sale of land must be paid in full to it in preference to the “Workmen’s dues” to the extent of Rs. 25 lakhs. Examine the Bank’s claim with reference to the relevant provisions of the Companies Act, 1956. [8+7 = 15 marks] Q 9. ABC Chemicals Limited suffered huge losses during the year ended 31st March, 2002. The Company proposes to appoint Mr. Z as whole-time Director (Marketing) to strengthen the marketing division with a view to improve the profitability of the company on a Consolidated Salary of Rs. 30,000 per month to be paid as minimum remuneration for a period of 5 years with effect from 1st December, 2002. Mr. Z fulfills the conditions specified in Part I of schedule XIII to the Companies Act, 1956. At present Mr. X is the Managing Director and Mr. Y is the whole-time Director (Production). Mr. X and Mr. Y were appointed for a period of 5 years with effect from 1st April, 2000 on a Consolidated Monthly Salary of Rs. 40,000 and Rs. 30,000 respectively. The Financial position of the company as per the latest Balance-Sheet as at 31st March, 2002 is given below:
The company was regular in the matter of payment of interest on loans. But it could not pay three instalments aggregating to Rs. 15 lakhs due to Public Financial Institutions on its loans between May, 2002 and August, 2002. The company increased the Equity Share Capital to Rs. 90 lakhs by right issue of Shares in September, 2002 and the default was made good on 31st October, 2002. The Company seeks your advice on whether the appointment of Mr. Z on the proposed remuneration is required to be approved by Special Resolution and the Central Government. Advise the company about the steps to be taken with regard to the appointment of Mr. Z as whole-time Director in order to comply with the requirements of Schedule XIII as amended by notification dated 16-01-2002 explaining the relevant provisions. [15 marks]. CA Final MAY – 2002 (Questions 1, 2 and 3 are compulsory. Answer any four from the rest.) Q 1 Answer any two of the following: (a) PQR Limited is paying remuneration to its non-executive directors in the form of commission at the rate of one per cent of the net profits of the company distributed equally among all the non-executive directors. The company is providing depreciation on straight-line basis at the rates specified in Schedule XIV to the companies Act, 1956. The company seeks your advice in respect of the following: - (i) whether it is necessary to make adjustment in respect of depreciation for the purpose of arriving at the net profit of the company to determine the quantum of remuneration payable to its non-executive directors. (ii) Is it possible to pay minimum remuneration to non-executive directors besides sitting fees in the event of loss in a financial year? Advise the company explaining the relevant provisions of the Companies Act, 1956. (b) Explain the significance of the definition clause in a Statute. The definition of a word may be either restrictive or extensive. Elaborate this with particular reference to the following definition of ‘Book and Paper’ as contained in the Companies Act, 1956 - “Book and Paper” and “Book or Paper” include accounts, deeds, vouchers, writings, and documents. (c) M/s Herbal Pharma Limited, a listed company, decides to make a public issue of equity shares. Explain briefly the eligibility norms prescribed by SEBI guidelines to be complied with by the company. [6+6 = 12 marks] Q 2 Answer any two of the following; (a) The financial year of M/s Uptodate Business Consultants Ltd., ends on 30th June every year. For the financial year ended 30.06.2001, the company could not hold its annual general meeting on or before 31.12.2001 and accordingly requested the Registrar of Companies, Chennai to grant an extension of time for a period of 3 months so that the general meeting could be held on or before 31.03.2002. The company held its last annual general meeting on 31.12.2000 for adopting its annual accounts for the year-ended 30.06.2000. Examine whether the request of the company would be considered by the Registrar in view of the fact that if extension was granted there would be no annual general meeting of the company during the calendar year 2001. (b) A group of investors are upset with the functioning of two leading stock brokers of Calcutta Stock Exchange and want to make a complaint to SEBI for intervention and redressal of their grievances. Explain briefly the purpose of establishing SEBI and what type of defaults by the stock brokers come within the purview of SEBI Act, 1992. (c) Explain the meaning of the work “Statute” and discuss the need for interpretation of any statute citing an example in the case of holding the annual general meeting of a company where more than one prescribed time is given in the Companies Act, 1956. [6+6 = 12 marks] Q 3 Answer any two of the following: (a) According to Foreign Exchange Management Act, 1999, a person resident in India shall take all reasonable steps to repatriate to India any amount of foreign exchange earned and accrued to him. What is meant by the expression ‘Repatriate to India’? State the cases where foreign exchange can be held or need not be repatriated to India by a resident in India. (b) Explain the meaning of the term “Adjudicating Authority” under the Foreign Exchange Management Act, 1999, the powers available with the said authority to pass orders imposing penalty and enforce the same in relation to violation of any provision of FEMA by Mr. Dubious, a resident in India. (c) (i) How will you determine whether a particular business unit like a factory or office is a ‘person resident in India’ under Foreign Exchange Management Act, 1999? (ii) ‘Printex Computer’ is a Singapore based company having several business units all over the world. It has a unit for manufacturing computer printers with its Headquarters in Pune. It has a Branch in Dubai, which is controlled by the Headquarters in Pune. What would be the residential status under FEMA, 1999 of printer units in Pune and that of Dubai branch? [8+8 = 16 marks] Q 4 (a) Some of the shareholders of M/s Rabid Fighters Limited are dissatisfied with the continuous infighting among the two groups of the Board of Directors. They made a requisition to the company to call an extraordinary general meeting to pass certain resolutions, which they feel will improve the working of company. The management of the company has refused to act on the requisition given by the shareholders on the ground that reasons for the proposed resolutions have not been disclosed. Examine in this context the rights of the shareholders to requisition the meeting and the powers of the management not be hold the meeting on the aforesaid ground. (b) Examine the validity of the following: (i) Mr. Q., a director of PQR Limited proceeding on a long foreign tour, appointed Mr. Y as an alternate director to act for him during his absence. The Articles of the company provide for appointment of alternate directors. Mr. Q claims that he has a right to appoint alternate director. (ii) The Articles of Association of M/s ABC Ltd., provide that a meeting of the Board of Directors shall be held at 11.00 A.M. on the last day of every quarter ending on 31st March, 30th June, 30th September and 31st December. Relying on the said provision, the company did not send notices to the directors in respect of a board meeting held on 31.3.2002. Some of directors have questioned the validity of the board meeting on the ground that individual notices have not been sent to directors. [8+7 = 15 marks] Q 5 (a) The Board of Directors of M/s Greenfield Projects Limited, a company whose shares are listed on the Deli Stock Exchange, propose to give loans to a sister company in excess of the limit prescribed under Section 372A(1) of the Companies Act, 1956. The next annual general meeting of the company is due only after six months. Since the board is anxious to complete the formalities quickly without waiting for the date of next annual general meeting, advice the Board about the steps to be taken to comply with the legal requirements under the Companies Act, 1956. (b) The word “ Misfeasance” is used in the Companies Act at several places but the same has not been defined. Explain as to how the meaning of the said word is ascertained in the absence of any definition. Examine whether misfeasance proceedings initiated against a director under the Companies Act can be continued even after his death. [8+7 = 15 marks] Q 6 (a) With a view to boost the share values, the Central Government wants to amalgamate two Public Limited Companies into a single company. The Government and Public Financial Institutions have substantial interest in both the companies. The two companies are in the business of tourism and running several hotels, which are not making good profits and consequently the share prices are depressed. Examine the powers of the Central Government to amalgamate the two companies in public interest. (b) M/s Superclean Industries Private Limited is a company in which there are three shareholders and all of them are directors of the company. Mr. Superman holds 60% of the paid-up share capital while the balance 40% of shares is held equally by the remaining directors. Because of some rift among them, the two directors holding 40% share capital have aligned and started preventing the holding of any meetings of the company. The Articles of Association of the company provide for a minimum of two directors/members as quorum for board meetings as well as general meetings. Mr. Superman has become helpless and seeks your advice to tackle the situation. Advise. [8+7 = 15 marks] Q 7 (a) M/s Hurybury Builders Limited is contemplating to enter into a joint venture agreement with another construction company for the development of landed properties located at Bangalore. Since it is not possible to convene the Board Meeting immediately, as the directors are at different places in connection with various works, the Managing Director seeks your advice on the following matters – (i) Whether the resolution pertaining to the joint venture agreement is required to be passed at the Board Meeting convened for this purpose or whether it can be passed by means of a circular resolution. (ii) What are the resolutions that are required to be passed only at the meetings of the Board of Directors? (iii) The steps that are required to be taken to pass the Board resolution by circulation. Advise. (b) M/s Kith and Kin Consultants Private Limited seeks your advice regarding the following appointments relating to directors and their relatives: (i) Mr. Nephew, who is a relative of one of the directors, is to be appointed as the Managing Director on a monthly salary of Rs. 30,000 plus other perquisites as applicable to other executives of the company. (ii) Miss Niece, a relative of a director, is to be appointed as Chief Public Relations Manager on a salary of Rs.15, 000 per month. (iii) Mr. Wellconnected, a relative of a director, is to be appointed as Chief Executive Officer on a consolidated salary of Rs. 25, 000 per month. Advise explaining the relevant provisions of the Companies Act, 1956. [8+7 = 15 marks] Q8 (a) M/s Continuous Conflicts Ltd., is a company controlled by two family groups. The first family group has four directors, namely Mr. A, Mr. B, Mr. C and Mr. D on the Board of Directors. The second family group has two representatives Mr. X and Mr. Y on the Board. Because of internal family troubles, the first group, by virtue of its majority shareholding, removed both Mr. X and Mr. Y as the directors of the company. Aggrieved by this action the second group is planning to move an application before the Company Law Board. You have been approached for advice. Advise as to the eligibility restrictions regarding filing the application and the chances of getting relief from the Company Law Board, assuming that there is no other material on record in support of oppression of the minority group. (b) M/s A to Z Technologies Ltd., has been wound up and the official liquidator has been asked to take charge of the company. Briefly explain the relevant provisions regarding filing of statement of affairs in relation to the company in liquidation. [8+7 = 15 marks] Q 9 (a) Mr. A is a director of ABC Limited. ABC Limited failed to repay matured deposits from 1st April, 2001 onwards and the default continues. But ABC Limited is regular in filing annual accounts and annual returns. Mr. A is also a director of PQR Limited and XYZ Limited. - - Answer the following questions with reference to the relevant provisions of the Companies Act, 1956: (i) Whether Mr. A is disqualified under Section 274(1)(g) of the Companies Act, 1956 and if so, whether he is required to vacate his office of director in PQR Limited and XYZ Limited. (ii) Is it possible for Board of Directors of DEF Limited to appoint Mr. A as an Additional Director at the board meeting to be held on 15th May 2002? Would your answer be different if Mr. A ceased to be a Director of ABC Limited by resignation on 1st March 2002? - -State also the auditor’s responsibility with regard to reporting of disqualification under Section 274(1)(g). (b) The paid-up capital of XYZ Limited has been increased from Rs.4 crores to Rs. 6 crores. The Board of Directors of XYZ Limited propose to constitute an ‘Audit Committee’. At present the board consists of 10 directors including a Managing Director. Draft a board resolution taking into account the requirements under the Companies Act relating to the constitution of the Audit Committee and the Chairman of the Audit Committee. XYZ Limited is not a listed public company. [10+5 = 15 marks] CA FINAL November 2001 Q1 Answer any three of the following : (a) ; Mr. Influential is already a director of 19 companies. He is being appointed as a director of another company named M/s. Expensive Remedies Ltd. Advise Mr. Influential in regard to the following : (i) Restrictions on the number of directorships to be held by an individual and whether he can accept the new appointment in view thereof. (ii) What are the companies to be excluded for the purpose of calculating the ceiling on the appointment of directors? (b) The Articles of Association of a company states that a director shall not vote in respect of a contract in which he is interested. In a resolution put up for approval of the shareholders, can a director exercise his voting right in favour of a contract in which he is interested? (c) State briefly the guidelines issued by SEBI for compliance by the companies making an initial public offer of equity shares or any other security convertible at a later date into equity shares proposing to list them on the Over the Counter Exchange of India. (d) Explain the principles of grammatical interpretation vis-à-vis logical interpretation especially in the context that the duty of the Court is to administer the law as it stands and not to find out whether the law is just or reasonable. [6 x 3 = 18 marks] Q2 Answer any two of the following : (a) M/s. Special Foods Ltd. has introduced a gift scheme whereby every buyer of 5 noodle packs will get one pencil box free. Alternatively, every buyer can exchange 5 empty noodles packs in return for a free pencil box. On the basis of a complaint that the company has indulged in an unfair trade practice, the MRTP Commission instituted a notice of enquiry. During the enquiry it was pointed out by the complainant that the company has increased the prices of noodles from Rs. 3 per pack to Rs. 4 per pack and the pencil box was really not free and it was covered by the increase in the price of noodles. On the other hand, the case of the company was that the increase in price was not sufficient even to recover the cost of production and marketing, nothing to speak of leaving a margin to recover even partly the cost of gift scheme. Examine in the light of decided cases whether the company has indulged in any unfair trade practice. (b) Explain the powers of the MRTP Commission to grant ex-parte temporary injunction under the MRTP Act, 1969. State the grounds which should be pleaded before the Commission for the grant of an injunction. (c) Mr. X, an Indian national has failed to realise and repatriate foreign exchange worth more than Rs. 2 crores. Mr. X having realised that he had committed a contravention of the provisions of the Foreign Exchange Management Act, 1999, desires to compound the said offence. Advise Mr. X. [5 x 2 = 10 marks] Q3 Answer any two of following : (a) Mr. G., an Indian national desires to obtain Foreign Exchange on current account transactions for the following purpose : (i) Payment of commission on exports made towards equity investment in wholly owned subsidiary abroad of an Indian Company. (ii) Remittance of hiring charges of transponder. (iii) Remittance for use of trade mark in India. Advise G whether he can obtain Foreign Exchange and, if so, under what conditions? (b) The management of M/s. Fair Weather Industries Ltd. has realised that the Company has become a sick industrial company after the publication of its annual accounts for the year ended 31.3.2001. The Company has made an application to the Board of Industrial and Financial Reconstruction (BIFR) as required under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985. Some of the creditors, after coming to know of the developments, filed a petition in the High Court at Mumbai for the winding up of the Company. Examine the claim of the creditors to wind up the company and the right of the management to claim protection in the light of the reference made to BIFR. (c) What is meant by ‘operating agency’? State the duties of the ‘operating agency’ for preparation of inventory etc. under Section 21 of the Sick Industrial Companies Act, 1985. [6 x2 = 12 marks] Q4. (a) A majority of the Board of Directors of M/s. High Value Infotech Ltd. have realised that some of the business activities carried out in the name of the company are not in the interest of either the company or its members. They want that the company should make an application to the Central Government to appoint an Inspector to carry out an investigation so as to find out the whole truth. Explain the steps that should be taken to achieve the purpose and draft the application. (b) Some of the shareholders of M/s XYZ Co. Ltd. are contemplating penal action against the Company and its directors for not posting dividend warrants even though the company declared a dividend of 50% on its equity shares a couple of months earlier. Examine the liability of the Company and its Directors for the said non-compliance. Also examine whether may any defence can be raised by them against the liability. [9+6 = 15 marks] Q5 (a) The Companies (Amendment) Act, 2000, has prescribed an additional duty on the Board of Directors to include in the Board’s Report a ‘directors’ responsibility statement’. Explain briefly the details to be furnished in the said statement. (b) M/s Rao & Rao, a firm of ; Chartered Accountants have to be appointed as the auditors of M/s ABC Co. Ltd., a Government Company. Explain the steps to be taken regarding the appointment and payment of remuneration to the auditors. [8+7 = 15 marks] Q6 (a) A group of creditors of M/s. XYZ Co. Ltd., makes a complaint to the Registrar of ; Companies, New Delhi, alleging that the management of the Company is indulging in destruction and falsification of the accounting records of the Company. The complainants request the Registrar to take immediate steps to seize the records of the Company, so that the management may not be allowed to tamper with the records. Examine the powers, if any, of the Registrar in such circumstances. (b) Some of the small shareholders of M/s. Progressive Industries Ltd. approach you for advice regarding appointment of one of them as a director of the company. Explain the meaning of a small shareholder and the legal position regarding appointment of a director by such small shareholders. [8+7 = 15 marks] Q7.(a) Mr. Stubborn is a director of M/s Doubtful Industries Ltd. He along with other two directors has been running the Company for past twenty year without declaring any dividends or giving any benefit to the shareholders. Frustrated by this, some shareholders are desirous of giving notice to pass a resolution with the support of other shareholders for his removal as a director in the Annual General Meeting of the Company to be held in the month of December 2001. State the procedure to be followed for the removal of Mr. Stubborn as a director and the right of Mr. Stubborn to defend his position. (b) Mr. X is a director of M/s ABC Ltd. He has approached M/s Housing Finance Co. Ltd. for the purpose of obtaining a loan of Rs. 50 lacs to be used for construction of building his residential house. The loan was sanctioned subject to the condition that M/s ABC Ltd. should provide the guarantee for repayment of loan instalments by Mr. X. Advise Mr. X. [8+7 = 15 marks] Q8. (a) M/s Over-ambitions Consultants Ltd. had, in course of its operations over the years, acquired various other ventures like plantations and tourism businesses. With a view to consolidate its core business activities, the management decided to hive off its non-core activities by de-merging them with an associate company. Advise briefly the steps the management should take to achieve the purpose of demerger. (b) A group of shareholders holding more than 15% of the paid-up capital of M/s. Fraudulent Traders Ltd. have filed a petition before the Company Law Board alleging various acts of illegal, invalid and irregular transactions entered into in the name of the company. Examine the merits of the petition in the light of judicial pronouncements made in this regard. [8+7 = 15 marks] Q9. (a) Examine, with reference to the relevant provisions of the Companies Act, 1956, the validity/legality of the following : (i) A meeting of the Board of Directors OPQ Co. ltd. due to be held on 30.09.2001 did not take place for want of quorum. As a result, the Company did not hold any Board meeting for the quarter ended 30.09.2001 and there is a complaint that the Company has violated the provisions of the Act in this regard. (ii) M/s RST Computers Ltd. want to file its documents with the Registrar of Companies in computer print out form. (iii) M/s XYZ Co. Ltd. held its Annual General Meeting beyond the permissible time limit and the legality of the documents filed by the Company has been questioned. (b) A listed Public Company was ordered to be wound up by the order of the Bombay High Court. While ordering the winding up, the Court ordered the Official Liquidator to submit a preliminary report to the Court as per the provisions contained in the Companies Act. State briefly the details to be given in the preliminary report of the Official Liquidator. [9+6 = 15 marks] Corporate Laws CA Final May, 2001 Question Nos 1,2, 3 are compulsory. Answer any four of the rest. Q 1 Answer any three of the following (a) Due to internal problems in the working of M/s. Infighting Detergents Ltd., Mr. Satyam, the Executive Director, and Mr. Shivam, a Director, have submitted their resignations and decided to dissociate themselves with the working of the company. Mr. Sundaram, the Managing Director, decides to refuse their resignations. Examine whether the Managing Director can compel Mr. Satyam and Mr. Shivam to continue as per the provisions of the Companies Act. (b) X Ltd., is being managed by Mr. Clever as the Managing Director. Serious allegations have been made by some shareholders and creditors of the company that the Managing Director has misused his position and caused enormous loss to the company. The said shareholders and creditors of the company make a complaint to the Central Government to intervene and provide relief to them. Their main prayer is that the Managing Director should be removed from the post. Explain the powers of the Central Government in this regard. (c) M/s Ambitious Financiers Ltd., an existing unlisted Public Company, is planning to issue to the public five lakhs fully convertible debentures of Rs. 100 each. Explain the eligibility norms to be fulfilled by the company as per SEBI guidelines before making the issue. (d) How far are (i) title, (ii) preamble and (iii) marginal notes in an enactment helpful in interpreting any of the parts of an enactment? [6 x 3 = 18 marks] Q 2 Answer any two of the following : (a) M/s Universal Machines Ltd. has secured patent rights in respect of its invention of a packaging machine. The company entered into a contract with M/s. Yes Sir Distributors Ltd. for grant of exclusive licence to the distributor to make and sell the machines all over the country. A complaint was lodged with the MRTP Commission that the exclusive licence agreement promotes monopolistic and restrictive trade practice in the country. Examine the powers available to the MRTP Commission in this regard and the right of Universal Machines in respect of the patented product. (b) M/s Large & Timely Ltd., a cement manufacturing company, has appointed various stockists. The agreement appointing the stockists contained a clause that the stockist should not deal in the cement produced by any other manufacturer. An inquiry was instituted on the ground that the said clause is restrictive and is prejudicial to public interest. The company feels that such a restriction is reasonable having regard to the nature of the commodity, which can easily be mixed up. Advise the company. (c) Explain the meaning of the term “Current Account Transaction” and the right of a citizen to obtain Foreign Exchange under the Foreign Exchange Management Act, 1999. [5 x 2 = 10 marks] Q 3 Answer any two of the following : (a) M/s. High Flying Industries Ltd., has become a sick Industrial Company and a reference was made to the Board for Industrial and Financial Reconstruction. During the course of the proceedings before BIFR, a scheme was put forward by the Operating Agency and sanctioned by the Board, which provided for exclusion of certain provisions contained in section 41 and 79 of the Income-Tax Act. Examine briefly the powers of the BIFR to revive a sick Industrial Company and the overriding effect of the orders passed by it over the provisions of the Income-Tax Act. (b) When does a company be treated as a potential sick Industrial Company ? Examine whether BIFR has any authority to wind up such potentially sick Industrial Company. (c) The Balance Sheet of M/s. Get Rich Quick Ltd. as at 31-03-2001 disclosed the following details : (i) Share Capital Rs. 150 crores. (ii) Reserves and Surplus - Rs. 750 crores. The company has issued in the year 1996, fully convertible debentures of Rs. 100 crores, which are due for conversion in the year 2001. The company proposes to issue bonus shares in the ratio of 1:1. Explain briefly the SEBI guidelines to be followed by the company. [6 x 2 = 12 marks] Q 4(a) The agenda for the meeting of the Board of Directors of M/s. Successful Enterprises Ltd. held on 20-03-2001 for adopting the annual accounts for the year ended 31-12-2000 included an item relating to payment of dividend. At the meeting it became apparent that the profits made during the year ended 31-12-2000 were inadequate to declare dividend. The Board was keen to maintain the rate of 20% dividend on the equity shares as declared in the previous years so as to maintain the image of the company. The company has some accumulated profits earned in previous years, which were transferred to reserves. Advise the company as to how it should go abut to achieve the objective to pay dividend at the rate of 20% on the equity shares. (b) Immediately upon conducting the last general meeting held in July, the Chairman went overseas for medical treatment. Accordingly the minutes of the said meeting could not be signed by him. To meet the requirements of the law, he sent a letter of authority to the Secretary authorising the latter to sign the minutes on the former’s behalf. Can the Secretary act on the letter of authority ? If not, what procedure should be followed ? [8+7 = 15 marks] Q 5 (a) M/s Easy Escape Consultants Ltd. was incorporated in the year 1997 as a Public Limited Company. It made a public issue in the year 1998 and collected substantial funds from the public. However, the company, till date, has not filed any Annual Returns or Balance Sheets with Registrar of Companies, New Delhi. Efforts to locate the directors at their given addresses have not yielded any result. A group of shareholders, who wish to take initiative in this regard seek your advise in respect of the following matters : (i) The nature of defaults committed and the penal action that can be taken against the company and its Directors (ii) Whether any steps can now be taken to hold a general meeting of the company to elect a new set of Directors in place of the existing Directors. (b) The Board of Directors of Stepping Stones Publications Ltd., at a meeting held on 15-1-2001 resolved to borrow a sum of Rs. 15 crores from a nationalised bank, Subsequently the said amount was received by the company. One of the Directors, who opposed the said borrowing as not in the interest of the company has raised an issue that the said borrowing is outside the powers of the Board of Directors. The Company seeks your advice and the following data is given for your information : (i) Share Capital Rs. 5 crores (ii) Reserves and Surplus Rs. 5 crores (iii) Secured Loans Rs. 15 crores (iv) Unsecured Loans Rs. 5 crores. Advise the management of the company. [8+7 = 15 marks] Q 6 (a) Mr. Doubtful was appointed as Managing Director of Carefree Industries Ltd. for a period of five years with effect from 1-4-1998 on a salary of Rs. 12 lakhs per annum with other perquisites. The Board of Directors of the company, on coming to know of certain questionable transactions, terminated the services of the Managing Director from 1-3-2001. Mr. Doubtful termed his removal as illegal and claimed compensation from the company. Meanwhile the company paid a sum of Rs. 5 lakhs on ad hoc basis to Mr. Doubtful pending settlement of his dues. Discuss whether : (i) The company is bound to pay compensation to Mr. Doubtful, and, if so, how much (ii) The company can recover the amount of Rs. 5 lakhs paid on the ground that Mr. Doubtful is not entitled to any compensation, because he is guilty of corrupt practices. (b) A group of promoters propose to establish a company for charitable purposes without the addition of the word ‘Limited’ as part of its name. Discuss briefly the procedure to be followed in addition to the normal procedure for incorporation of a company. [8+7 = 15 marks] Q 7(a) A group of shareholders of Deceptive Duplicating Machines Ltd. filed an application before the Company Law Board alleging various acts of fraud and mismanagement by Mr. Unscrupulous, the Managing Director, and his associates. During the course of hearings before the CLB, it was contended on behalf of the company that the alleged transactions had taken place long ago and that the Managing Director, who was responsible for such actions had already bee removed and that there is no case before the Company Law Board to interfere in the working of company. The contention of applicants on the other hand is that though the fraudulent nature of the transactions is a thing of the past and though the Managing Director had been removed, yet the management of the company is still controlled by the henchmen of Mr. Unscrupulous. Discuss the powers of the Company Law Board in support of your answer. (b) The High Court at Mumbai appointed the Official Liquidator as the Liquidator of Imprudent Engineering Co. Ltd. Some of the creditors have brought to the notice of the Liquidator that though the company is in liquidation for the past several years, nothing worthwhile has been done to speed up the winding up and no documents have been filed to indicate the progress of liquidation. Examine in this connection the nature and periodicity of returns required to be field by the Liquidator in terms of the provisions contained in the Companies Act. [8+7 = 15 marks] Q 8(a) Reckless Constructions Ltd. has gone into liquidation, because of the inability of the company to pay its debts. During the course of winding up, a proposal was put forward by the previous management to revive the working of the company through a scheme of arrangement between the company and its creditors. As per the scheme, all the creditors have to forego fifty per cent of their dues. Some of the creditors and shareholders have voiced their opposition to the said scheme. The company approaches you for advice. Discuss the steps that have to be taken by the company in this regard. (b) X Ltd., has a subsidiary company called Y Ltd. The financial year of the holding company is 31st March, whereas that of the subsidiary company ends on 30th June every year. The management of the holding company decides that the financial year of the subsidiary Company for the year 1-7-2000 to 30-06-2001 should be extended upto 31-03-2002, so that the financial years of the holding and subsidiary companies end on 31st March every year. Advise the management about the steps to be taken under the Companies Act to achieve the purpose. [8+7 = 15 marks] Q 9(a) Explain briefly the salient points to be taken into account while drafting the minutes of the meeting of Board of Directors. Draft a specimen Board resolution regarding the appointment of Mr. Sincere as the Managing Director of Full Cure Pharma Ltd. (b) A group of shareholders approaches you for advice regarding the affairs of Aggressive Textiles Ltd. According to the shareholders, the management of the company is not exercising its powers properly and that the statutory audit is being carried out in a routine manner. They want that a special audit should be conducted so that the real nature of transactions carried out by the management will come to light. Advise, with reference to the provisions of the Companies Act, as to when a special audit can be directed and by whom. [8+7 = 15 marks] Corporate Laws - CA Final November, 2000 Questions 1, 2 and 3 are compulsory. Answer any four from the rest. Q 1(a) The Articles of Association of X Ltd. require the personal presence of six members to constitute quorum of General Meetings. The following persons were present at the time of commencement of an Extraordinary General Meeting to consider the appointment of Managing Director : 1) Mr. G., the representative of Governor of Gujarat. 2) Mr. A and Mr. B, shareholders of Preference Shares. 3) Mr. L, representing M Ltd., N Ltd. and X. Ltd. 4) Mr. P, Mr. Q, Mr. R and Mr. S, who were proxies of Shareholders. - . - Can it be said that quorum was present? Discuss. Q 1(b) Discuss the validity of the arguments of the Director in the following cases: i) In the General Meeting of X Ltd., held on 2.5.2000, Mr. A was appointed as a Director. On that day, he was not holding any equity shares in X Ltd. As per the Articles of Association of X Ltd. the share qualification is the holding of 500 equity shares. On 15.6.2000, Mr. A applied for 1,000 equity shares in X Ltd. and the shares were allotted on 10.7.2000. Mr. A claims that he was holding the qualification shares within the time specified in Companies Act. ii) X Ltd. entered into a contract with M & Co. Ltd. for the purchase of raw materials for Rs. 2,50,000, at the prevailing market rate. The Director, of X Ltd. Mr. B was holding shares of the value of 1% of the paid up capital of M & Co. Ltd. Another Director, of X Ltd. Mr. C was holding shares of the value of 1.5% of the paid up capital of M & Co. Ltd. Mr. B at the beginning of the year, gave a general notice to X Ltd., that he was interested in M & Co. Ltd., but did not disclose the nature of interest. Mr. B claims that he had given notice to X Ltd., as required under the Companies Act and that his holding being only 1% is within the limit prescribed under the Companies Act. Q 1 (c) What are the Securities and Exchange Board of India’s important guidelines regarding pricing of first issue of Equity Shares of New Companies ? [6+6+6 = 18 marks] Q 2. Attempt any two of the following : (a) Goodfurn Ltd., had been regularly supplying furniture to Mr. Nakul, a retail dealer. Mr. Nakul disposed off several items of furniture in a new year clearance sale at prices below notified minimum resale prices. Because of this, Goodfurn Ltd. refuses to supply goods to Mr. Nakul. Is such refusal justified under the MRTP Act, 1969 ? (b) Beauty, Brown & Company with Robin, John and Buksi as its partners owns ‘Lucky’. Bombay Duck & Company with Norman, Buksi and Raman as its partners owns ‘Impressive’. Are these Inter-connected Undertakings under the MRTP Act, 1969 ? Explain with reasons. (c) XYZ Ltd. is a manufacturer of baby food. The company advertised a scheme called ‘hidden wealth prize offer’ by which coupons were inserted in some bottles of baby food. Some of the coupons indicated that the purchasers of these bottles in which they were placed would get prizes. Would this constitute an ‘unfair trade practice’ on the part of XYZ Ltd., warranting the intervention of the MRTP Commission ? [5 x 2 = 10 marks] Q 3. Attempt any two of the following : (a) A part of the undertaking was proposed to be hived off, inspite of objection of certain creditors, in order to augment the cash resources of the undertaking. State your views on this scheme proposed by the operating agency to BIFR. (b) Rationalisation and reduction of work force by about 250 personnel, which would aggregate to about 25% of the total employees. State your views on this scheme proposed by the operating agency to BIFR. (c) A sick company is presently under lock-out. The company’s Balance Sheet shows that it had run up a Cumulative Loss of Rs. 15 crores against a net worth of Rs. 2.5 crores. The operating agency appointed by BIFR failed to explore any alternative measures including change of management for revival. No one evinced interest in revival. Suggest any course open to BIFR in a situation like this. [6 x 2 = 12 marks] Q 4. (a) What provision has been made under Section 15G of the SEBI Act, 1992, in connection with penalty for insider trading ? (b) Mr. Nanavati holding 3% shares in OPQ Ltd., became a director of this company on 1.5.2000. The company, prior to his appointment as director, had commenced transactions with A Ltd. In the next Board Meeting to be held on 10.05.2000, The Board proposes to discuss about price revisions sought for by A Ltd. Briefly explain : i) Whether Mr. Nanavati should make a disclosure of his interest in A Ltd., assuming that the company is going to have transactions with A Ltd. on a continuous basis; if yes, when and how ? When should it be renewed ? ii) Can he vote in the price revision resolution in the Board Meeting ? - . - You are informed that Mr. Nanavati holds 1.5% of the share capital of A Ltd. and that his wife holds another 3% of the share capital of A Ltd. [8+7 = 15 marks] Q 5. (a) Accurate Arcs Ltd. maintains the Minutes Book of the Board Meeting in loose-leaf system and get them bound once in three months. Can it do so ? Board meetings were held on 24th March, 2000 and 15th April, 2000. Mr. Rameshwar, who was the chairman of these two Board Meetings died on 1.5.2000, without signing the Minutes. How should be the Minutes be signed and by whom ? (b) Explain the procedure for passing the resolution by Circulation under Section 289 of the Companies Act, 1956. [8+7 = 15 marks] Q 6. (a) i) Mr. Hardworker, an employee of Fortune Ltd., met with an accident and lost his life while on company’s business. He held 100 partly-paid shares. The company had a first and permanent lien on the same. The Board of Directors, however, exempted the provisions of the said clause on the said shares as a goodwill gesture on behalf of the company. Is the action of the company correct ? State the reasons. ii) Can the company’s lien extend to dividends payable on such shares ? (b) The letter head of XYZ Ltd., contains a statement of the amount of its authorised capital. One of the shareholders of the company, on having a look at the letter head, informs the company that additional information in a certain mode has to be furnished along with details of authorised capital in the letter head. Is his contention correct ? Give reasons. [5+3+7 = 15 marks] Q 7. (a) Randhir was appointed as the sole selling agent of S Ltd. for a period of five years in a general meeting of the company. Exactly after one and half years, S Ltd. was amalgamated with another company A Ltd. Randhir was not appointed as the sole selling agent of A Ltd. S Ltd. Paid Randhir Rs. 6 lacs as selling agency commission during the said one and half years. Is Randhir entitled to any compensation and if yes, what is the quantum ? (b) Under Section 603 of the Companies Act, 1956, what are the particulars required for incorporating in a Prospectus to be issued by an existing Foreign Company ? [8+7 = 15 marks] Q 8. (a) What are the steps to be taken for winding up in a case, where the company is solvent, but the business for which it was formed has been completed. (b) State, what is Employees Stock Option Scheme. Are promoters and the part-time directors entitled to receive securities under the scheme ? Give reasons. . [8+7 = 15 marks] Q 9. Following is the latest audited Balance Sheet of XYZ Ltd. : Capital and Liabilities (Rs). - Equity Share Capital - [10,00,000 (10,000 shares of Rs. 100 each) Less: Calls unpaid - Rs 10,000] Net Rs 9,90,000; Preference Share Capital - 1,50,000; Securities Premium a/c - 1,50,000; Capital Redemption Reserve - 2,25,000; General Reserve - 5,00,000; Profit & Loss a/c 2,20,000; Sinking Fund Reserve 1,10,000; Dividend Equalisation Reserve 60,000; Loan from TICC 10,00,000; Deposits from S Ltd. 2,00,000; Current Liabilities 1,25,000; Provision for Taxation 1,00,000. Total - Rs 38,30,000 Assets (Rs) - Goodwill - 1,00,000; Land and Buildings - 10,50,000; Plant and Machinery 20,25,000; Equity shares in A Ltd. 1,25,000; Preference Shares in B Ltd. 50,000; Debentures in C Ltd. 1,00,000; Shares in P Ltd. 2,25,000; Capital in Z & Co. 1,00,000; Current Assets 55,000. Total - Rs 38,30,000 The following is the additional relevant information : (i) Of the equity share capital, 3000 shares have been issued as rights shares and 2,000 shares as bonus shares. (ii) B Ltd. is subsidiary of XYZ Ltd. with 90% shareholding, whereas A Ltd. is wholly owned subsidiary of XYZ Ltd. (iii) Z & Co. is a partnership firm. - . - The directors seek advice as to whether the following additional investments can be made by a decision taken in a Board Meeting : (i) Loan to A Ltd. Rs 10,00,000 (ii) Debentures In B Ltd. 2,25,000 (ii) Purchase of shares of Shree Ltd. in the open market 95,000. State reasons. [15 marks] CA Final May, 2000 (Questions 1, 2 and 3 are compulsory. Answer any four from the rest) Q-1. Answer any three of the following : (a) The Board of Directors of M/s Infotech Consultants Limited, registered in Calcutta, proposes to hold the next board meeting in the month of May, 2000. They seek your advice in respect of the following matters : i) Can the board meeting be held in Chennai, when all the directors of the company reside at Calcutta ? ii) Whether the board meeting can be called on a public holiday and that too after business hours as the majority of the directors of the company have gone to Chennai on vacation. iii) Is it necessary that the notice of the board meeting should specify the nature of business to be transacted ? Advice with reference to the relevant provisions of the Companies Act. - .- (b) i) ABC Private Limited is a company in which there are eight shareholders. Can a member holding less than one-tenth of the share capital of the company apply to the Company Law Board for relief against oppression and mismanagement ? ii) It is alleged by the said member that the Directors of the Company have misused their position in making certain inter-corporate deposits which are against the interests of the company. Will the Company Law Board entertain application containing such allegation in the case of a private company ? - . - (c) What are the defaults for which a stock-broker may be penalised under the provisions of Securities and Exchange Board of India Act, 1992 in respect of his dealings with the investors ? State the factors that must be taken into account by the adjudicating officer while determining the quantum of penalty in such cases. -. - (d) Explain the rule of `beneficial construction' while interpreting the statues quoting an example. [6 x 3 = 18 marks] Q-2 Answer any two of the following : (a) A company is alleged to have made certain misrepresentations in its prospectus about the benefit of investing in debentures issued by it. Examine with reference to the provisions of the Monopolies and Restrictive Trade Practices Act whether such misrepresentations would amount to unfair trade practice. (b) State the ground on which and the authority to whom a company can apply seeking exemption from registration of certain restrictive trade practice agreements under the Monopolies and Restrictive Trade Practices Act. Draft a board resolution authorising the secretary of the company to make such an application. (c) M/s High Quality Leather Goods Limited has appointed various retailers to market their products. The retailers are paid commission on the following basis, based on value of goods lifted in a month : (Value of goods lifted upto one lakh - 5% commission (ii) Above one lakh but below five lakhs - 6% commission (iii)Above five lakh but below ten lakhs - 7% commission (iv)Above ten lakhs - 8% commission. - . - In addition the retailers are allowed certain gifts ranging from Rs. 10,000 to Rs. 25,000 depending upon the quantity of goods purchased by the retailer. Examine whether the trade practice followed by the company can be considered as restrictive trade practice under the MRTP Act,1969. [5 x 2 = 10 marks] Q-3 Answer any two of the following : (a) ABC Textiles Limited have been incurring losses continuously from the financial year ended 31st March, 1994. Paid up share capital, free reserves and accumulated losses respectively (all in Rs lakhs) as per balance sheet as on various years is as follows - (a) 31.3.1992 - 100, 70, NIL (b) 31.3.1993 - 100, 100, NIL (c) 31.3.1994 - 100, 80, NIL (d) 31.3.1995 - 100, 40, NIL (e) 31.3.1996 - 100, 20, NIL (f) 31.3.1997 - 100, NIL, 20 (g) 31.3.1998 - 100, NIL, 60 (h) 31.3.1999 - 100, NIL, 95. - . - Examine with reference to the relevant provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, whether ABC Textiles Limited is a potentially sick industrial company. (b) Examine the powers of BIFR regarding the appointment of special directors and the privileges available to such directors. (c) Under what circumstances and subject to what conditions can BIFR exercise its powers to take steps for winding-up of a potentially sick industrial company and a sick industrial company ? Is it obligatory on the High Court to order winding up of the company on the basis of opinion of BIFR in this regard ? 6 x 2 = 12 marks] Q-4 (a) What is the specific advantage of Book-building process in connection with issue of securities by a company ? State the guide-lines issued by SEBI in this regard in respect of the following matters : (i) Determination of issue price and that of successful bidders. (ii) Reservation for individual investors who have not participated in the bidding process and basis of allotment to such investors. (b) A public company having its registered office at Delhi proposes to maintain the register of members at the office of its registrar and transfer agents. State the legal requirements to be complied with by the company under the Companies Act to give effect to the proposal. Draft also the resolution in this regard. [8+7 = 15 marks] Q-5 (a) XYZ Limited decided to terminate the services of Mr. X, who was employed as sales manager. It is apprehended by the company that the sales manager may not vacate the company's flat at Bombay. What action can be taken by the company under the Companies Act to regain possession of flat ? Is it necessary to take such action under the Companies Act before terminating the services of Mr. X ? Will it make any difference if the flat is not owned by the company but taken on lease ? (b) Examine the validity of the following proxies and suggest remedies where possible : (i) L, a member of a private company, appoints B and C as proxies dividing his voting rights between them. B and C are not members of the company. (ii) X, the director of Y Limited is authorised to represent Y Limited at the general meeting of ABC Limited. He in turns appoints a proxy Z. (iii) Y, a member of a company not having share capital, appoints a proxy. Articles of the company are silent as to the power to appoint proxies. [8+7 = 15 marks] Q-6 (a) i) State the requirements under the Companies Act with regard to compliance of accounting standards and the disclosure to be made in case the profit and loss account and the Balance Sheet of the company do not comply with the accounting standards. What is the duty of the auditor of the company in this regard ? (ii) The Profit and Loss Account and Balance Sheet of AS Ltd have been signed by two directors A and B. The board comprises of a third director C, who is also the managing director. The company has also employed a full time secretary. Examine whether the authentication of the financial statements is in accordance with law. (b) The Comptroller and Auditor-General of India made certain adverse comments on the audited financial statements of a government company. Explain with reference to the relevant provisions of the Companies Act, whether it is possible for the government company to revise the audited but unadopted financial statements in the light of the adverse comments made by the Comptroller and Auditor-General of India and also whether it is necessary for the board of directors to give explanations in the board's report in respect of such adverse comments. [5+3+7 = 15 marks] Q-7 (a) Mr. V, a chartered accountant is a Director in PQR Limited. The company proposes to appoint/engage the firm V & Co.in which Mr. V is a partner in one or more of the following capacities : (i) Consultants on regular retainer basis. (ii) Authorised representatives to appear before tribunals. - .- Discuss whether the provisions of Section 314 of the Companies Act are attracted in the above situations. (b) Can a company pay compensation to its directors for loss of office ? Explain briefly the relevant provisions of the Companies Act, 1956 in this regard. [8+7 = 15 marks] Q-8 (a) The paid-up share capital of ABC Limited is Rs. 5 lakhs consisting of 50,000 equity shares of Rs.10 each fully paid-up. Certain members of the company holding the following shares requisitioned an extra-ordinary general meeting on 1.2.2000 : * A - 2.250 shares * B -2,000 Shares including 500 bonus shares * C - 1,000 Shares including 500 right shares. - . - The directors have failed to call the meeting on the pretext that the articles have not permitted the same. What is the course of action open to the aforesaid members ? (b) M/s XYZ Limited was wound up with effect from 15.3.2000 by an order of the court. Mr. A, who ceased to be a member of the company from 1.6.1999, has received a notice from the liquidator that he should deposit a sum of Rs. 5,000 as his contribution towards the liability on the shares previously held by him. In this context explain whether Mr.A can be called a contributory and whether he can be made liable and whether there is any limitation on his liability. [8+7 = 15 marks] Q-9 (a) Answer the following with reference to a scheme of amalgamation of companies explaining the relevant provisions of the Companies Act, 1956 : (i) Whether companies being amalgamated must be companies registered in India. (ii) What is the majority required for approving the scheme of amalgamation in a meeting of members of a company called as per directions of the court ? Is the scheme to be approved by preference shareholders ? (iii) When will the court order dissolution of the transferor company ? - . - (b) What is meant by `disclaimer of onerous property' and how the same is exercised during winding up ? Explain the circumstances under which such a disclaimer is not allowed. [8+7 = 15 marks] CA Final November 1999 (Questions 1, 2 and 3 are compulsory. Answer any four from the rest.) Q 1- Answer any three of the following : a) M/s Happy Homes Limited had sent notices to all its members about the holding of the 5th Annual General Meeting to be held on 15th October, 1999 at 4.00 P.M. As per the notice the members who are unable to attend the meeting in person can appoint a proxy and the proxy forms duly filled should be sent so as to reach at least 48 hours before the meeting. Mr. A, a member of the company appoints Mr. P as his proxy and the proxy form dated 10-10-99 was deposited by Mr. P with the company at its Registered Office on 11-10-99. However, Mr. A changes his mind and on 12-10-99 gives another proxy to Mr. Q and it was deposited on the same day with company. Similarly another member Mr. B also gives two separate proxies to two individuals named Mr. R and Mr. S. In the case of Mr. R, the proxy dated 12-10-99 was deposited with the company on the same day and the proxy form in favour of Mr. S was deposited on 14-10-99. All the proxies viz., P, Q, R and S were present before the meeting. State with reasons in the light of the relevant provisions of the Companies Act, the persons who would be allowed to represent as proxies for members A and B respectively. - - b) Examine whether the following transactions can be considered as a loan to a Director requiring approval of the Central Government under Section 295 of the Companies Act : i) An advance payment of salary of Rs. 10,000 to an employee who is the wife of the Managing Director. ii) A Public Company secures residential accommodation for the use of its Managing Director by entering into a licence arrangement under which the company has to deposit a certain amount with the landlord to secure compliance with the terms of the Licence Agreement. iii) A Public Company purchases a flat which is subsequently sold to a Director at the prevailing market price, out of which the Director pays 50% immediately and contracts to pay the balance in 10 equal annual instalments. - . - c) Explain briefly the guidelines issued by SEBI to prevent the unscrupulous promoters from making preferential allotment of shares at prices favourable to themselves and against the interest of other shareholders. - . - d) Explain the rule of ‘Ejusdem Generis’ while interpreting a statute. [6 x 3 = 18 marks] Q.2 Answer any two of the following : a) Under what circumstances can a trader be considered as ‘Loss leaders’ under the MRTP Act ? Barin Goel and Company refuses to supply goods to Naren Sett & Company who is his Wholesale Distributor, because Naren Sett & Company is selling his goods at a low price for the purpose of attracting customers for other goods in which he is dealing. Can Naren Sett & Company make a complaint to any authority under the MRTP Act for remedy ? - . - b) i) During the course of an enquiry into the alleged restrictive trade practice of tie-up sales, the respondent has submitted that the said trade practice has been discontinued and the enquiry has now no relevance and hence it should be closed. Examine the merits of the argument of the respondent and the powers of MRTP Commission in such a situation. ii) Mr. X, an Indian resident, receives information that his friend Mr. Y, a non-resident Indian is visiting India for a period of one month on a business trip. Examine whether Mr. X can invite Mr. Y as his guest and incur expenditure on Hospitality for the Non-resident guest without violating the provisions of Foreign Exchange Regulation Act. - . - c) State the procedure to be followed under Foreign Exchange Regulation Act for making remittance of dividends abroad. [8 x 8 = 16 marks] Q.3- Answer any two of the following : a) M/s Shaky Engineering Company Ltd. has been facing several litigation regarding its failure to repay the dues to various creditors. The Company has entered into various agreements with creditors rescheduling the payment of debts. Meanwhile the company has become sick under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Dissatisfied with the functioning of company, the creditors decide to initiate legal steps against the company for its failure to honour its Financial Commitments. Advise the creditors keeping in mind the Provisions of SICA. - . - b) Explain the limitations, if any, in a scheme for rehabilitation of Sick Industrial Company providing for the following measures : i) Rationalisation of workmen ii) Financial Assistance and sacrifice by Government, Banks and Financial Institutions. - . - c) Critically examine the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 empowering the members of a potentially sick industrial company to remove a Director and fill the vacancy created by such removal. [7 +7 = 14 marks] Q-4 a) The Board of Directors of M/s PQ Pharma Ltd. have met on 10-10-99 to consider the half-yearly Accounts of the company for the period ending 30-09-99. Though the accounts have shown that the company has made profits, the overall working results are not very encouraging as compared to the previous years. The Board in the past has always recommended payment of interim dividend to its shareholders and they would like to continue the same this year also. The board is confident that the overall performance for the full year will be good. The following questions have been raised : i) Can the board declare interim dividend in such circumstances ? ii) Is it necessary for the purpose of payment of interim dividend that provisions relating to depreciation and transfer of profits to reserves rules should be complied with ? Advise the board of Directors, keeping in view the relevant provisions of the Companies Act, 1956. - . - b) A group of promoters approach you for advice regarding the formation of a Guarantee Company. Advise them briefly about the types of organisations for which it is suitable to form a Guarantee Company and the advantages that can be derived by registering a Guarantee Company. [7+6 = 13 marks] Q-5 a) A group of shareholders of M/s High Profile Engineering Company Ltd. has filed a petition before the Company Law Board alleging various Acts of Oppression and Mismanagement by the majority shareholders. The petitioner group holds 15% of the issued share capital of the company. During the course of the hearing before CLB, some of the petitioner group of shareholders holding about 6% of the issued share capital of the company have withdrawn their consent by stating that they were misled by the group to sign the petition and after coming to know of the true facts, they have disassociated themselves with the petition and they along with the other majority shareholders have submitted that the petition should be dismissed on the ground of non-maintainability. Examine their contention having regard to the provisions of the Companies Act. - . - b) Papa Group of Companies known for their business repute have been advocating for payment of donations to political parties as one of the methods of funding elections. The group has recently floated a company by name M/s.Papa Computers Ltd. and in the very first year of its working made a net profit of Rs. 6 crores. Examine with reference to the provisions of the Companies Act whether the said company can make political donations and what is the maximum limit upto which a company can make political donations. [7+6 = 13 marks] Q-6 a) How far is Balance Sheet an acknowledgment of a debt of a company ? Board of Directors of Hamil Abdul & Sultan Company Limited passed a resolution for payment of sitting fees to Directors and the same was shown as fees due to Directors in the Balance Sheet of the Company. Examine whether this provision of fees due to Directors in the Balance Sheet can be considered as an effective enforceable acknowledgment of debt of the company. - . - b) A Public Company proposes to appoint Shri Ram as Additional Director and Shri Gopal as a Director in the casual vacancy caused by resignation of the Office of Director by Shri Mohan. Draft suitable resolutions for the appointment of Shri Ram and Shri Gopal as Directors. [7+6 = 13 marks] Q-7 a) M/s. Excellent Industries Ltd. is a Multi-product Company with a paid up capital of Rs. 4 crores. A contract for the purchase of Textile Machineries and Balancing Equipment valued at Rs. one crore was placed before the Board for approval. The Managing Director of the company is interested in this contract because his son-in-law is a partner of the firm selling the machineries and the equipment to the company. Explain briefly the procedure to be followed by the company to enter into the said contract. - . - b) The Balance Sheet of M/s. Hush Hush Ltd. as at 31-03-99 filed with the Registrar of Companies, Mumbai disclosed that the liabilities amounted to Rs. 2.75 crores as against the Assets of Rs 1.25 crores. On the basis of the scrutiny of the Balance Sheet, the registrar filed a winding up petition against the company stating that it is commercially insolvent and that the company is unable to pay its debts on the ground that the value of liabilities far exceeded the value of assets. Examine whether the company has any case to defend against the winding up petition filed by the Registrar. [7+6 = 13 marks] Q-8 a) ACE Automobiles Limited is a Company engaged in the manufacturing of Cars. The company’s investment in the shares of other bodies corporate and the loans made to other bodies corporate exceed 60 per cent of its paid-up share capital and free reserves and also 100 per cent of its free reserves. The company has obtained a term loan from the Industrial Credit and Investment Corporation of India Limited. The company proposes to increase its investment in the equity shares of ACE Forgings Limited from 60 per cent to 70 per cent of the equity share capital of ACE Forgings Limited by purchase of shares from the Forging [Foreign ?] Collaborator. State the legal requirements to be complied with by ACE Automobiles Limited under the Companies Act to give effect to the above proposal. Will your answer be different if the company has defaulted in repayment of matured deposits accepted from the public ? - . - b) i) A non-member from whom the company has accepted deposits asks for copy of the latest Balance Sheet of the Company. ii) A member wants to inspect the register of Directors’ share-holdings on a day other than the date on which the Annual General Meeting of the Company is held. iii) Notice has been received from a member proposing himself for appointment as a Director after the issue of notice convening the Annual General Meeting. As a Secretary of a Public Company how will you deal with the above situations ? [7+6 = 13 marks] Q-9 a) What is meant by Misfeasance ? Under what circumstances can the official liquidator initiate misfeasance proceedings against the Auditor of the Company ? Is there any time limit for initiating such proceedings ? b) M/s. Welcome Computers Ltd. propose to recruit a large number of engineers for its Y2K operations. To prevent the early migration of the employees, the Company has entered into an agreement with the employees containing a stipulation that each employee should deposit a sum of Rs. 25,000/- as security and which sum will be paid back to the employee on completion of 3 years of contract of service. Elucidate the provisions of the Companies Act in the matter of collection and deployment of monies received by way of security deposits from the employees. [7+6 = 13 marks] CA Final May, 1999 Q-1 Answer any three the following : (a) The articles of association of M/s PQR Private Limited provides that 5 members present in person constitute the quorum. The total number of members of the company is also 5. A general meeting of the company was held on 25.1.1999 and it was attended by 4 members as the 5th member had expired sometime earlier. In the said meeting a resolution was passed by a majority of 3 to 1 removing one Mr. Doubtful as a director for indulging in anti-company activities. Mr. Doubtful challenges the validity of the resolution on the ground of lack of quorum in terms of the articles of association. Discuss with reference to the relevant provisions of Companies Act whether the contention of Mr. Doubtful is correct. (b) Advise the company with reference to the relevant provisions of the Companies Act about sending notice of board meetings to the following directors : 1) Mr. Rohit, a director, states that he will not be able to attend the next board meeting. 2) Mr. Bipin Ram goes abroad for four months from 4.1.1999 and an alternate director has been appointed in his place. 3) Mr. James is a director residing abroad representing the foreign collaborator and the Articles of Association of the company provides for sending notice to such directors. (c) Explain the guidelines issued by SEBI for the purpose of preventing fraudulent encashment of refund orders in the case of public issues of shares and debentures. (d) Explain the rule of ‘Reasonable construction’ while interpreting the statutes. How would you reconcile in case one part of the executed lease deed is in conflict with the other part ? [6 x 3 = 18 marks] Q-2 Answer any two of the following : (a) The manufacturer of a famous milk product advertised a scheme called " Hidden Wealth Prize Offer". Under the scheme gift coupons were inserted in some bottles of the milk product and the buyers of such bottles were entitled to a gift. There was no evidence to show that the price of the product was increased to cover the cost of gift. Discuss whether the manufacturer has indulged in unfair trade practice and whether the said practice is prejudicial to public interest. (b) i) State, applying the principle of law as enunciated in Section 2(g) of the MRTP Act, whether the following are inter-connected undertakings : x) Dolly & company with Dolly, Jolly and Nancy as its partners owns ``Merry Dot’’. Singh & company with Norman, Ferguson and Nancy as its partners owns ``Beauty Box’’. Are ``Merry Dot’’ and ``Beauty Box’’ interconnected undertakings ? xx) ``Glassy’’ is owned by Ghosh & Sons Limited. ``Glamour’’ is owned by Datta & Company, which is firm. A & Co. Ltd. and M & Co. Ltd. are two partners in Datta & Co. These two partner-bodies corporate and Ghosh & Sons Ltd. are under the same management. Are ``Glassy’’ and ``Glamour’’ inter-connected undertakings ? ii) Mr. Ram Paul, a non-resident Indian approaches you for advice regarding investment in India on non-repatriation basis in shares and debentures of companies as portfolio investments. Advise Mr. Ram Paul about the restrictions, if any, under the Foreign Exchange Regulation Act. (c) Mr. Ram Prasad is a director of a company which is the subsidiary of a foreign company. He went abroad to attend a meeting convened by the parent company. He took with him U.S. $ 400 and earned U. S. $ 500 for attending the meeting. Consider the following situations and state whether Mr. Ram Prasad is liable under Section 9(1) of FERA : i) He placed U. S. $ 500 to the credit of his brother’s account in a foreign bank. His brother is residing abroad. ii) He spends U. S. $ 900 on his own self while abroad. (8 + 8 = 16 marks] Q-3 Answer any two of the following : (a) Examine the present criteria for ascertaining sickness of an industrial company under the Sick Industrial Companies (Special Provisions) Act and whether you have any suggestions to identify the sickness of a company early so as to take better preventive measures. (b) BIFR wants to appoint Mr. Govinda Narayan as a special director in James Luck Company Ltd., a sick industrial company. But such an appointment by BIFR might have the effect of exceeding the maximum number of directors provided in the articles of association of the company. Examine with reference to the provisions of SICA whether the appointment of Mr. Govinda Narayan as a director is valid. What are the immunities provided in SICA for such special director ? (c) Explain the powers of BIFR under the Sick Industrial Companies (Special Provision) Act to sell a part or the whole of any industrial undertaking of the sick industrial company. [ 7 x 2 = 14 marks] Q-4 (a) A group of shareholders consisting of 25 members decides to file a petition before the Company Law Board for relief against oppression and mismanagement by the Board of Directors of M/s Fly By Night Operators Ltd. The Company has a total of 300 members and the group of 25 members holds one-tenth of the total paid-up share capital accounting for one-fifteenth of the issued share capital. The main grievance of the group is that due to mismanagement by the board of directors, the company is incurring losses and the company has not declared any dividends even when profits were available in the past years for declaration of dividend. Advise the group of shareholders regarding the success of (i) getting the petition admitted and (ii) obtaining relief from the Company Law Board. (b) After serious disagreement and difference of opinion among the shareholders of the company in the last annual general meeting, some of the directors took the steps as noted below. Discuss the validity and effect of the following : i) Mr. John, the managing director sends his notice of resignation. ii) Mr. Paul, an ordinary director verbally resigns and not in writing iii) Mr, David, another ordinary director, had sent his resignation, but withdrew it before the board meeting was held for accepting his resignation. [ 7 + 6 = 13 marks] Q-5 (a) The Managing Director of M/s Speculative Builders Ltd. has resigned as the company was not doing well and also incurring losses. The Board of Directors have decided to appoint Mr.Reliable aged 71 year as the new Managing Director, because of his proven track record of nearly 50 year, turning sick companies into profitable ones. The only condition put forth by Mr. Reliable is that he should be paid the maximum permissible salary and perquisites as provided in the Companies Act without requiring the approval of Central Government. The effective capital of the company is Rs 20 crores. Advise the company about (i) the procedure to be followed for the appointment of Mt. Reliable and (ii) the quantum of remuneration payable to him. (b) Draft a Board resolution to give effect to the following decision taken by the Board of Directors of M/s Handerson Gem and Co. Ltd. - The Board is dissatisfied with the performance of Mr. Indra Sen, Managing Director and has decided to terminate his contract of service from 1.6.1999 and to pay compensation for loss of office. He has been appointed as Managing Director for a period of three years w.e.f. 1.1.1998. [7 + 6 = 13 marks] Q 6 (a) M/s Take It Easy Holding Ltd. has filed the annual accounts for the year ended 31.3.1998 with the Registrar of Companies, Calcutta. The Registrar, after examination of the accounts, issued a show cause notice to the company and its directors why prosecution proceedings should not be launched for not disclosing true and fair view of the state of affairs of the company. After careful examination, you find that the Registrar is justified in issuing the show cause notice. Advise as to how the company and its directors can save themselves from the prosecution proceedings under the provisions of Companies Act. (b) M/s Sunset Constructions Limited is being wound up by the court. The official liquidator after realisation of the assets has an amount of Rs. 28,00,000 at his disposal towards payment to the creditors of the company. The list of creditors is given below (Amount in Rupees ) : i) Dues to secured creditors - 20,00,000 ii) Dues to workers - 15,00,000 iii) Taxes, etc., payable to the government authorities - 2,00,000 iv) Unsecured creditors 40,00,000. Since the available amount is insufficient to meet the claims of all the creditors, explain the procedure to be followed for payment of dues as provided in the Companies Act, 1956, assuming that the company has created a charge on all the assets of the company in favour of the secured creditors. [ 7 + 6 = 13 marks] Q-7 (a) James Brown, Blue Brown, Vasisht Beg and Ramen Roy are the directors of John Brown and Company Limited. Vasisht Beg and Ramen Roy did not attend the board meeting which was properly convened. At the said board meeting two additional directors were appointed. They are wife and brother of James Brown and Blue Brown respectively, the directors who attended the board meeting. Explain with reference to the relevant provisions of the Companies Act whether the directors who attended the board meeting are entitled to vote on the subject-matter and whether the appointment of additional directors is valid. (b) The board of directors of M/s All India Film Producers and Exhibitors Association Ltd. have passed a resolution to the effect that no member who is indulging in activities detrimental to the interests of the company be permitted to examine the records or obtain certified copies thereof. A member of the company who is also a member of the Rival Association demands inspection of the register of members and minutes of general meetings and certified true copies thereof. The company refused the inspection, etc., on the strength of the resolution referred to above. Examine the correctness of refusal by the company in the light of the provisions of the Companies Act and the remedial action,if any, that can be taken by the aggrieved members in this case. [ 7 + 6 = 13 marks] Q-8 (a) The concept of ‘Public Interest’ has been making rapid inroads into the Indian Company Law. Survey very briefly five of such provisions enshrined in the Act. (b) A company incorporated outside India decides to establish a place of business in India. State the documents that are required to be filed by such foreign companies under the Companies Act soon after establishment of a place of business in India. [ 7 + 6 = 13 marks] Q-9 (a) State the disclosure requirements, if any, under Schedule VI to the Companies Act, 1956 in respect of the following : i) Loans received from directors. ii) Loans received from directors’ relatives. iii) Debts due by directors towards goods supplied and advances made by the company. iv) Debts due by partnership firms in which the directors or relatives of directors are partners. v) Debts due by companies in which the directors or their relatives are directors or members. vi) Loans and advances received from and given to a subsidiary company and the partnership firm in which the subsidiary company is a partner. vii) Remuneration received by a director of a company from its subsidiary company. viii) Commission paid to selling agents including sole selling agents. (b) State the procedure for the following, explaining the relevant provisions of the Companies Act : i) Appointment of first auditor when the Board of Directors did not appoint the first auditor within one month of the date of registration of the company. ii) Removal of first auditor before the expiry of his term. [ 9 + 4 = 13 marks] CA Final November 1998 (Questions 1, 2 and 3 are compulsory. Answer any four from the rest.) Q 1. Answer any three of the following : (a) XYZ Co. Ltd. called its Annual General Meeting on 7th September, 1997. The notice of A.G.M. was posted on 16th August, 1997. One member holding 20 shares wishes to challenge the resolutions passed at the A.G.M. on the ground that the notice was not valid. Advise him. (b) State the provisions relating to professional immunity to legal advisers and bankers under the Companies Act, 1956. (c) Pine Company Ltd. is a new company, It’s commercial operation started on 1/1/1998 and it’s audited operative results are not yet available. State the guidelines (for the protection of investors) of Securities and Exchange Board of India (SEBI) which would be applicable to Pine Company Ltd. in respect of its first issue of shares. What would be your answer, if Pine Co. Ltd. is set up by Long Jones Co. Ltd. and Short-Henry Co. Ltd. incorporated in 1987 and 1988 respectively with a five year "track record of consistent profitability" ? (d) In the Companies Act, 1956 and in FERA, 1973, there are several provisions which start with the words "without prejudice" and "notwithstanding." Explain (in not more than 10 lines each) the nature and significance thereof, applying the principles of statutory interpretation. ( 6 x 3 = 18 marks) Q 2. Answer any two of the following : (a) Dr. Vijay is a practising Gynecologist. He purchased (after having placed an order in January, 1998) an Ultrasound Scanner from TCL, a company registered in India, on the basis of their advertisement that the equipment is of super-class quality and that the purchaser would be trained for two weeks in the USA, within two months of delivery of the equipment. TCL delivered the goods in April, 1998 (i. e. three months late), and after ten weeks of delivery, the equipment proved to be defective and developed serious trouble. Further no training in USA was offered to Dr. Vijay, despite repeated requests calling upon the supplier to fulfil the promise. What is the remedy available to Dr. Vijay and what course of action should he take under the law ? What are his chances of succeeding in litigation ? Examine, keeping in mind the provisions of the MRTP Act, 1969. (8 marks) (b) (i) Ionic Co. Ltd. decided to raise foreign equity as part of an expansion programme. State the eligibility criteria for increase in foreign equity. (ii) Kirit purchased a ceiling fan thereby participating in a prize scheme, announced by the manufacturer of the fan, whereby Maruti cars, Bajaj scooters and tape recorders were offered as "bonanza prizes" and in addition every purchaser was assured a small gift. Kirit did not win any bonanza prize, but got a shaving kit as gift. Kirit learnt that just when the scheme had been announced, the price of the fan had been increased. Kirit approaches you for advice. State, with reasons, the provisions of the law under which the action of the fan manufacturer can be brought to book under the MRTP Act, 1969. (4 x 2 = 8 marks) (c) Jagan is a resident of India. He desires to make a gift of Rs. 5 lakhs to his sister Ms. Gagan (who is a person resident outside India), on the occasion of her marriage. He approaches you for advice in the matter. You are requested to analyse the provisions applicable and tender advice, in the light of the law laid down in FERA, 1973. (8 marks) Q 3. Answer any two of the following : (a) Santosh Iron and Steel Co. Ltd. is under lock-out since 1993. It is registered with the BIFR on 25.6.1996. A scheme of revival was prepared, but the implementation totally failed. From the Balance Sheet as at 31.3.91, the company’s accumulated loss is Rs. 10 crores and may be much higher now. The estimated net value of the company is Rs. 3 crores as per the Balance Sheet. There is no prospect of revival. Under the circumstances, what is the course of action open to BIFR to protect the assets of the company from further erosion ? (b) Enumerate briefly the main purposes for the creation of the Board for Industrial and Financial Reconstruction (BIFR), and its role by virtue of the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). (c) Under the SICA, the machinery for appeals is self-contained, with an Appellate Authority created under the Act exclusively for adjudicating upon the orders of BIFR. - - State (i) who can appeal, and (ii) on what grounds will an appeal lie. ( 7 x 2 = 14 marks) Q 4. (a) Madhurima Ltd. is a public company. It has a paid-up share capital of Rs. 10 crores. It is engaged in software development for export. It was promoted by Mr. Sharat, who is an NRI (a foreign resident of Indian origin), and his friend Mr. Mohan, who is an Indian citizen resident in India. Currently, Mr. Mohan is heading the company in India as the President. However, Mr. Sharat is the main business strategy formulator, and also actively renders several services outside India to the company, and also advises the Board of Directors of the company. But he is stationed in the U.S.A. and visits India for hardly ten days a year. The company desires to know from you, whether they can appoint Mr. Sharat, as the "Managing Director," to comply with Section 269 of the Companies Act, 1956, and pay him a salary in foreign exchange. They also desire that you advise them as to whether the said appointment can be made in terms of FERA, 1973. You are requested to give a reasoned answer, duly supported by analysis of the legal provisions applicable to the issue in question. (7 marks) (b) What are the provisions of the Companies Act, 1956, relating to entering into contracts by agents of a company, in which the company is the undisclosed principal ? (6 marks) Q 5. (a) ABC Co. Ltd. was amalgamated with, and merged in XYZ Co. Ltd. Some workers of ABC Co. Ltd. refuse to join as workers of XYZ Co. Ltd. and claim compensation for premature termination of service. XYZ Co. Ltd. resists the claim on the ground that their services are transferred to XYZ Co. Ltd. by the order of amalgamation and merger and, therefore, the workers must join service of XYZ Co. Ltd. and cannot claim any compensation. Who will succeed - the workers of ABC Co. Ltd. or the XYZ Co. Ltd. ? Give reasons. (7 marks) (b) Pouny Ltd. is a public company which was being mismanaged due to which certain parties applied to the CLB for relief. The Central Government, pursuant to a recommendation by the CLB, by its order under Section 408, appointed Mr. Pureesh (an IAS Officer) as a director of the company for a period of four years. The said Mr. Pureesh is a member of a joint Hindu family in which Mr. Paresh who is a director of the company is also a member. Mr. Ramesh another director on the Company’s Board, challenges the action of the Central Government on the ground that the consent of the company by a special resolution was not obtained before appointing Mr. Pureesh (as he is a relative of Mr. Paresh) and therefore the government nominee should forthwith vacate his office and refund the remuneration received till date. Examine the provisions of law applicable to the facts of the case, and give a well-deliberated answer. (6 marks) Q 6. (a) (i) In Parween Woodcraft Co. Ltd. Mr. James was named in the list of first directors. He, however, died before he could assume office. How can the problem regarding the appointment of a director be solved in this case ? (ii) In case of appointment of directors of a company, all the directors were not voted on individually, but were appointed by one resolution and no shareholder objected to it. Discuss the position under the provisions of the Companies Act. (6 marks) (b) State briefly the law enshrined in the Companies Act, 1956, in regard to the filing of the "declaration of solvency." (7 marks) Q 7. (a) Gulmohar Ltd., a company registered under Indian law owns a factory in Calcutta, wherein it manufactures jute products. By a notification of the State Government, issued during October, 1996, due to a strike and lock-out, it was declared a relief undertaking. After four months, in February, 1997, the lock-out was lifted. However, during the said period the company’s directors defaulted in payment of Provident Fund (PF) and other ancillary dues. During the month of December, 1997, the Regional PF Commissioner initiated criminal proceedings against the company and its directors under the Employees PF and Miscellaneous Provisions Act, 1952, for default and delay in payment of PF dues. Immediately the directors of the company applied to the High Court for relief under Section 633 of the Companies Act, 1956, praying for relief from liability under the PF law. The petition is now pending before a single judge. The company and its directors desire to know from you, as to the tenability of their claim for relief at the High Court, and as to whether they would be excused and exonerated by the High Court, in respect of the contraventions committed under the PF law. Briefly discuss the law on the subject and state whether the petition filed by the directors would be admitted or not under the Companies Act. (7 marks) (b) Explain the meaning and significance of "public examination" by the court under the Companies Act, 1956. (6 marks) Q 8. (a) (i) What is the liability of an auditor for failure to point out in his report that dividend is paid out of sale of the company’s real estate ? (ii) Can an auditor be disqualified for indebtedness in the following cases : (a) Where he is recovering his fees on a progressive basis even though the job is not complete (b) Where the auditor’s firm has purchased goods from the auditee company and not paid for them for over six months ? (6 marks) (b) What do you understand by "fraudulent preference" of creditors under Company Law ? (7 marks) Q 9. (a) (i) What is the procedure to be followed, when a Board Meeting is adjourned for want of quorum ? (ii) What do you understand by the passing of resolutions by circulation ? (6 marks) (b) On scrutiny of the sole selling agency agreement of HIJ Company Ltd. with X, the Central Government finds that the agreement is prejudicial to the interest of the company and cancels it. X consults you as to the advisability of challenging the order of the Central Government. Please advise X as to the chances of his successfully challenging the order of the Central Government. (7 marks) |