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INDEX
INCORPORATION OF COMPANY........................................................................................................... 4

PROSPECTUS & ALLOTMENT OF SECURITIES ................................................................................. 12

SHARE CAPITAL AND DEBENTURES ................................................................................................. 20

ACCEPTANCE OF DEPOSITS BY COMPANIES .................................................................................... 29

REGISTRATION OF CHARGES ............................................................................................................. 35

MANAGEMENT AND ADMINISTRATION ........................................................................................... 40

DECLARATION AND PAYMENT OF DIVIDEND .................................................................................. 54

ACCOUNTS OF COMPANIES ................................................................................................................ 62

AUDIT AND AUDITORS ....................................................................................................................... 73

COMPANIES INCORPORATED OUTSIDE INDIA................................................................................. 83

LIMITED LIABILITY PARTNERSHIP ................................................................................................... 92

GENERAL CLAUSE ACT 1897.............................................................................................................. 99

INTERPRETATION OF STATUTES ..................................................................................................... 107

THE FOREIGN EXCHANGE MANAGEMENT ACT 1999 ................................................................... 115

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INCORPORATION OF COMPANY
1. Doctrine of Indoor Management vs. Constructive Notice
Revision Note:

• Question Essence: Explains the “Doctrine of Indoor Management,” protecting outsiders who
deal with a company from internal irregularities, and also covers its exceptions.

• Answer Gist: Outsiders are generally protected once they check the company’s external
documents (MOA/AOA). Exceptions include actual/constructive knowledge of irregularity,
suspicion of irregularity, and forgery. These are situations where protection does not apply.

2. Shifting Registered Office from One RoC to Another within the Same State
Revision Note:

• Question Essence: Outlines the procedure for moving a company’s registered office from one
city to another within the same state but under different Registrars.

• Answer Gist: Must apply to the Regional Director in Form INC-23, obtain confirmation, file
the confirmation within 60 days with the new RoC, and also file Form INC-28. The RoC will
then certify the registration.

3. Alteration of Object Clause (Adding New Business Activity)

Revision Note:

• Question Essence: Company wants to add a new object to the MOA (switching from real-
estate to food processing).

• Answer Gist: Allowed by passing a special resolution and filing it with the RoC for registration
within 30 days of passing SR. The alteration becomes effective only upon RoC registration of
the amendment.

4. Holding-Subsidiary Issues: Subsidiary Holding Shares in Holding Company

Revision Note:

• Question Essence: Covers the scenario where a subsidiary can holds shares in its holding
company and whether it can invest further or vote.

• Answer Gist: A subsidiary generally cannot hold shares in its holding company. Existing
shares (held before becoming a subsidiary or held as legal representative/trustee) may
remain, but no further acquisition is allowed. Voting can be exercised only on shares held in a
fiduciary capacity. A holding company cannot allot or transfer additional shares to its
subsidiary.

5. Small Company Definition and Criteria

Revision Note:

• Question Essence: Checks if a private company with certain paid-up capital and turnover
qualifies as a “Small Company.”

• Answer Gist: A private company is a small company if paid-up share capital does not exceed
the prescribed limit and turnover does not exceed the prescribed limit (currently ₹4 cr and

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₹40 cr respectively). If both limits are met, the status is granted; if not, it is denied. Certain
companies, like holding/subsidiaries,special Act and section 8 company cannot be
categorized as small company.

6. Entrenchment of Articles
Revision Note:

• Question Essence: Whether a company can include a provision that certain parts of its
articles can be altered only by a super-majority (e.g., 90%).

• Answer Gist: Companies can have “entrenchment provisions,” making alterations more
restrictive than a standard special resolution. For a private company, such provisions require
the agreement of all members. For public company, SR is required. Notice of entrenchment
must be filed with the Registrar.

7. Service of Documents on Company and Members

Revision Note:

• Question Essence: Provisions on how documents/notices can be served on a company,

members, or Registrar.

• Answer Gist: Delivery may be by registered post, speed post, courier, leaving it at the
registered office/address, or by electronic means. Members can request a particular mode by
paying necessary fees as determined in AGM.

8. Whether Certain Companies with Listed Debt/Preference Shares Are ‘Listed Companies’ and
Holding subsidiary relation between companies holding each others securities
Revision Note:

• Question Essence: Companies issued listed non-convertible debt/preference shares but their
equity shares aren’t listed—are they “listed companies”? What is the relation between
companies holding each others share.?

• Answer Gist: Under certain rules, only those with listed equity or certain categories of
securities are considered listed. Following are not covered here:

(a) Public companies listing non-equity securities (debt/preference shares) privately under
SEBI regulations.

(b) Private companies listing non-convertible debt securities privately under SEBI regulations.
(c) Public companies listing equity shares in foreign jurisdictions under Section 23(3).

A subsidiary company is a company controlled by another company (called the holding or

parent company) that owns more than 50% of its share capital or exercises significant control
over its operations.

9. Subsidiary Holding Shares in Holding Company and Bonus Shares Allotment

Revision Note:

• Question Essence: Validity of subsidiary company’s shareholding in its holding company

and receiving bonus shares.

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• Answer Gist: If the subsidiary held shares before becoming a subsidiary (or in a fiduciary
capacity), it can continue to hold them. Any bonus shares issued on those validly held shares
can also be allotted. Allotment is valid if the original holding was validly allowed.

10. Withdrawal of Nominee in OPC & Eligibility of New Nominee

Revision Note:

• Question Essence: Nominee in a One Person Company (OPC) withdraws consent; covers
eligibility of a new nominee.

• Answer Gist: A nominee may withdraw consent at any time. Minor cannot be nominee. The
new nominee must be a natural person (Indian citizen), and not disqualified (e.g., not a minor).
Cannot become nominee and member in more than one OPC.

11. Revocation of Section 8 (Charitable) Company’s License by Central Government

Revision Note:

• Question Essence: A Section 8 company violating its objects—what powers does the Central
Government have?

• Answer Gist: The licence can be revoked if a Section 8 company breaches license conditions
or acts contrary to its objects/public interest. The government can order winding-up or
amalgamate it with another Section 8 company. Reasonable opportunity of being heard is
given before passing such orders.

12. Section 8 Company Surplus Distribution

Revision Note:

• Question Essence: A charitable (Section 8) company proposes to distribute surplus assets to

members on dissolution.

• Answer Gist: Section 8 companies must apply all profits to their objects and cannot pay
dividends to members. On dissolution, surplus must go to another Section 8 company or as
directed by the authorities, not to members. The proposal to distribute the surplus among
members is invalid.

13. Documents Required at the Time of Incorporation

Revision Note:

• Question Essence: Lists mandatory filings with the Registrar when registering a company.

• Answer Gist: Must file the signed Memorandum and Articles, various declarations of
compliance, particulars of registered office (if available), details of subscribers/directors, and
their consents/identities, along with proof of identity/address, particulars of interest in other
company/s.

14. Conversion of OPC into Another Form of Company and member eligibility
Revision Note:

• Question Essence: When an OPC’s paid-up capital or turnover increases, can it convert into a
private/public company? who can become member of OPC?

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• Answer Gist: Once thresholds are crossed, conversion into a private/public company is
permissible by following prescribed procedures. It cannot convert into a Section 8 company.
If the statutory limits are exceeded, it should convert as per the rules. The member must be a
natural person (Indian citizen), and not disqualified (e.g., not a minor).

15. Company Incorporated with False Information – Powers of Tribunal

Revision Note:

• Question Essence: If a company is formed by providing false/incomplete information, what

can the Tribunal do?

• Answer Gist: The Tribunal can pass orders regulating management, make members’ liability
unlimited, remove the company’s name from register, wind it up, or pass any other order as it
deems fit. The company is given a reasonable opportunity to be heard.

16. Determining Subsidiary Status and Holding Company Relationship

Revision Note:

• Question Essence: A situation where one company has partial holdings in another, and the
second controls composition of boards of other affiliates.

• Answer Gist: Subsidiary status arises if a holding company controls the majority board
composition or more than half the total voting power. Shares held before becoming a
subsidiary can remain valid. A subsidiary generally cannot acquire additional shares in its
holding company unless it meets specific exceptions(holding shares before becoming
subsidiary).

17. Director Signing Partnership Deed on Behalf of the Company

Revision Note:

• Question Essence: Company’s liability when a director, believing he has implied authority,
signs a partnership deed.

• Answer Gist: Directors need explicit authority (e.g., board resolution, power of attorney) to
bind the company. If no proper authority was granted, the company can deny liability. “Implied
authority” isn’t automatically presumed for forming partnerships on the company’s behalf
unless authorized.

18. Section 8 Company Declaring Dividend

Revision Note:

• Question Essence: A Section 8 company, formed for charitable purposes, wants to pay
dividends to its members.

• Answer Gist: Prohibited. Section 8 companies must use profits only for their charitable
objects and cannot distribute dividends to members.

19. Alteration of Articles by a Section 8 Company without Prior Approval

Revision Note:

• Question Essence: Validity of a Section 8 company altering its articles by special resolution
without Central Government approval.

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• Answer Gist: Section 8 companies must seek prior approval from the Central Government
before altering their memorandum or articles. Failing that, such alteration is not valid.

20. Professional Adviser Classified as Promoter?

Revision Note:

• Question Essence: Whether a director acting only in a professional capacity (advising on

compliance and strategy) is deemed a promoter.

• Answer Gist: A promoter is one on whose directions the Board is accustomed to act, except if
acting merely in a professional capacity. Hence, purely professional advice does not make
someone a promoter.

21. Conversion from Public to Private Company – Member Limits

Revision Note:

• Question Essence: If a public company’s total membership is within 200 (excluding

employees/ex-employees holding shares), can it convert to a private company?

• Answer Gist: : A private company can have up to 200 members (exclude employees/ex
employees and count joint holders as one).If the resulting count after exclusions is within 200,
no reduction in membership is needed. Also, Conversion requires an alteration of articles and
approval from central government.

22. Effect of Registration of a Company on Company and Members

Revision Note:

• Question Essence: Consequence once the MOA and AOA are registered.

• Answer Gist: The company becomes a separate legal entity (perpetual succession, can sue/be
sued, own property). Memorandum and articles bind the company and members as if mutually
signed. Members are not directly liable to one another under these documents.

23. Related Party Status of Two Wholly Owned Subsidiaries

Revision Note:

• Question Essence: Whether two subsidiaries of the same holding company are related parties
under the law.

• Answer Gist: A holding, subsidiary, and fellow subsidiary are considered related parties. If
both are subsidiaries of the same company, they fall under the related party definition.

24. Change in Object After Raising Money via Prospectus

Revision Note:
• Question Essence: A company raised funds from the public but wants to change its objects
before fully utilizing those funds.

• Answer Gist: Must pass a special resolution via postal ballot, justify the change in a
newspaper notice, place it on the company’s website, and provide an exit option to dissenting
shareholders (if listed).Must register the alteration within 30 days of passing SR. Only then
can the object be changed and money reallocated.

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25. Name of Company Similar to a Registered Trademark

Revision Note:

• Question Essence: Trademark owner wants the company to change its name, but discovered
it after five years.

• Answer Gist: The owner must apply to the Central Government within three years of the
company’s incorporation for a mandatory name change. If not made in time, the company
cannot be compelled to change its name. However, the company may change its name
voluntarily if it wishes (special resolution + approval).

26. Circumstances Where a Subsidiary May Hold Shares in Holding Company

Revision Note:

• Question Essence: Explains the prohibition and exceptions to holding shares in a holding
company.

• Answer Gist: Generally prohibited, but exceptions include (i) holding shares as a legal
representative of a deceased member, (ii) as a trustee, or (iii) shares held before becoming a
subsidiary. No further shares can be allotted or transferred to the subsidiary unless under
these exceptions.

27. Serving Notice on a Director Who Paid for Specific Mode

Revision Note:

• Question Essence: A director requested notices only via registered post, but the company
used ordinary post instead.

• Answer Gist: If a member or director has paid for a particular mode of service, the company
must comply. Failure to serve via the requested method makes the notice invalid. The person
can contest improper service.

28. Distinction Between Memorandum (MOA) and Articles (AOA)

Revision Note:

• Question Essence: Key differences between MOA and AOA.

• Answer Gist: MOA sets out fundamental conditions and defines the scope of the company’s
activities. AOA contains internal regulations for managing the company. MOA prevails in any
conflict. Acts beyond MOA are void, while acts beyond AOA may be ratified by members if
within MOA.

29. Untrue Expert Report in a Prospectus and Investor’s Remedy

Revision Note:

• Question Essence: An investor bought shares relying on an expert’s untrue statement in the
prospectus but suffered no loss.

• Answer Gist: A person can claim compensation only if they suffer actual loss due to
misleading statements. If no loss is incurred, no compensation claim arises. Experts can avoid
liability if certain conditions (like no consent, withdrawal of consent, or lack of knowledge of
issue of prospectus) are met.

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30. Whether Certain Companies Must Prepare a Cash Flow Statement

Revision Note:

• Question Essence: When is a cash flow statement mandatory, and which companies are
exempt?

• Answer Gist: A cash flow statement is part of “financial statements.” One Person Companies,
small companies, dormant companies, and private start-up companies are exempt. Others
(including subsidiaries deemed public) must prepare a cash flow statement.

31. Company’s Name Similar to a Trademark Discovered After 5 Years

Revision Note:

• Question Essence: Trademark owner wants rectification of name after 5 years.

• Answer Gist: The law allows an owner to request rectification within three years of a
company’s registration. After that, the company cannot be forced to change its name. The
company may do so voluntarily by passing a special resolution and obtaining approval.

32. OPC Nominee - Can it be a Private Company?

Revision Note:

• Question Essence: Whether a legal entity such as a private limited company can be appointed
as a nominee in a One Person Company.

• Answer Gist: Not permitted. The nominee must be a natural person, Indian citizen (resident
or non-resident). A body corporate cannot act as a nominee for an OPC.

33. Fraud by a Section 8 Company and Paying Dividends

Revision Note:

• Question Essence: A Section 8 (non-profit) company is found to be acting fraudulently and

distributing dividends.

• Answer Gist: Central Government can revoke the license if the company breaches conditions
or conducts its affairs against its stated objects. It can direct winding up or amalgamation with
a similar Section 8 company, following due process. Reasonable opportunity of being heard
must be given.

34. True/False on Promoter, NRI in OPC, Liability if Members < Minimum

Revision Note:

1. Being a promoter does not require involvement only at initial formation; subsequent control
or guidance (not purely professional) can qualify.
2. An NRI can form an OPC as only Indian citizenship (resident or otherwise) is required.
3. If a company continues below the statutory member minimum for more than six months,
those aware are personally liable for debts contracted after elapse of six months.

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35. OPC Nominee Moving Abroad Permanently & Minor as Nominee

Revision Note:

• Question Essence: If the nominee in an OPC is leaving India, is withdrawal mandatory? And
can a minor become the new nominee?

• Answer Gist: Being an Indian citizen (resident or otherwise) is key. If the person retains
Indian citizenship, they can remain nominee. A minor cannot be appointed. If the original
nominee withdraws, the new nominee must be a natural person, Indian citizen (adult).

36. Whether Company Is a Public Company by Being a Subsidiary of a Public Company

Revision Note:

• Question Essence: If a private company is a subsidiary of a public company, does it become a

public company?

• Answer Gist: By definition, a private company that is a subsidiary of a public company is

deemed to be a public company under the Act, even if it retains “private” in its name and
articles. Also addresses holdings of preference shares with voting rights that can push total
voting power above 50%.

37. Who Can Get a Licence as a Section 8 Company (Non-Profit)?

Revision Note:

• Question Essence: Requirements for obtaining a Section 8 licence to form a non-profit

company.

• Answer Gist: Must have charitable objects (e.g., commerce, science, education, sports, etc.),
apply profits only for such objects, and prohibit dividend distribution. The Central
Government grants the licence if satisfied with the applicant’s objectives and conditions.

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PROSPECTUS & ALLOTMENT OF SECURITIES

1. Shelf Prospectus: Concept & Procedure

Revision Note:

• Question Essence: What is a shelf prospectus, and how does a company issue securities under
it?

• Answer Gist:

o A shelf prospectus is a single prospectus used for multiple offers over up to 1

year(commencing from date of first offer).

o Companies (as specified by SEBI) can file it once at the first offer stage.

o For subsequent offers, no new prospectus is needed; instead, an information

memorandum (Form PAS-2) must be filed, updating material changes.

o If applicants want to withdraw due to these changes, refunds must be given within 15
days.

2. Untrue Expert Report in Prospectus & Investor’s Remedy

Revision Note:

• Question Essence: If an expert’s untrue statement in the prospectus causes someone to buy
shares, can they claim damages even if there is no actual loss?

• Answer Gist:

o Liability to pay compensation arises only if the investor suffers loss or damage.

o If no loss is suffered, there is no remedy for the investor under misstatement

provisions.

o Experts are also not liable if they withdrew consent before registration or had no
knowledge/consent or statement not made in capacity of expert.

3. Private Placement: Limits & Validity of Multiple Offers

Revision Note:

• Question Essence: Clarification on private placement: maximum number of persons (200),

treatment of QIBs/employees, and if only one offer per financial year is allowed.

• Answer Gist:

o Private placement can be offered to up to 200 persons in aggregate per financial year
(QIBs and ESOP employees excluded from 200).

o A company can make multiple offers but each must adhere to the 200-person limit;
QIBs and employees under ESOP are not counted in 200,

o Multiple placements in the same year are permissible (subject to prior allotments
being completed).

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4. Underwriting Commission: Maximum Permissible Rate

Revision Note:

• Question Essence: A company wants to pay 5% underwriting commission, but its Articles
allow only 4%.

• Answer Gist:

o The lower of 5% or the rate authorized by the Articles applies.

o If Articles limit it to 4%, that’s the maximum commission payable for shares.

o Hence, the proposal to pay 5% is invalid; they can only pay 4%.

5. Reports in Prospectus: Financial Information

Revision Note:

• Question Essence: Which financial reports must be included in a prospectus when issuing
shares to the public?

• Answer Gist:

o Must comply with SEBI guidelines in consultation with the Central Government.

o The prospectus must include financial information/reports specified by SEBI plus

a compliance declaration (Companies Act, SEBI Act, SCRA).

o The general principle is that the content aligns with rules set by SEBI.

6. Allotment Conditions: Minimum Subscription, Listing & Application Money

Revision Note:

• Question Essence: A company states a minimum subscription, collects partial amounts, and
also must apply for listing on all chosen exchanges. When can shares be allotted?

• Answer Gist:

o Minimum subscription (stated in the prospectus) must be fully received.

o Application money must be at least 5% of nominal value (or as per SEBI).

o Listing permission from each named stock exchange must be obtained prior to
allotment.

o Violations can lead to fines or liability:

Contravention related to stock exchanges:

o Company: Fine of ₹5 Lakhs to ₹50 Lakhs.

▪ Officer in default: Imprisonment up to 1 year, fine of ₹50,000 to ₹3 Lakhs, or
both.

Contravention of minimum subscription/application money:

o Company and officers: ₹1,000 per day of default or ₹1 Lakhs, whichever is less.

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7. Irregular Allotment Instances

Revision Note:

• Question Essence: When is an allotment of securities considered “irregular” under the Act?

• Answer Gist:

o Irregular allotment occurs if prospectus requirements aren’t met (e.g., missing

essential disclosures or no RoC filing).

o If minimum subscription or minimum application money isn’t received, or if

listing approval is missing, allotment is irregular.

8. Deemed Prospectus

Revision Note:

• Question Essence: What is a “deemed prospectus,” and when is the formal issue of a
prospectus not required?

• Answer Gist:

o Any document offering securities for sale to the public can be treated as a prospectus,
making relevant liabilities and content rules apply.

o No prospectus is needed for an offer to existing holders (rights/bonus) or for

securities already listed on a recognized exchange.

9. Underwriters’ Commission Provisions

Revision Note:

• Question Essence: Company plans to pay commission to underwriters for share subscription.
What conditions apply?

• Answer Gist:

o Must be authorized by articles, not exceed 5% (for shares) or 2.5% (for debentures)
or the articles’ rate if lower.

o Disclose in prospectus the names, rate/amount of commission, and number of

securities underwritten.

o Commission can be paid from issue proceeds or company profits or both.

o Copy of contract for payment of commission- deliver to registrar.

10. Director’s Liability for False Statements by Promoters

Revision Note:

• Question Essence: A director relies on promoters’ statements for the prospectus, which turn
out false. Is the director liable?

• Answer Gist:

o A director cannot escape liability simply by saying they relied on promoters.

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o Persons authorizing issue of the prospectus are liable for misstatements unless they
prove specific exemptions (no consent, knowledge, or it was immaterial, etc.).

11. Information Memorandum

Revision Note:

• Question Essence: What is an information memorandum, and what does it include?

• Answer Gist:

o Filed by a company issuing a shelf prospectus before subsequent offers.

o Must set out material changes in charges, financial position, or other prescribed
items since the previous offer.

o Form PAS-2 is used, and if applicants do not agree with changes, they can withdraw
and get a refund within 15 days.

12. Advertisement of Prospectus: Mandatory Contents

Revision Note:

• Question Essence: If a company publishes a prospectus advertisement, which items must it

include?

• Answer Gist:

o Must contain details such as objects of the company, liability of members, share
capital, signatories’ names and shares subscribed, and the capital structure.

o Ad must be consistent with the actual prospectus disclosures.

13. Red Herring Prospectus (RHP)

Revision Note:

• Question Essence: Board wants to float shares but is uncertain about the final price/number
until the issue closes. What to do?

• Answer Gist:

o Use a Red Herring Prospectus.

o File it with the RoC at least 3 days before opening subscriptions.

o It omits specifics on price/quantity. Once issue closes, final details are filed with
RoC/SEBI.

14. Definition of “Securities” for Section 23 & Certain Statements

Revision Note:

• Question Essence: Which instruments count as securities for Section 23, and clarifications
on certain statements under Sections 25 & 26?

• Answer Gist:

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o Under SCRA, unit-linked insurance policies are not typically securities, but
securities issued by certain entities (e.g., National Asset Reconstruction) can be.

o Matters under Section 25(3) supplement (not substitute) Section 26.

o Prospectus copy must be signed by every named director or their attorney, not just
the majority.

15. Private Communication Marked “Strictly Private”

Revision Note:

• Question Essence: A prospectus labeled “strictly private” was passed to someone who then
applied for shares. Is it an offer to the public?

• Answer Gist:

o It was not an offer to the public. A single or limited private circulation doesn’t trigger
public-offer provisions or liability for misstatements.

16. Shares Offered by Existing Members (Offer for Sale)

Revision Note:

• Question Essence: Existing members want to offer shares to the public with the company’s
help. Can the company recover related expenses from those members?

• Answer Gist:

o Yes. When a company arranges the sale of members’ shares, those members must
reimburse all expenses the company incurred in connection with that offer for sale
(Section 28(3)).

17. Prospectus Statements True but Misleading by Omission

Revision Note:

• Question Essence: A prospectus mentions past dividends but omits that they were from
capital profits. Is that a material misstatement?

• Answer Gist:

o Yes, non-disclosure of capital-profit dividends is a material omission.

o An allottee can avoid the contract, citing misleading statements by omission.

18. Expert’s Liability & Withdrawal of Consent

Revision Note:

• Question Essence: If an expert discovers a prospectus includes their statement without

proper knowledge or after consent was given earlier, can they avoid liability by a public notice?

• Answer Gist:

o Yes. If they give public notice that it was issued without their consent/knowledge on
discovery, they can escape liability under Section 35(2).

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19. Transferee of Shares & Rescission for Misstatements

Revision Note:

• Question Essence: A new shareholder (transferee) tries to rescind shares purchase based on
an original prospectus misstatement. Is it possible?

• Answer Gist:

o No. Only the original allottee who relied on the prospectus can seek rescission. A
subsequent transferee cannot rescind under Section 37 on that basis.

20. Fraudulent Prospectus & Section 447 Punishment

Revision Note:

• Question Essence: If a prospectus is fraudulent but the complainant didn’t actually invest,
can the authors be punished under Section 447?

• Answer Gist:

o Yes. Fraud liability under Section 447 doesn’t require the complainant to have
incurred a loss. Wrongful gain or loss is not a mandatory element.

21. Non-Receipt of 100% Minimum Subscription Before Allotment

Revision Note:

• Question Essence: A company received only 80% of the stated minimum subscription and
withdrew some funds before allotment. Can an allottee refuse shares?

• Answer Gist:

o Yes. Allotment is invalid if the full minimum subscription stated in the prospectus is
not received.

o The subscriber can reject the allotment as it violates Section 39(1).

22. Conflicting commission Rates in Articles

Revision Note:

• Question Essence: Directors want to pay 5% underwriting commission, but Articles permit
only 3%. They also want to pay it from share proceeds.

• Answer Gist:

o They can only pay the lesser rate: 3%.

o Paying out of share issue proceeds or profits is allowed if it does not exceed the
articles’ limit.

23. Joint Holders in Private Placement & Payment Source

Revision Note:

• Question Essence: Where 1000 shares are offered jointly to two people, from whose bank
account must the subscription be paid?

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• Answer Gist:

o The first-named joint holder in the offer application must pay from their bank
account. The company must ensure compliance with this rule.

24. Multiple Private Placements Before Completing Previous Allotment

Revision Note:

• Question Essence: A public company issues private placement offer letters to different sets
of people before allotting under the first offer. Is that valid?

• Answer Gist:

o A public company can do private placement (Section 42).

o Must not issue a new private placement offer before completing allotment or
abandoning the previous one.

o Doing so violates private placement rules, making it a deemed public offer.

o If the second offer is after completing the first allotment, both remain private
placements.

o Limit on number of maximum members is security wise( 200 for each type of
security)

25. Private Placement Procedure: Resolution, Number of Persons, Allotment Timeline

Revision Note:

• Question Essence: (i) Type of resolution and max persons? (ii) Consequences of non-
allotment on time? (iii) When can funds be used?

• Answer Gist:

1. A special resolution is required; up to 200 persons per financial year (excluding

QIBs/ESOP).

2. Must allot within 60 days of receiving application money or refund within 15 days,
else pay 12% interest.

3. The funds can be utilized only after filing the return of allotment with the Registrar.

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SHARE CAPITAL AND DEBENTURES

1. Bonus Shares: Conditions & Formalities

Revision Note:

• Question Essence: A listed company wants to issue bonus shares and certain information
regarding authorized share capital, partly paid shares, unpaid statutory dues, and outstanding
interest on deposits is given. Company wants to know about conditions and manner of issue

• Answer Gist:

o Articles must authorize the bonus.

o Only free reserves (not revaluation reserves), securities premium, or CRR can be used.

o Partly paid shares must be made fully paid first.

o Company must not have defaulted on interest/deposits/statutory dues.

o Must ensure that the post-bonus capital does not exceed the authorized capital.

o Approval by ordinary resolution in general meeting.

2. Buyback of Shares: Source of Funds & Prohibitions

Revision Note:

• Question Essence: Which funds can be used for buyback, and in what scenarios is buyback
prohibited?

• Answer Gist:

o Buyback can be financed out of free reserves, securities premium, or issue

proceeds (but not of same kind).

o Prohibited if done through subsidiaries, investment companies, or while in default of

deposits/debentures/preference shares/term loans/dividends unless the default is
cured and 3 years have passed.

3. Securities Premium Account: Permissible Uses

Revision Note:

• Question Essence: How can a company apply the balance in the securities premium account?

• Answer Gist:

o Can be used for bonus shares, writing off preliminary expenses or share issue
expenses/discount, redemption premium on preference shares/debentures, or
buyback of shares/securities.

o Must comply with relevant accounting standards and legal conditions.

4. Debenture Trustee: Appointment & Disqualifications

Revision Note:

• Question Essence: When must a debenture trustee be appointed and who is disqualified from
serving as one?

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• Answer Gist:

o Trustee required if public or members exceed 500 for subscription.

o Disqualified if the person is a beneficial shareholder of the company, is

promoter/director /KMP /officer/employee, is indebted, has given a guarantee on the
debt, or has any significant pecuniary relationship with the company(2% or more of
its turnover/income or ₹50 lakh, whichever is lower, in the last two financial years or
the current year.),relative of promoter/director/KMP

o A mere shareholder with no beneficial interest can be a trustee, but a creditor

(owing any amount) or a guarantor to that issue cannot.

5. Issue of Shares at a Discount

Revision Note:

• Question Essence: Is issuing shares at a discount (e.g., ₹1 discount on ₹10 face value) valid?

• Answer Gist:

o Generally prohibited by Section 53, hence void.

o Exception: Sweat equity shares can be issued at a discount.

6. Loan to Purchase Partly Paid Shares

Revision Note:

• Question Essence: A company gives a loan to an employee (not KMP) to buy its own partly
paid shares. Valid or not?

• Answer Gist:

o Loan for purchase of fully paid shares is permissible for employees (up to six months’
salary).

o Not valid if shares are partly paid.

o Decision is invalid as the shares must be fully paid first.

7. Company Refusing Transfer of Shares & Not Sending Notice

Revision Note:

• Question Essence: Share transfer refused without proper notice; can transferee appeal?

• Answer Gist:

o If refusal is without sufficient cause or no notice within 30 days, transferee can appeal
to the Tribunal within prescribed time.

o The Tribunal can order registration of transfer or other relief.

8. Forged Transfer: Rights of Original Holder vs. Good-Faith Purchaser

Revision Note:

• Question Essence: Shares transferred under a forged signature, and then sold on. Who has
what rights?

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• Answer Gist:

o Forged transfer is void; the original owner can claim restoration of their name.

o The company may have to compensate a subsequent bona fide purchaser.

o The original owner remains the real owner.

9. Rights Issue: Board’s Decision to Exclude One Shareholder

Revision Note:

• Question Essence: A shareholder (holding 40%) is not offered further shares in a new rights
issue. Valid?

• Answer Gist:

o Section 62 mandates proportionate offer to existing shareholders.

o Exclusion of a current shareholder is invalid unless they renounce or specifically

disclaim their rights.

10. Allotment of Shares for Discharge of Debt (Non-Cash Consideration)

Revision Note:

• Question Essence: A company settles a debt of ₹10,000 by allotting 100 shares of ₹100. Valid?

• Answer Gist:

o Shares can be issued for consideration other than cash, subject to a special resolution
and valuation by a registered valuer.

o Must comply with Section 62 guidelines (further issue rules).

11. Sweat Equity Shares for a Newly Formed Public Company

Revision Note:

• Question Essence: A listed public company wants to issue sweat equity shares within just a
few months of incorporation.

• Answer Gist:

o No minimum age required for the company; it can issue sweat equity if:

▪ Approved by a special resolution(specifying details of shares to be issued).

▪ Complies with SEBI guidelines (listed) or prescribed rules.

o The Act allows it regardless of being only months old.

12. Unredeemed Preference Shares & Insufficient Profits

Revision Note:

• Question Essence: A company cannot redeem its preference shares on time. What is the
remedy?

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• Answer Gist:

o May, with consent of holders of 3/4th in value of unredeemed shares + Tribunal

approval, issue further redeemable preference shares to settle the unredeemed
portion.

o Those who don’t consent, the Tribunal can direct immediate redemption.

13. Sub-Division of Shares to Lower Face Value

Revision Note:

• Question Essence: Company wants to reduce each share’s face value from ₹100 to ₹10 and
increase number of shares.

• Answer Gist:

o A company can sub-divide its shares into smaller denominations if authorized by

articles and by passing an ordinary resolution.

o File Form SH-7 with RoC within 30 days.

14. Issue of Equity Shares with Differential Voting Rights

Revision Note:

• Question Essence: Can a company issue shares with DVRs? What conditions apply?

• Answer Gist:

o Articles must authorize it; an ordinary resolution (postal ballot if listed).

o Cannot exceed 74% of total voting power (aggregated).

o No subsisting defaults in filing financial statements, paying debts/deposits, amount

on redemption of preference shares or declared dividends.

o No penalization by court or regulator in last 3 years.

15. Difference Between Transfer & Transmission of Shares

Revision Note:

• Question Essence: Key distinctions between a voluntary transfer vs. law-based

transmission (death/insolvency).

• Answer Gist:

o Transfer: voluntary act by transferor, uses an instrument, typically for consideration.

o Transmission: arises by operation of law; no instrument required; no

consideration.(death or insolvency)

o Liability differences and procedural differences exist.

16. Declaration of Solvency for Unlisted Company’s Buyback

Revision Note:

• Question Essence: What is the requirement of “Declaration of Solvency” when an unlisted

company buys back its shares?

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• Answer Gist:

o File declaration in Form SH-9 (verified by an affidavit) with RoC and SEBI stating that
the company is solvent and able to meet liabilities for 1 year post buyback.

o Signed by at least two directors (one being MD, if any).

o Not filed with SEBI if the shares are unlisted.

17. Conditions for Issuing Secured Debentures

Revision Note:

• Question Essence: Requirements for issuing secured debentures under the Act.

• Answer Gist:

o Redemption cannot exceed 10 years (except those engaged in infrastructure

projects, Infrastructure Finance Companies, Infrastructure Debt Fund NBFCs,
and companies permitted by government ministries, RBI, NHB, or other statutory
bodies: up to 30 years).

o Must create a charge on assets sufficient to repay principal + interest.

o Debenture trustee appointment required.

o Trust deed execution within 60 days of allotment.

18. Reducing Partly Paid Shares & Nominal Value Without Tribunal Confirmation

Revision Note:

• Question Essence: Company cancels unsubscribed portion and relieves shareholders from
paying the balance. Is Tribunal confirmation needed?

• Answer Gist:

o Canceling unsubscribed shares is merely altering authorized capital, which is

allowed under Sec. 61(1) without Tribunal approval.

o Reducing paid-up capital or extinguishing liability on partly paid shares generally

needs Tribunal approval (Sec. 66).

o To reduce share capital, a company must pass a special resolution and obtain
Tribunal approval. The Tribunal notifies relevant authorities, considers objections,
and confirms the reduction if creditors consent or are secured. The order must be
published and registered with the Registrar of Companies. Post-reduction,
members' liability is limited. Buy-back of securities is excluded from these
provisions.

19. Buyback of 30% vs. 20% Equity Share Capital & Resolutions

Revision Note:

• Question Essence: Company passes an ordinary resolution to buy back 30% or 20% of
equity capital. Valid?

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• Answer Gist:

o Buyback cannot exceed 25% of paid-up capital + free reserves in one financial year.

o Also, if exceeding 10% of paid-up capital + free reserves, must pass a special
resolution (not an ordinary one).

o Therefore, 30% is invalid; 20% also invalid as only ordinary resolution is passed.

20. Cooling-Off Period After Buyback

Revision Note:

• Question Essence: A company tries another buyback or reissue within 6 months. Is it

allowed?

• Answer Gist:

o No further buyback is allowed within 1 year from the closure of the previous
buyback.

o No further issue of the same kind of shares within 6 months, except bonus or
discharge of warrants/sweat equity, etc.

21. Sweat Equity Shares by a Start-Up: Limits & Lock-In

Revision Note:

• Question Essence: A start-up company wants to issue sweat equity at 10% of paid-up capital
(total 30%). Lock-in 5 years?

• Answer Gist:

o A recognized start-up can issue up to 50% of paid-up capital as sweat equity for up to
10 years.

o Mandatory 3-year lock-in from allotment date under general rule.

o If they impose 5-year lock-in, that is stricter but allowed (only if mentioned in
articles).

o Overall issuance limit is still not exceeded.

22. Alteration of Capital Clause (Ways & Procedure)

Revision Note:

• Question Essence: Company wants to alter the capital clause. Which ways are permissible?

• Answer Gist:

o Under Sec. 61: Increase authorized capital, consolidate/divide, sub-divide, convert

shares into stock or vice versa, cancel unsubscribed shares.

o Must be authorized by articles and done by ordinary resolution.

o File Form SH-7 within 30 days.

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23. Variation of Class Rights & Consent Requirements

Revision Note:

• Question Essence: A company with multiple share classes wants to change rights of a class.
How to get consent?

• Answer Gist:

o Must be allowed by MOA/AOA or terms of issue.

o Need consent of 3/4th of that class or pass a special resolution.

o Dissenting holders (≥10% of that class) can appeal to Tribunal within 21 days.

24. Cancelling Unsubscribed Shares Without Tribunal Approval

Revision Note:

• Question Essence: A private company cancelled 2 lakh unsubscribed shares, claiming no

Tribunal confirmation needed. Practicing CS disputes. Valid?

• Answer Gist:

o Cancelling shares “not taken or agreed to be taken by any person” is under Sec.
61(1)(e) and is not deemed a reduction.

o Only an ordinary resolution is needed, plus RoC filing.

o Hence, it is valid and does not require Tribunal approval.

25. Maximum Debentures Issuable & Necessity of Resolution

Revision Note:

• Question Essence: Company wants to raise funds via debentures; how to calculate the
maximum without special resolution?

• Answer Gist:

o Total existing borrowings + new debentures should not exceed the aggregate of paid-
up share capital + free reserves + securities premium.

o Temporary loans from banks in the ordinary course are excluded.

o If exceeding that threshold, a special resolution is needed.

o For convertible debentures, always require a special resolution.

26. Only Preference Share Capital?

Revision Note:

• Question Essence: Can a company have exclusively preference share capital with no equity?

• Answer Gist:

o No. Preference shares by definition have preferential rights over equity, so at least one
class of equity shares must exist.

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27. Call Made on Some Members Only

Revision Note:

• Question Essence: A call is demanded only from a particular shareholder who delayed
payment. Is that valid?

• Answer Gist:

o Invalid. A call must be made uniformly on all holders of that class unless specifically
permitted.

28. Acceptance of Calls in Advance

Revision Note:

• Question Essence: Can a company accept money in advance for calls not yet made?

• Answer Gist:

o Yes, if authorized by articles. Then it is valid to take calls-in-advance from a

shareholder.

29. Time for Acceptance of Further Issue Offer

Revision Note:

• Question Essence: Minimum notice period for acceptance in a rights issue (Sec. 62)?

• Answer Gist:

o Minimum 15 days, maximum 30 days. (May be shorter if so prescribed but at least 15

days as default.)

30. True/False on Various Points (Sweat Equity, Transfer Refusal Notice, Bonus Shares,
Buyback, CRR Usage, Debenture Voting)
Revision Note:

1. Sweat equity issue after 1 year of commencement – False (no minimum wait).

2. Notice of refusal only to transferee – False; must be to both transferor/transferee.

3. Bonus to partly paid shares – False; must be fully paid.

4. Ordinary resolution enough for buyback ≤10% – False, Board resolution is also required.

5. CRR can be used for partly paid bonus or discount on sweat equity – False; CRR can only be
used for fully paid bonus shares.

6. Debenture holders vote if interest is unpaid 2 years – False; that’s a feature for preference
shareholders, not debentures.

31. Bonus Issue Calculation from Free Reserves

Revision Note:

• Question Essence: A company makes a final call to fully pay shares, then decides a 1:4 bonus.
How to calculate the amount to be capitalized from free reserves?

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• Answer Gist:

o Bonus is 1 share for every 4 existing shares.

o Number of bonus shares = 1/4 × total paid-up shares.

o Each bonus share is of the face value (₹10).

o Must come from free reserves (e.g., General Reserve, P&L, Securities Premium), not
from revaluation reserve.

32. Articles Prohibiting Calls-in-Advance

Revision Note:

• Question Essence: The articles say no calls-in-advance. Is that void under the Act?

• Answer Gist:

o Generally, Section 50 says a company may accept calls-in-advance if articles allow. If

the articles restrict it, that clause itself is valid unless something else in the Act
overrides. There’s no mandatory provision forcing acceptance of calls in advance.

o So it’s not void, it’s just the company’s own restriction.

33. Variation of Class Rights: Dissent & Tribunal Threshold

Revision Note:

• Question Essence: A company wants to reduce voting rights of Class-2 shares from 1 vote/5
shares to 1 vote/10 shares. 80% of that class consents; 4500 shares dissent out of total 50,000.
Can dissenters appeal to Tribunal?

• Answer Gist:

o Must have approval of 3/4th of that class. 40,000 shares consenting is indeed 80%.
Variation is valid.

o Dissenters can appeal only if they represent at least 10% of that class (≥ 5,000 shares
in this scenario). They only hold 4,500, which is <10% of 50,000. So they cannot
appeal to Tribunal.

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ACCEPTANCE OF DEPOSITS BY COMPANIES

1. Definition of “Deposit” & Whether Certain Receipts Qualify

Revision Note:

• Question Essence: Explains “deposit” under the Act and examines three different types of
receipts

• Answer Gist:

o “Deposit” under the Companies Act, 2013 includes any receipt of money by way of
deposit/loan, but excludes certain categories.

o (1) Non-convertible debentures listed (no charge) :do not count as deposits.

o (2) Security deposit from an employee exceeding annual salary : treated as a deposit.

o (3) Amount from a relative of a director (private co.) declared as a gift: is not a deposit
if declared that funds are not given from borrowings/loan or deposits.

2. True or False on Company Deposit Limits (Private Co. & Govt. Co.)

Revision Note:

• Question Essence: Two statements about deposit limits:

1. A private co. can accept deposits up to 100% of (paid-up capital + free reserves +
securities premium).

2. A Govt. co. under Sec. 76 cannot exceed 25%.

• Answer Gist:

o (1) True. A private company may accept monies from members up to 100% of these
aggregates.

o (2) False. An eligible Govt. company can accept up to 35% (not 25%) of the aggregate
of paid-up share capital, free reserves, and securities premium.

3. Safar Ltd. (Net Worth ₹130 Crores) Accepting Deposits from Members
Revision Note:

• Question Essence: If Safar’s net worth is ₹130 crores, does that make it “eligible”? What must
it do for member deposits?

• Answer Gist:

o A public co. becomes “eligible” to accept deposits from public only if NW ≥ ₹100 cr or
turnover ≥ ₹500 cr. Here NW is ₹130 cr, so it is indeed an eligible company.

o However, to accept from members, any company can do so (subject to compliance

with section 73). Additional care includes: deposit circular, deposit repayment
reserve, etc.It’s “immaterial” if the company is eligible or not

4. Procedure to Accept Deposits from Members & Exemptions for Private Companies

Revision Note:

• Question Essence: procedure for accepting deposits from members under Section 73, plus
what exemptions exist for certain private companies.

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• Answer Gist:

o Company may accept deposits from its members by passing the required resolution,
issuing a circular (Form DPT-1) with financial details, and maintaining a Deposit
Repayment Reserve Account with at least 20% of deposits maturing next year. Deposits
must be repaid as per agreed terms, and in case of default, depositors may seek relief from
the Tribunal.
o Private companies are exempt if deposits do not exceed 100% of paid-up capital and
reserves, start-ups (for 5 years), or companies meeting specific borrowing and non-
default criteria, with mandatory reporting in Form DPT-3.

5. Share Application Money Not Allotted in Time & Refunded via Book Adjustment

Revision Note:

• Question Essence: Share application money (₹50 lakhs) not allotted in 60 days; ₹5 lakhs
refunded by adjusting against some dues—does it become a deposit?

• Answer Gist:

o If shares are not allotted within 60 days, must refund within 15 days. Otherwise it is
deemed a deposit.

o Also, refund by book adjustment is not valid. Must refund directly to the applicant.
Hence the entire ₹50 lakhs becomes deposits if not properly refunded.

6. Deposit-Related Scenarios (Convertible Note, Director Loan, Defaulted Deposits, Short

Tenure Deposit, HFC Acceptance)

Revision Note:

• Question Essence: Five sub-scenarios.

1. Convertible note (≥₹25 lakhs from a single person) to a start-up, repayable in ≤10
years → Not a deposit.

2. Loan from a director with declaration it’s not borrowed → Not a deposit (company
must disclose in Board’s report).

3. Failing to repay deposits & interest beyond extended time → Company & officer face
heavy penalties (fine/imprisonment).

4. Accepting deposit <6 months → Not allowed unless for short-term funds ≤10% of
(paid-up capital + free reserves + securities premium), repayable ≥3 months.

5. Housing Finance Co. registered with NHB can accept deposits from public without
following general deposit rules under the Companies Act.

7. Credit Rating provisions for Eligible Companies Accepting Public Deposits

Revision Note:

• Question Essence: Requirements on credit rating if a company wants to accept public

deposits (Sec. 76).

• Answer Gist:

o Must obtain minimum investment-grade rating from an approved credit rating agency.

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o Disclose it to the public at the time of acceptance.

o Must renew rating yearly and submit it with Form DPT-3 to RoC.

o Should not fall below the minimum specified rating.

8. Ashish Ltd. (Net Worth ₹80 Crores, Turnover ₹30 Crores) Accepting Public Deposits

Revision Note:

• Question Essence: With NW <100 cr and turnover <500 cr, can it accept deposits from the
public beyond its members?

• Answer Gist:

o No, it is not an “eligible company.” Its net worth and turnover are below the
threshold(net worth ₹100 crores or more or turnover of ₹500 crores or more).

o Thus, cannot accept deposits from the public (only from members in compliance with
section 73).

9. Promoters’ Unsecured Loan per Loan Conditions of Financial Institution

Revision Note:

• Question Essence: If a FI requires promoters to contribute margin money as unsecured loan,

does that count as a deposit?

• Answer Gist:

o Not a deposit if introduced to meet the stipulation by the FI/bank.

o Valid until the FI/bank loan remains outstanding. After repayment of the FI/bank
loan, it becomes a deposit if not repaid.

10. Secured Deposits: Creating Charge on Intangible Assets?

Revision Note:

• Question Essence: A company raises ₹100 crores as secured deposits but includes trademark
& goodwill as part of the security. Is that valid security?

• Answer Gist:

o Secured deposits can only be backed by tangible assets. Intangible assets (like
trademark, goodwill) cannot form part of the security.

o The total value of tangible security must match or exceed deposit + interest. The
example shows intangible assets included, so the security is inadequate.

11. Appointment of Trustee for Depositors

Revision Note:

• Question Essence: Requirements for a deposit trustee, trust deed, consent, in the context of
acceptance of deposits.

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• Answer Gist:
o Must appoint one or more trustees, obtain written consent beforehand (mention in
advertisement also).

o Certain persons can’t be trustees

(a) directors, KMPs, employees, or depositors of the company or its group

entities(including relatives),

(b) persons indebted to or having a material pecuniary relationship with the company,

(c) persons providing guarantees for deposit-related debts.

o Trust deed in Form DPT-2 at least 7 days before issuing deposit circular.

o Removal of a trustee after the circular is restricted.

12. Viki Ltd. Wants to Accept Public Deposits for 4 Months & 36 Months

Revision Note:

• Question Essence: Company’s net worth/reserves data: can it accept short-term public
deposits (4 months)? Also, maximum deposit for 36 months if it’s a standard or govt. co.?

• Answer Gist:

o Short-term (<6 months) deposit from public is permissible only up to 10% of (paid-
up capital + free reserves + securities premium) and repayable after ≥3 months.

o Long-term deposit from public (≥6 months, ≤36 months) cannot exceed 25% for a
normal eligible company, or 35% for a government company.

o The question’s data suggests the total net worth is 70+20+20=₹110 crores. So, short-
term limit is ₹11 crores. For normal co., public deposit limit is 25% = ₹27.5 crores; for
a govt. co., 35% = ₹38.5 crores.

13. Term Loan from Bank vs. Deposit; Use of Deposit Repayment Reserve, Joint Deposits

Revision Note:

• Question Essence: Three sub-points: (a) Bank loan of ₹10 lakhs → deposit or not?
(b) Use DRR for paying short-term creditors?
(c) Joint deposit by 5 members?

• Answer Gist:

o (a) A term loan from a bank is not a deposit under deposit rules.

o (b) The “Deposit Repayment Reserve A/c” cannot be used for anything other than
repaying deposits. So not for creditors.

o (c) Deposits can be in joint names but up to three persons only (Rule 3(2)). So cannot
have five names.

14. Private Company Accepting 200% from Members

Revision Note:

• Question Essence: Shubhra Chemicals Pvt. Ltd. (not a start-up) wants 2× the limit. Under
what conditions is that possible?

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• Answer Gist:

o A private co. generally up to 100% of (capital + free reserves + premium).

o The second proviso in the rules says a certain class of private co. can exceed the 100%
if it is:

▪ Not an associate/subsidiary,

▪ Borrowings <2× paid-up or <₹50 cr (whichever is less),

▪ No default in borrowings,

o Must file details in Form DPT-3.

15. NOP Ltd. (Net Worth ₹90 cr, Turnover ₹510 cr) Accepting Deposits for More Than 36 Months
& Director Loan

Revision Note:

• Question Essence:

o (i) Is NOP eligible to accept from public? Max tenure? Proposed deposit from Feb.
2024 to Sep. 2028?

o (ii) Director’s loan (with declaration) deposit or not?

• Answer Gist:

o (i) Because turnover is ₹510 cr, it’s an eligible co. So it can accept from public. But
deposit tenure cannot exceed 36 months. Their plan (over 4.5 years) is invalid.

o (ii) Director’s loan with a declaration that it isn’t borrowed funds → Not a deposit if
duly disclosed in Board’s report.

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REGISTRATION OF CHARGES
1. Non-Filing of Satisfaction of Charge by Company or Bank & Acquirer’s Right

Revision Note:

• Question Essence: Ron purchased a mortgaged property, fully paid off the bank, but the
company/bank did not file satisfaction details with RoC. Can Ron approach RoC to record
charge satisfaction?

• Answer Gist:

o Yes. Under the Companies Act, 2013, if the company does not file satisfaction, any
interested person can provide proof that the charge debt is cleared.

o RoC, if satisfied by the evidence, can enter a memorandum of satisfaction on the

register of charges, even without the company’s intimation.

o RoC must then notify affected parties and can issue a certificate of satisfaction (CHG-
5).

2. (i) Late Registration of Charge & Extension (ii) Notice of Charge to Buyer

Revision Note:

• Question Essence (i): MNC Ltd. created a charge on 12th March 2019, but realized late (2nd
May or 7th June 2019). Procedure for registration beyond 30 days?

• Answer Gist (i):

o A charge must be filed within 30 days; if missed, up to 60 days with additional fee; if
still missed, a further 60 days with ad valorem fee—application plus justification.

o Whether realized on 2nd May or 7th June, the registration can still be done under
extended deadlines (i.e., total up to 120 days from creation), with different fees.

• Question Essence (ii): Buyer didn’t know the property was charged. Company says buyer
“ought to know.”

• Answer Gist (ii):

o If a charge is registered, it’s deemed notice to all persons from the date of registration.

o So the company’s contention is correct if the charge is on record with RoC.

3. Definition of “Charge” & Penalties for Non-Compliance

Revision Note:

• Question Essence: Meaning of “charge” under the Act, and punishment for non-registration
or non-compliance.

• Answer Gist:

o Charge = interest or lien on company property/assets as security (includes mortgage).

o Penalty for default in compliance:

▪ Company: up to ₹5 lakh.

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▪ Every officer in default: up to ₹50,000.

o Willful false info or suppression: liable under Section 447 (fraud provisions).

4. Time Limit for Registration of Charge

Revision Note:

• Question Essence: Within how many days must a charge be filed? What if not done in 30
days?

• Answer Gist:

o Basic rule: 30 days from creation.

o If created before 2 Nov 2018: up to 300 days total with additional fees.

o If not registered within the extended period of 300 days, it shall be done within 6
months from 2nd Nov 2018 on the payment of prescribed additional fees.

o If created on/after 2 Nov 2018: up to 60 days after initial 30 days, then a further 60
days with ad valorem fees.

o Registration is mandatory to maintain validity against third parties.

5. Working Capital Loan on Stock & Receivables + Overdraft by Director’s Guarantee

Revision Note:

• Question Essence: Rose Pvt. Ltd. takes ₹30 lakhs loan secured by stock & receivables, plus ₹5
lakhs OD via director’s personal guarantee. Must it register?

• Answer Gist:

o A floating charge arises on stock & receivables, which must be registered.

o Personal guarantee is not a charge on company assets, so no registration for that part.

o If not filed within 30 days, can apply for extension up to 60 or a further 60 days with
extra fees.

6. Charge on Assets Abroad & Company’s Defiance

Revision Note:

• Question Essence: Company’s property overseas was charged, but company argues no duty
to file in India. Is that valid?

• Answer Gist:

o Invalid. A company must register all charges (in or outside India) that affect its
property.

o RoC can issue notice for non-filing even if assets are located abroad.

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7. True/False on Satisfaction Intimation & Extended Period for Filing

Revision Note:

1. If satisfaction intimation form is signed by charge holder, the RoC needn’t issue separate notice
→ True.

2. RoC may allow satisfaction intimation up to 300 days of discharge → True, subject to additional
fees and certain conditions.

8. Modification of Charge Omitted by Inadvertence

Revision Note:

• Question Essence: Sia Ltd. had a registered charge. Later the bank enhanced the facility by
₹20 crores, but modification wasn’t registered. What can be done?

• Answer Gist:

o File an application (Form CHG-8) to the Central Government for rectification of the
register if omission was accidental or inadvertent.

o CG can then direct the extended time for registration or rectification of

misstatement.

9. Verification of Copy of Instrument for Charge Filing

Revision Note:

• Question Essence: How to verify a copy of instrument for registering/modifying a charge?

• Answer Gist:

o If property is outside India only, verified by a director/CS or authorized officer or any

interested person.

o If property is within India (wholly or partly), verified by a director/CS or authorized

officer of the charge holder.

10. Bank’s Right to File Charge & When RoC May Refuse

Revision Note:

• Question Essence: Beauty Ltd. refuses to register a charge for a working capital loan. Can
the bank do it? When can RoC refuse?

• Answer Gist:

o Yes. The charge holder can file if the company fails. RoC will notify the company, and
if there’s no objection, RoC registers the charge within 14 days of notice to company.

o RoC may refuse if the company itself completes registration or proves cause why it
shouldn’t be registered.

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11. Satisfaction of Charge: Bank Not Issuing Confirmation Letter

Revision Note:

• Question Essence: Nivedita Ltd. fully repaid a term loan, but the bank won’t confirm. How can
they register satisfaction? Time limit?

• Answer Gist:

o Company must file CHG-4 within 30 days of satisfaction.

o If missed, can approach RoC up to 300 days from satisfaction with payment of
additional fees.

o RoC can act on evidence from the company or the charge holder.

12. Floating Charge & Its Crystallization

Revision Note:

• Question Essence: Definition and circumstances under which a floating charge becomes
fixed.

• Answer Gist:

o A floating charge covers fluctuating assets (stock, receivables, etc.)both present and
future.

o It “crystallizes” (fixes) typically upon default, winding up, cessation of business, or

when the lender intervenes to enforce security.

13. Register of Charges Maintained by Company

Revision Note:

• Question Essence: Provisions under Sec. 85 about the register of charges and instruments.

• Answer Gist:

o Must keep Form CHG-7 at the registered office.

o Enter details of creation, modification, satisfaction.

o Entries must be authenticated by director/secretary/ authorized person

o Must be open to inspection by members/creditors for free, others upon fee.

o Instrument copies kept for 8 years after satisfaction; register is preserved

permanently.

14. Public Secured Deposit Backed by Tangible & Intangible Assets

Revision Note:

• Question Essence: Company accepted ₹80 cr deposits plus interest, but the security included
goodwill/trademark. Is this valid?

• Answer Gist:

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o Under Rule 6, intangible assets cannot form part of deposit security.

o Also, total security value must exceed deposit + accrued interest.

o Here, deposit + interest > ₹80 cr, but tangible assets sum to only ₹80 cr, which is
insufficient to cover interest. So it’s not a valid charge creation.

15. Deemed Notice of Charge & Extension of Registration Time

Revision Note:

• Question Essence: City Bakers borrowed ₹1 cr from a bank, registered the charge within 20
days. Is that deemed notice to future lenders? Also, extension of time?

• Answer Gist:

o Registration of charge with RoC is deemed notice to all persons from the date of
registration.

o Extension: up to 60 days from creation (with additional fee), then another 60 days
with ad valorem fee.

16. Inspection of Register & Instrument of Charges

Revision Note:

• Question Essence: Who can inspect the register of charges and the charge instruments, and
what fees apply?

• Answer Gist:

o Under Sec. 85(2), members/creditors can inspect free of cost during business hours,
while others pay a prescribed fee.

o Reasonable restrictions can be imposed by articles, but the right of inspection

remains.

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MANAGEMENT AND ADMINISTRATION

1. Proxy Form Lodged Less Than Company’s Stipulated Hours

Revision Note:

• Question Essence: Company’s articles require 60 hours’ notice for lodging a proxy, but the
member submitted it 54 hours before the meeting. The Act requires only 48 hours.

• Answer Gist:

o By law, a proxy is valid if filed at least 48 hours before the meeting.

o Articles cannot extend beyond 48 hours in a way that invalidates what the Act permits.

o Hence, the proxy holder can compel acceptance because lodging it 54 hours
beforehand satisfies the statutory 48-hour requirement.

2. Chairman’s Direction to Exclude Matters in Minutes vs. Fair Summary

Revision Note:

• Question Essence: The chairman excluded items “detrimental to the interest of the company”
from the minutes. A shareholder objects, claiming the minutes should be a correct summary.

• Answer Gist:

o The chairman has absolute discretion to omit matters that are defamatory, irrelevant,
immaterial, or detrimental to the company’s interests (under the Act).

o Shareholder’s contention fails; the chairman’s action is valid.

3. Partly Paid Shares & Voting Rights

Revision Note:

• Question Essence: Company denies a member’s voting right because his shares are partly
paid. Articles do not restrict such members from voting.

• Answer Gist:

o The Act allows articles to restrict voting if calls or sums are unpaid. However, if the
articles do not impose such restriction, the company cannot deny the right to vote.

o Denial is invalid unless the articles explicitly restrict it.

4. Notice Period for an AGM & Postal Rule

Revision Note:

• Question Essence: AGM on 7th November, notice posted on 16th October. Members allege
insufficient notice.

• Answer Gist:

o Must be 21 clear days excluding day of posting and day of meeting. Also, add 48 hours
for posting (deemed delivery).

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o Here, effectively only 19 clear days. Short by 2 days.

o The delay cannot be condoned as the Act does not specifically allow it for insufficient
notice. The meeting was not validly called.

5. Failure to Lay Accounts in AGM, Then Not Filing Annual Return

Revision Note:

• Question Essence: AGM was called but got canceled due to no quorum. Directors claim no 60-
day deadline to file annual return because “AGM was canceled.”

• Answer Gist:

o Even if no AGM is held, a company must file annual return within 60 days from the last
date on which AGM should have been held, with reasons for not holding it.

o Failure is contravention, attracts penalty:

(a) A company and every officer in default shall be liable to a penalty of ₹10,000,
(b) In case of continuing failure, an additional penalty of ₹100 per day applies,
(c) The maximum penalty is ₹2,00,000 for a company and ₹50,000 for a defaulting
officer.

6. Special Business in Notice Lacking Details (e.g., Issue of Sweat Equity)

Revision Note:

• Question Essence: The notice mentioned “issue of sweat equity” but no full details. A
shareholder complains.

• Answer Gist:

o Special business requires an explanatory statement specifying all material facts.

o Lack of detail is a valid complaint. The notice is invalid if the mandatory explanatory
statement is missing.

7. Conflict of Votes: Member vs. Proxy

Revision Note:

• Question Essence: A member appointed a proxy but also personally attended and voted.
Chairman declared the member’s vote invalid.

• Answer Gist:

o The member’s vote overrides the proxy’s vote.

o The chairman’s declaration is incorrect. The member’s vote is valid, not the proxy’s.

8. Quorum Counting in EGM: Preference Shareholders & Proxies, etc.

Revision Note:

• Question Essence: Quorum is 7 (as per articles). Meeting participants included (a) Gov.
representative, (b) preference shareholders B & C, (c) a single rep (D) for two companies, (d)
4 proxies.

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• Answer Gist:

o For quorum, only members entitled to vote on that business, present in person, count.
Proxies don’t count; joint representative for multiple companies can count each
company.

o Representatives of President/governor is counted for quorum

o Preference holders’ voting rights are triggered only if the matter affects their rights.
Appointment of MD doesn’t typically affect preference shareholders(so no voting
right).

o Summation: insufficient members personally present if preference shareholders can’t

vote. So no valid quorum.

9. Chairman Left Country Without Signing Minutes

Revision Note:

• Question Essence: Chairman left before signing minutes. Who can sign the minutes?

• Answer Gist:

o If the chairman is unable to sign (due to death/absence), any director authorized by

the Board may sign the minutes within 30 days.

10. Requisitionists’ Meeting Adjourned for Lack of Quorum

Revision Note:

• Question Essence: EGM was on members’ requisition, but got adjourned for no quorum. Is it
correct to adjourn?

• Answer Gist:

o If quorum is not present within 30 minutes for a requisitioned meeting, it stands

cancelled, not adjourned.

o So, the board’s action to adjourn is improper.

11. Member’s Right to Inspect Minutes & Take Copies

Revision Note:

• Question Essence: A member wants to inspect the general meeting minutes, obtains copies,
or authorize a friend to do so.

• Answer Gist:

o Members can inspect the minutes without fee. Copies can be supplied at a nominal
cost (not exceeding ₹10 per page).

o Only the member personally can inspect; cannot appoint a non-member friend to do
so.

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12. E-Voting Joint Demat Account & Period of E-Voting

Revision Note:

• Question Essence: (i) In a joint Demat account, who casts e-vote? (ii) If AGM is on 7-09-2020,
e-voting timeframe?

• Answer Gist:

o (i) The first-named joint holder in the register can cast e-vote.

o (ii) E-voting is open for at least 3 days and closes by 5 PM on the day prior to the
meeting. If AGM is 7-09-2020, e-voting ends on 6-09-2020 at 5 PM.

13. First AGM: Time Limit & Registrar’s Extension

Revision Note:

• Question Essence: Incorporated on 1st April 2018, no GM by 30th April 2020. Are they in
default?

• Answer Gist:

o First AGM must be within 9 months from the close of first financial year.

o The Registrar cannot extend time for the first AGM.

14. Demand for a Poll by Certain Members & Chairman’s Rejection

Revision Note:

• Question Essence: A poll is demanded by not less than 1/10th voting power. Chairman says
only members in person can demand.

• Answer Gist:

o Even proxies can join the poll demand if that’s allowed.

o For a co. with share capital, poll demand can be made by members present in person
or by proxy if they hold ≥1/10th voting power or shares worth ≥₹5 lakh.

o For other co. poll demand can be made by members present in person or by proxy if
they hold ≥1/10th voting power

o Chairman’s rejection is invalid.

15. Adjourned Meeting for Lack of Quorum—provisions applicable

Revision Note:

• Question Essence: Company’s AGM was called but canceled for want of quorum.

• Answer Gist:

o Quorum for a public company meeting is 5 members personally present (proxies not
counted)

o If not met in 30 minutes, the meeting is adjourned to the next week or as decided by
the Board.

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o A 3-day notice is required for an adjourned meeting, and the members present shall
form the quorum if still unmet.

16. Notice Lacking Explanatory Details for Increase in Share Capital & Auditor’s
Remuneration

Revision Note:

• Question Essence: One item is a special business requiring an explanatory statement.

Another is ordinary. The notice missed specifying the amounts.

• Answer Gist:

o Increase in share capital is special and must have full details in the explanatory
statement. Omission = notice invalid.

o Auditor’s appointment is ordinary business—explanatory statement not required by

law for that.

o Overall notice is invalid due to omission for the special business item.

17. Who Gets Notice of General Meeting & Effect of Non-Receipt

Revision Note:

• Question Essence: Who must receive meeting notices? Does non-receipt by someone nullify
the meeting?

• Answer Gist:

o Notice to every member, legal rep of deceased, assignee of insolvent, auditors,

directors.

o An accidental omission or non-receipt does not invalidate the meeting.

o Omission of meeting notice on the mistaken ground of not being a shareholder isn't
accidental and hence meeting becomes invalid..

18. “Special Notice” & Situations Requiring It

Revision Note:

• Question Essence: What is a “special notice,” and when is it needed?

• Answer Gist:

o A “special notice” is given by members holding ≥1% of total voting power or shares
with paid-up sum ≥₹5 lakh, notifying intention to move a certain resolution.

o Typically needed for:

▪ Appointment of an auditor in place of retiring auditor or preventing

reappointment of retiring auditor,

▪ Removal of a director before expiry of term,

▪ Appointment of another director in place of removed director.

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19. Articles Restrict Voting to Those Holding Shares for 2 Months

Revision Note:

• Question Essence: X transferred shares 1 month before the meeting, but still on register. The
company refused him voting. Valid?

• Answer Gist:

o Company can’t impose a holding period prior to a meeting unless calls are unpaid or
lien is exercised.

o X’s voting right stands; the 2-month clause is invalid.

o Only non-payment of calls or lien can restrict voting.

20. Quorum Not Present => Adjourned => Meeting Held With 10 Present in Next Week

Revision Note:

• Question Essence: Public co. with 3860 members needs 15 members for quorum. Meeting
had 12, adjourned. Then 10 at adjourned meeting. Chairman proceeded. Valid?

• Answer Gist:

o public company (1,001 - 5,000members):required quorum for its general meetings is

15 members personally present . In Private company, 2 members form the quorum.

o Quorum is not present within half an hour :adjourned to the same day next week at
the same time and place, still quorum not present, the members present form a
quorum except for a requisitioned meeting.

o So after half an hour, the members present can be considered the quorum. The
meeting is valid.

21. Proxy Inspection

Revision Note:

• Question Essence: A member gave 5 days’ notice to inspect proxies, but attempted inspection
2 days prior to the meeting.

• Answer Gist:

o Proxies are open to inspection 24 hours before the meeting until its conclusion.

o He can’t see them 2 days before; only from 24 hours before. The timing requested is
invalid.

22. Listed Company’s Report on AGM Not Filed Within 30 Days

Revision Note:

• Question Essence: Pristine Ltd. (listed) concluded its AGM but 10 days passed, no filing. Must
they file?

• Answer Gist:

o A listed company must file an AGM Report (MGT-15) within 30 days of its conclusion.

o They still have time up to 30 days. If missed, it’s a violation attracting penalty.

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23. (i) Board Refuses EGM Requisition for Lack of Explanatory Statement (ii) Not Signed by Joint
Holder (iii) Quorum Not Present => Adjourn or Cancel?

Revision Note:

1. Board can’t insist on explanatory statement from requisitionists. So refusal is invalid.

2. If one joint holder signs, it’s sufficient.

3. If it’s a requisitioned meeting and no quorum after 30 min, the meeting stands cancelled (not
adjourned).

24. Shorter Notice for EGM in a 30-crore Paid-Up Company

Revision Note:

• Question Essence: Directors want to convene a general meeting with <21 days’ notice. Is that
allowed?

• Answer Gist:

o A general meeting can be called with shorter notice if consent is accorded by

members:

▪ (AGM) not less than 95% of members entitled to vote

▪ (EGM) majority in number holding ≥95% of paid-up share capital.No share

capital, 95% of VP.

o If that condition is met, no penalty arises due to shorter notice.

25. Register of Members to Be Shifted from Registered Office to Another Place and right to
inspection.

Revision Note:

• Question Essence: A group of members wants the register to be kept in Kolkata, not the
registered office in Mumbai. Possible?Is right to inspect register related to shareholding.

• Answer Gist:

o Permitted if: more than 1/10th of total members reside at the place, and a special
resolution is passed to keep them there.

o If done, file notice with RoC in Form MGT-14 or as required.

o Shareholding is immaterial for inspecting register.

26. Quorum in a Public Co. With Share Capital + Corporate & President Reps

Revision Note:

• Question Essence: Quorum queries: can the reps of body corporate and President of India be
counted?

• Answer Gist:

o Corporate members can send authorized reps who are counted “as personally
present.”

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o President’s nominee is also counted as personally present.

o They also can vote on behalf of that entity.

27. AGM Transacted Other Business Except Accounts => Adjourned => RoC Notice for
Violation

Revision Note:

• Question Essence: Accounts were not laid at the AGM; they adjourned to beyond statutory
timeline. RoC issues show-cause.

• Answer Gist:

o The Act requires accounts to be laid at the AGM. They can’t adjourn beyond the
statutory last date. This contravenes the Act, so RoC show-cause is valid.

28. Particulars in Annual Return (Form MGT-7)

Revision Note:

• Question Essence: Which data must be in the annual return?

• Answer Gist:

o Registered office, principal business, holding/subsidiary/associate.

o Share capital, securities, shareholding pattern.

o Members & debenture holders, changes.

o Directors, KMP, changes.

o Meetings details(members/board), attendance.

o Remuneration of directors/KMP.

o Penalties/punishments/compounding.

o Certification , compliance matters

o Details of shares held by or on behalf of FIIs.

29. Special Resolution Voting Tally (40 present => 20 for, 5 against, 5 invalid, 10 abstaining)

Revision Note:

• Question Essence: Chairman declared it passed as special resolution. Valid?

• Answer Gist:

o For a special resolution, votes in favor must be ≥3× the votes against. Here, 20 vs. 5.
That satisfies 3 times test (20 ≥ 15).

o Abstentions (10) and invalid (5) are not counted.

o Declaration is valid.

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30. (i) First AGM in 6 months? (ii) RoC extension for first AGM? (iii) Subsequent AGM in 6
months? (iv) 15-month gap

Revision Note:

1. False. First AGM must be within 9 months from closing the first financial year.

2. False. RoC cannot grant extension for first AGM.

3. True. Subsequent AGMs within 6 months from financial year end.

4. True. The gap between two AGMs must not exceed 15 months.

31. Unlisted Company’s AGM Held in Goa & Concluded at 8 PM with All Members’ Consent

Revision Note:

• Question Essence: Validity if AGM is not at the registered office city, but with unanimous
consent? Could there be an issue if a resolution’s interest was not disclosed?

• Answer Gist:

o An unlisted co. may hold its AGM at any place in India if all members consent in writing
or electronically. That’s valid.

o Non-disclosure of director/KMP/promoter’s interest in the explanatory statement

leads to penalty under the Act. Possibly up to 5× the benefit or ₹50,000 minimum.

32. EGM Called by Requisition for Removing MD => Board Fails => Requisitionists Themselves
Call Meeting

Revision Note:

• Question Essence: Requisitionists hold the meeting. Is the resolution to remove MD valid?

• Answer Gist:

o If the Board does not convene the meeting within 21 days to be held within 45 days,
the requisitionists may hold it themselves within 3 months.

o The resolution passed there is valid.

33. Private Co. Proxy Issues: Two Proxies by One Shareholder & Another Proxy

Revision Note:

• Question Essence: One member appointed Y. Another member W appointed two proxies M &
N. Which proxies are effective?

• Answer Gist:

o If proxy is deposited ≥48 hours before the meeting, it’s valid.

o For W, whichever proxy form is latest in time will stand. If one is deposited less than
48 hours, it’s invalid.

o Hence, Y is validly appointed, M is valid if in time, N is invalid if late.

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34. Foreign Register for Non-Resident Members => Notice to RoC

Revision Note:

• Question Essence: Company opened a foreign register in London on 1 Nov. By when must it
file notice with RoC?

• Answer Gist:

o Must file notice of the foreign register’s location with RoC within 30 days of opening
it.

35. Requisition EGM Abroad on a National Holiday

Revision Note:

• Question Essence: Requisitionists call meeting in Madrid on 2 Oct (National Holiday). Valid?

• Answer Gist:

o Rule: Requisitioned meeting must be held at the registered office or in the same city.
Also cannot be on a national holiday.

o So it’s invalid.

36. Entities Exempt from SBO (Significant Beneficial Owners) Rules

Revision Note:

• Question Essence: Which entities are not subject to SBO rules for shareholding?

• Answer Gist:

o IEPF Authority

o Holding reporting company (provided details in BEN-2)

o Central/State Govt or local authority

o Entities controlled by CG/SG

o SEBI-registered mutual funds, AIFs, REITs, InvITs

o RBI/IRDAI/PFRDA-regulated investment vehicles.

37. 15-Day Entry in Register for Certain Pledge/Hypothecation

Revision Note:

• Question Essence: Usually 7 days to record share transfers, etc. Which events allow 15 days?

• Answer Gist:

o For listed companies, if promoters pledge/hypothecate shares, or charge/lien is

created, they have 15 days from the event to enter details in the register of members
(Rule 5(7)/(8)).

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38. Postal Ballot Resolutions -> Minutes Entry

Revision Note:

• Question Essence: When a resolution is passed via postal ballot, how soon must it be entered
into the minutes?
• Answer Gist:

o Must be recorded in the minutes of general meetings within 30 days of passing, along
with the summary of the scrutinizer’s report.

o Brief report on postal ballot ,result of voting, summary ,date of making entry.

39. When Is Annual Return Certified by PCS (Company Secretary in Practice)?

Revision Note:

• Question Essence: Disha Home Appliances has ₹8 cr paid-up capital. Must it get MGT-8
certification?

• Answer Gist:

o Only if it’s a listed co., or paid-up share capital ≥₹10 cr, or turnover ≥₹50 cr.

o Presently at ₹8 cr + not stated as listed => not required unless it meets that threshold.

40. Penalty if Listed Co. Fails to File AGM Report

Revision Note:

• Question Essence: Prince Auto-parts (listed) fails to file MGT-15 within 30 days.

• Answer Gist:

o Company penalty: ₹1 lakh + ₹500/day continuing default, capped at ₹5 lakh.

o Officer in default: ₹25k + ₹500/day continuing, capped at ₹1 lakh.

41. Minor Registered as Member

Revision Note:

• Question Essence: 500 shares allotted to 4-year-old. Director asks how to record it in the
register.

• Answer Gist:

o Must list the minor’s guardian details in MGT-1. The minor’s name can appear but can’t
contract on her own. Guardian typically acts on behalf.

42. Joint Holding: One Joint Holder Asks to Remove Other from the Register

Revision Note:

• Question Essence: Tarun & Tanya hold shares jointly, Tarun wants only his wife’s name in
register.

• Answer Gist:

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o They can reorder names but can’t remove one joint holder without a transfer
procedure.

43. Adjourned AGM Without Accounts: Company Doesn’t File Annual Return

Revision Note:
• Question Essence: Big Fox Entertainment’s AGM was canceled for want of quorum on 30 Sep.
Directors argue no 60-day filing needed.

• Answer Gist:

o They must still file the return within 60 days from the date the AGM should have been
held, giving reasons for not holding the meeting.

o Failure is contravention of section 92.

44. Email Notice of AGM Denied by a Member

Revision Note:

• Question Essence: A member claims not to have received email notice. Company says it
transmitted.

• Answer Gist:

o If the company has proof of sending to the correct email address and the failure is
outside its control, it’s not at fault.

o The company is not guilty.

45. Validity of EGM Called on Shorter Notice

Revision Note:

• Question Essence: Can Aakash Soaps Ltd. call an EGM with less than 21 days' notice if 60%
of members (holding 80% of share capital) consent electronically?

• Answer Gist:

o As per Companies Act, 2013, an EGM can be called on shorter notice only if
members holding at least 95% of the paid-up share capital (₹47,50,000)
consent.

o In this case, consent is only 80% (₹40,00,000), which is less than the required
95%.

o The EGM cannot be validly called as the required consent threshold is not met.

46. Quorum at Private Company’s AGM with 54 Members

Revision Note:
• Question Essence: 28 members present at 2.30 PM, meeting starts.

• Answer Gist:

o For a private company, the quorum is 2 members (or higher if articles demand). So the
presence of 28 definitely meets that. The meeting is valid.

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47. Quorum for a Public Co. with 2300 Members

Revision Note:
• Question Essence: The co. needed 15 members personally present, had 18 at 11 AM. Later 4
left, leaving 14. The last 2 agendas were passed. Valid?

• Answer Gist:

o SS-2 states quorum must remain throughout the meeting. If it dips below the
minimum, the business transacted is void. The last 2 agendas are not validly passed.

48. Voting by Joint Holders with Conflicting Views.

Revision Note:

• Question Essence: In a joint holding, one is for, the other against.

• Answer Gist:

o The first-named holder in the register controls the vote.

o Joint holders can decide the order of names.

49. Directors Voting in Their Capacity as Members

Revision Note:

• Question Essence: Do directors who are also shareholders vote differently?

• Answer Gist:

o They have the same rights as any shareholder. They must cast their votes as members,
not necessarily from a director’s perspective.

50. Insolvent Shareholder’s Voting Right

Revision Note:

• Question Essence: Whether a bankrupt member can still vote on a show of hands?

• Answer Gist:

o Yes, until his name is removed from the register or the trustee in bankruptcy is
registered, he remains a member and can vote.

51. Special Resolution Calculation With Abstentions

Revision Note:

• Question Essence: 60 members present. 10 vote against, 5 abstain, 45 for. The Chairman
declares a special resolution passed.

• Answer Gist:

o For special resolution, “votes in favour” must be ≥3× “votes against.” 45≥3×10 = 30.
That’s satisfied. So it’s valid.

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52. Combining Multiple Proposed Resolutions

Revision Note:

• Question Essence: The chairman lumps 8 special businesses into one. Is it legal?

• Answer Gist:

o Typically, each resolution is separate. They can combine if nobody objects. If any
member wants separation or a poll on a specific resolution, they must separate.

53. When Must an Unlisted Co. With F.Y. Ending 31 Mar 2022 Hold Its AGM?

Revision Note:

• Question Essence: Next AGM deadline.

• Answer Gist:

o Must hold by 30 Sep 2022 (within 6 months from year-end).

54. Company Incorporated on 12 July 2022 => First AGM Deadline

Revision Note:

• Question Essence: The first FY will end 31 Mar 2023. They must hold the first AGM by?

• Answer Gist:

o 31 Dec 2023 (within 9 months of close of that FY). No other AGM needed for 2022.

55. EGM Requisition by Sufficient Members => Board Doesn’t Call => Requisitionists’ Next
Steps

Revision Note:

• Question Essence: Blumove Peacocks Appliances didn’t call the EGM within 21 days.
Consequences?

• Answer Gist:

o Requisitionists can themselves hold it within 3 months from the requisition date.
Called and conducted in the same manner as the Board. Validly passed resolutions.

56. Number of Members Required to Propose a Resolution at GM

Revision Note:

• Question Essence: Prakash wants to propose a resolution in a co. with ₹1 crore paid-up
capital.

• Answer Gist:

o Requisition for members’ resolution is the same as for an EGM: members holding
≥1/10th of paid-up share capital that carries voting rights. i.e.≥₹10 lakh worth.

o Must deposit 2 or more copies signed by all requisitionists.

o They must deposit it 6 weeks prior if it requires special notice, or 2 weeks otherwise.

o They must deposit a sum to cover expenses for distributing that resolution to
members.

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DECLARATION AND PAYMENT OF DIVIDEND

1. Interim Dividend When Company Incurred Loss & Entitlement of Final Dividend

Revision Note:

• Question Essence (Part A):

o Alex Ltd. incurred a loss during FY 2020–21. In the immediately preceding 3 years,
dividends were 7%, 11%, 12%. Board plans a 12% interim dividend to match the
previous year. Valid?

• Answer Gist (Part A):

o If a company incurs loss up to the quarter preceding declaration, interim dividend

can’t exceed the average of the preceding three years’ dividends.

o Average of 7%, 11%, 12% = 10%. Hence 12% is not valid; max 10% allowed.

• Question Essence (Part B):

o East-West Ltd. declared 15% final dividend. A held shares on 31 Mar but sold them to
M whose name was registered on 18 June (before AGM date 24 Oct). Who receives
dividend?

• Answer Gist (Part B):

o Dividend belongs to the registered shareholder at the date of declaration.

o Since M’s name was on the register before declaration, M is entitled.

2. Delay in Posting Dividend Warrant & Consequences

Revision Note:

• Question Essence: ABC Ltd. declared 30% dividend on 30 April 2019, but a shareholder’s
warrant was not posted by 30 June 2019. Shareholder demands 20% interest for the delay.

• Answer Gist:

o If dividend is unpaid/not posted within 30 days, the company must pay 18% interest
(not 20%).

o Directors knowingly at fault face imprisonment up to 2 years + daily fine; the company
owes 18% interest.

o Hence 20% interest demanded is not allowed; only 18% is mandated.

3. Dividend Out of Free Reserves in Year of Loss: Max Permitted Rate/Amount

Revision Note:

• Question Essence: Vought Ltd. has paid-up ₹10 cr, free reserves ₹50 cr, made a loss of ₹40 lac.
They propose 20% dividend but average for last 3 years is 25%. Is it valid?

• Answer Gist:

o Under the “declaration & payment out of free reserves” rules, dividend rate shall not
exceed average of preceding 3 years. Average is 25%, so 20% is within that.

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o Also, total draw from free reserves ≤10% of (paid-up + free reserves) and after
adjusting current loss, and must keep reserves ≥15% of paid-up capital.

o They meet all conditions, so 20% dividend is valid.

4. Not Transferring Any Profit to Reserves Before Declaration

Revision Note:

• Question Essence: Sun Pharma Ltd. proposes a 12% dividend. They earned ₹900 cr profit,
but do not want to transfer anything to general reserves. Is it allowed?

• Answer Gist:

o Under the Act, the transfer of profit to reserves is discretionary unless otherwise
stated. The company may transfer or may not transfer any part.

o Hence it is allowed to pay dividend without transferring any amount to reserves.

5. Delay in Dividend Payment: Deceased Shareholder & Returned Bank Payment

Revision Note:

• Question Essence: Mars Ltd. declared dividends to all except:

1. Payment for Mrs. S returned by her bank due to surname mismatch, not informed to
her.

2. Deceased holder’s ₹50k withheld due to court order on succession.

• Answer Gist:

o (1) Not paying or failing to inform is a default. Directors face liability for 18% interest
& possible punishment.

o (2) No default if it’s withheld by operation of law/court order. That is not an offence.

6. Diverting Declared Dividend for Investments => Payment After 45 Days

Revision Note:

• Question Essence: After AGM declared dividend, Board used the funds temporarily for short-
term investments and paid shareholders 45 days later. Is it a violation?

• Answer Gist:

o Dividend must be paid within 30 days from declaration. If not within 7 days transfer
to unpaid dividend account.

o Diverting the funds is not permissible. This is a violation with penal consequences
(fines, imprisonment possible).

o every director: imprisonment upto 2 years +fine not less than ₹1000 for every day
during which such default continues, and

o the company :Liable to pay simple interest at the rate of 18% p.a.

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7. (i) Declaring Dividend While Defaulting on Deposits

(ii) Dividend in a Year of Loss

Revision Note:

• Question Essence:

(i) Adrian Ltd. defaulted in repayment of pre-Act deposits yet declared 16%. Valid?
(ii) Can a company declare dividend if it incurred a loss this year?

• Answer Gist:

o (i) If a company defaults on deposits, it cannot declare dividend as long as default

continues. So invalid.

o (ii) Yes, if it has adequate free reserves & meets the conditions (like maximum rate as
per rules), it can declare even if current year has a loss.

8. Section 8 Company Declaring Dividend?

Revision Note:

• Question Essence: Hamdard Herbals, a Section 8 co., wants to declare dividend.

• Answer Gist:

o Section 8 co. (charitable) is prohibited from distributing dividend. All profits are for
the charitable objects.

o So it cannot declare dividends.

9. Claiming Unpaid Dividend After 8 Years => Shares & Dividend Transferred to IEPF

Revision Note:

• Question Essence: Mr. R (holder of 1000 shares) tries claiming a 2010–11 dividend in late
2019. The company says shares & dividend are transferred to IEPF.

• Answer Gist:

o Dividends unclaimed for 7 years => transfer to IEPF. Shares also transferred if 7
consecutive years of unclaimed dividends.

o Mr. R can claim from IEPF by following the IEPF authority procedure.

10. Company Posted Dividend Warrant on 22 Jan, Arrives 5 Feb => 30-day default?

Revision Note:

• Question Essence: Dividend declared on 31 Dec, posted on 22 Jan, but arrived late to
shareholder. Any violation?

• Answer Gist:

o Once the dividend warrant is posted within 30 days, no offence even if it arrives after
30 days due to postal delay.

o Shareholder can’t claim penalty from the company.

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11. Non-Payment of Dividend to a Deceased Holder (Court Restraint)

Revision Note:

• Question Essence: Organic Ltd. didn’t pay ₹40k dividend to a deceased holder due to a court
injunction. Is that a violation?

• Answer Gist:

o No. If non-payment is due to operation of law/court order, there’s no violation or

penalty.

12. Declaring Interim Dividend Before First AGM & If a Section 8 Co.

Revision Note:

• Question Essence: Sun Light Ltd. newly formed, declares 20% interim dividend before 1st
AGM. Also, if it were Section 8, possible?

• Answer Gist:

o A company can declare interim dividend anytime after closure of financial year, but
before holding the AGM, if it has profits. That’s valid.

o before any dividend is declared, losses and depreciation of the previous financial year
shall be set off against the profit

o A Section 8 co. cannot declare any dividend.

o Penalty for non-payment of interim dividend is 18% interest, minimum Rs 1000 / day
fine plus possible 2-year imprisonment for directors.

13. Set-off Dividend Against Unpaid Calls

Revision Note:

• Question Essence: ABC declared ₹2/sh. Suresh has 5000 shares but owes ₹10k in calls. Can
the company reduce the dividend by that call due?

• Answer Gist:

o Yes, a company may adjust declared dividend against any sum due from that member,
including calls in arrears.

o Not a violation.

14. ESPN Heavy Engineering: 3 Preceding Dividend Rates 15%, 20%, 25%. Now a Loss =>
Interim 10% & Proposed Final 15%. Shareholders demand 20%. Is that permissible?

Revision Note:

• Question Essence: When incurring a loss, an interim dividend can’t exceed average (which is
20%). They gave 10%. Then Board recommended final 15%; shareholders want 20%.

• Answer Gist:

o For interim with a loss, max is 20% (average of 15+20+25). So 10% is valid.

o For final dividend, the general meeting cannot exceed the board’s recommendation.
So it must remain at 15%. They can’t push it to 20%.

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15. Dividend Out of Free Reserves: Co. Has ₹75 Lakh Reserves & Profit ₹12 Lakh But Wants ₹30
Lakh Dividend

Revision Note:

• Question Essence: The Board wants ₹30 lakh dividend, but last year no dividend was
declared, so the usual average rate condition is not triggered. Must check the 10% & 15%
conditions?

• Answer Gist:

o 10% of (Paid-up + free reserves) is the max that can be withdrawn. If it’s 10% of e.g.
(some sum) => They discover can only do ₹17.5 lakh. So 30 lakh is invalid.

o They must keep 15% of paid-up capital in reserves.

o The proposal of 30 lakh is invalid.

16. More Than 10% Transfer to Reserves?

Revision Note:

• Question Essence: A co. wants to transfer more than 10% to reserves before paying dividend.
Is that permissible?

• Answer Gist:

o The Act says the transfer to reserves is purely discretionary. They can transfer any
portion. So yes, it’s valid.

17. Earning Profit but Doesn’t Want to Transfer to Reserves

Revision Note:

• Question Essence: Brix Shipyards earned ₹1000 cr profit but chooses not to transfer any part.
Is that okay?

• Answer Gist:

o The law doesn’t mandate any fixed percentage. So yes, it’s permissible not to transfer
anything to reserves.

18. Company with 200 lakh capital, 240 lakh reserves, year’s loss ₹30 lakh, 3-year preceding
dividends 9%, 10%, 12%. Max rate?

Revision Note:

• Question Essence: given the details of capital,reserves and previous year dividend rates, how
much dividend can be declared in case of unadequate profits

• Answer Gist:

o Rate ≤ average of the last 3 years.(10.33%)

o ≤10% of (capital + reserves) less losses .(14 lakhs)

o Remain ≥15% in reserves after withdrawal.(30 lakhs)

o Calculation shows final amount Rs. 14 lakhs ie. 7%.

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19. Shipra Sugar Mills: Last 3 Years 20%. Current year: Not enough profits but free reserves.
How to proceed?

Revision Note:

• Question Essence: Must follow the conditions for paying dividend out of free reserves.

• Answer Gist:

o Rate ≤ average of the last 3 years.

o ≤10% of (capital + reserves).

o Remain ≥15% in reserves after withdrawal.

o Board recommends to AGM. That’s how to proceed.

20. East West Ltd. Declared 15% Dividend. Record Date 28th Sept. Who Is Entitled?

Revision Note:

• Question Essence: A had shares earlier but sold them to M who is on the register by the record
date.

• Answer Gist:

o The registered shareholder on the record date is entitled. That is the new owner.

21. Another Variation: Nitin Held 1000 Shares but Transferred to Raj Before Declaration

Revision Note:

• Question Essence: Who gets the declared dividend?

• Answer Gist:

o The transferee (Raj), since his name is on the register prior to the declaration date.

22. Mr. Alok Has Calls in Arrears => Dividend Set-Off?

Revision Note:

• Question Essence: The company owes dividend but Alok owes calls.

• Answer Gist:

o Company can set off the dividend against the arrears. This is lawfully permitted, so no
violation arises.

23. Late Payment by Suvaas, Bhandol Nidhi, & Cumulative Preference Dividend

Revision Note:

• Question Essence:

o (i) Suvaas: delayed by 29 days beyond the 30-day limit => must pay 18% interest.

o (ii) Bhandol Nidhi: only ₹100. Nidhi can comply by newspaper notice + notice board.

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o (iii) If Jipanti has no profit, it can skip preference dividend for the year. (But they are
cumulative, so it accumulates.)

• Answer Gist:

• Suvaas must pay 18% interest for the delayed period.

• Bhandol Nidhi is exempt if it has done the local language ad & posted on notice board.

• If preference shares are cumulative and no profit is made, the dividend just accumulates (not
paid in a loss year).

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ACCOUNTS OF COMPANIES
1. Signing/Authentication of Financial Statements

Revision Note:

• Question Essence (Part A): Berkshire Hathaway Ltd. has 4 directors + 1 managing director +
a full-time company secretary. Financials were signed by 2 directors but not by the managing
director and the CS.

• Answer Gist (Part A):

o Section 134: A company’s financials must be approved by the Board and signed by the
chairman if authorized, or by two directors, one of whom shall be the managing
director, plus CEO, CFO, and CS if they exist.

o The act of only two directors (Warren & Michael) signing is invalid because the MD
(Jack) is not among the signatories, and the CS (Gunner) also must sign, being a full-
time CS.

• Question Essence (Part B): If it is a One Person Company (OPC) with only one director who
authenticated the statements, is that correct?

• Answer Gist (Part B):

o For an OPC, the financial statement may be signed by a single director. So that is valid.

2. Reopening of Accounts for Past Years

Revision Note:

• Question Essence: The IT authorities want to reopen Chetan Ltd.’s accounts for FY 2008–09
(i.e., more than 8 years old).

• Answer Gist:

o Section 130: Books can be reopened upon application by CG, IT department, SEBI, or
any statutory authority if earlier accounts were fraudulently prepared or if company
affairs were mismanaged.

o But no order shall be made for accounts older than 8 preceding financial years.

o Application for 2008–09 in FY 2019–20 is beyond 8 years, thus invalid.

3. Directors’ Responsibility Statement Contents

Revision Note:

• Question Essence: What must the Directors’ Responsibility Statement include under Section
134?

• Answer Gist:

1. Compliance with accounting standards, explanation of material departures.

2. Consistent accounting policies, prudent estimates, presenting true & fair view.

3. Proper care for maintenance of adequate accounting records to safeguard

assets/prevent fraud.

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4. Accounts prepared on going-concern basis.

5. In case of a listed co., adequate internal financial controls in place, operating

effectively.

6. Proper systems to ensure compliance with all laws, operating effectively.

4. Government Company’s Comments from CAG => Adoption in Adjourned AGM => Filing Date

Revision Note:

• Question Essence: Sun Ltd. (51% govt. share) laid FS at AGM on 31 Aug 2020, but adjourned
for CAG comments, finally adopted 15 Oct, then filed on 12 Nov. Is that valid?

• Answer Gist:

o Where accounts aren’t adopted at the original AGM, they are “unadopted” and must
be filed within 30 days as provisional.

o After adoption at the adjourned AGM (15 Oct), the final version must be filed within
30 days of that date.

o They filed on 12 Nov => within 30 days. This is valid for the adopted accounts.

o But they apparently did not file “unadopted” accounts earlier.

5. Mandatory Appointment of Internal Auditor

Revision Note:

• Question Essence: X Ltd. is listed but the CS says no internal auditor needed because capital
₹25 cr & turnover ₹100 cr are below threshold. Is that correct?

• Answer Gist:

o Every listed company must appoint an internal auditor. The threshold applies only for
unlisted public or private.

o So the CS is wrong. A listed co. must have an internal auditor regardless of

capital/turnover.

6. Excess CSR Expenditure & Future Offsets

Revision Note:

• Question Essence: Neha Ltd. (turnover ₹2000 cr) picks a CSR project needing 5% of average
net profits, so more than the mandatory 2%. Does that extra spending offset future years?

• Answer Gist:

o If a company spends more than the 2% requirement, the excess can be set off in
subsequent financial years (up to 3 years), subject to certain conditions. So yes, it
counts.

7. Brief on (i) NFRA & (ii) CSR Committee

Revision Note:

• Question Essence: Distinguish: NFRA vs. CSR Committee.

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• Answer Gist:

o 1) NFRA: Established under Section 132 of the Companies Act, 2013, NFRA oversees
accounting and auditing standards, recommends policies, and monitors compliance
and service quality. It can have up to 15 members, with restrictions on associations
with audit firms. NFRA has the power to investigate misconduct of Chartered
Accountants and holds civil court authority. It submits an annual report to the
government and Parliament along with the CAG audit report.

o 2) CSR Committee: As per Section 135, companies meeting specific financial criteria
(₹500+ crore net worth, ₹1,000+ crore turnover, or ₹5+ crore profit) must form a CSR
committee with at least three directors (one independent; private companies can have
two). It formulates, monitors, and recommends CSR policies and expenditure.

8. CSR Applicability with “Provisional” Figures

Revision Note:

• Question Essence: ABC Ltd. (31-3-2020 audited net worth = ₹100 cr, turnover = ₹500 cr, net
profit = ₹1 cr) vs. “provisional” figures as of 30-9-2020 are NW=₹100 cr, turnover=₹1000 cr,
net profit=₹5 cr. Does it need a CSR committee in the second half of 2020–21?

• Answer Gist:

o CSR threshold is tested on the immediately preceding financial year’s audited

statements. The 30-9-2020 provisional data is irrelevant.

o They do not cross the net profit≥₹5 cr or turnover≥₹1000 cr or net worth≥₹500 cr in

the last audited period. No CSR required.

9. Persons Responsible for Maintenance of Books of Account

Revision Note:

• Question Essence: Who ensures compliance of accounting records under Section 128?

• Answer Gist:

o The managing director,

o the whole-time director in charge of finance,

o the CFO, or

o any other person authorized by the Board.

10. Books at Other Place Than Registered Office

Revision Note:

• Question Essence: Bharat Ltd. wants to keep books at corporate office in Mumbai, not the
registered office in a backward area. Is it allowed?

• Answer Gist:

o Yes, if the Board decides & files notice in Form AOC-5 with the RoC within 7 days,
giving that other address in India.

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11. Different FY for Consolidation with Foreign Parent

Revision Note:

• Question Essence: If a company is a subsidiary/holding/associate of a foreign entity and

needs a different FY for consolidation, what’s the procedure?

• Answer Gist:

o It can make an application to the Central Government for a different financial year. If
approved, they can follow that FY.

12. Single Entry vs. Accrual & Double Entry

Revision Note:

• Question Essence: Ravi Ltd. uses single-entry system. Allowed?

• Answer Gist:

o No, Section 128 demands books on accrual basis and double-entry system. Single
entry is not permitted.

13. Non-Banking Finance Co. & XBRL Filing

Revision Note:

• Question Essence: Diwan Housing (a housing finance co.) with paid-up ₹11 cr, turnover ₹145
cr. Must it file FS in XBRL?

• Answer Gist:

o Companies required: Listed cos., unlisted public cos. with share capital≥₹5 cr or
turnover≥₹100 cr. But NBFC are exempt from XBRL filing. So no XBRL.

14. Internal Auditor Necessity: KSR Limited Data

Revision Note:

• Question Essence: KSR paid-up is ₹45 cr, turnover ₹175 cr, outstanding loan at some point
₹105 cr. Must they appoint an internal auditor?

• Answer Gist:

o Unlisted public co. must appoint an internal auditor if outstanding loans≥₹100 cr at

any time in the preceding FY.

o They had ₹105 cr, so yes, they must appoint an internal auditor.

15. Definition of Financial Statements & Cash Flow Exemption

Revision Note:

• Question Essence: Financial Statements typically include B/S, P/L, CF statement, statement
of changes in equity, notes. Which cos. can skip a CF statement?

• Answer Gist:

o One Person Company, Small Company, Dormant Co., Private Startup can skip CF
statement. Others must include it.

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16. Company Books in Electronic Mode & Accessibility in India

Revision Note:

• Question Essence: Whether the co. can keep e-books accessible only outside India?

• Answer Gist:

o They must remain accessible in India at all times. Also daily backup on servers in India.
So purely outside India is not valid.

17. Requirement for Periodical Financial Results in an Unlisted Company

Revision Note

• Question Essence: Can XYZ Ltd. refuse to prepare periodical financial results as an unlisted
company?

• Answer Gist: No, the Central Government can require certain unlisted companies to prepare,
audit, and file periodical financial results. XYZ Ltd. must comply and submit them within 30
days.

18. Dividend Payment Only with Audited Accounts

Revision Note:

• Question Essence: Trautman Ltd. wants to circulate unaudited accounts to members at AGM.
Is that permissible?

• Answer Gist:

o No. Dividend must be based on audited financial statements. Circulating unaudited is

invalid. FS must be duly audited & signed, per Sections 129 & 134.

19. Small Company Status and Cash Flow Statement Filing Requirement

Revision Note

• Question Essence: Is Smart Solutions Pvt. Ltd. a small company, and has it defaulted by not
filing a cash flow statement?

• Answer Gist: The company qualifies as a small company since its paid-up share capital is
₹50 lakhs (within the ₹4 crore limit) and turnover is ₹2 crores (within the ₹40 crore limit).
As a cash flow statement is not mandatory for small companies, there is no default in filing
financial statements.

20. Voluntary Revision of Financial Statements

Revision Note

• Question Essence: Can Spearman Ltd. voluntarily revise its financial statements?

• Answer Gist: Directors can revise financial statements or Board’s report for any of the
preceding three years if they do not comply with Section 129 or 134. This requires
Tribunal approval, notification to Government and tax authorities, and disclosure in the
Board’s report. Such revision can only be done once per financial year.

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21. Maintenance of Books of Accounts in Electronic Form

Revision Note

• Question Essence: What are the requirements for maintaining books of accounts
electronically?

• Answer Gist: Books must be accessible in India, unaltered, and legible. Audit trail with an
edit log must be maintained. Backup must be stored in India daily. The company must report
details of the service provider and storage location to the Registrar annually.

22. Preparation of Financial Statements by Subsidiaries

Revision Note

• Question Essence: How should Jai Ltd. and Vijay Ltd. prepare financial statements?

• Answer Gist: Subsidiaries must prepare financial statements as per Schedule III and
Accounting Standards to ensure a true and fair view. AGM approval is required, and
deviations must be disclosed with their financial effects.

23. Circulation of Financial Statements in Electronic Mode

Revision Note

• Question Essence: Can RCB Ltd. circulate its financial statements electronically?

• Answer Gist:

o Listed companies can send financial statements electronically to demat shareholders

and those who consent.

o Physical copies must be sent if requested.

o The company must upload statements on its website. Since RCB Ltd. is listed, it can
circulate financial statements electronically.

24. Consolidation: Subsidiary’s Local-Language Unaudited FS

Revision Note:

• Question Essence: Dhiman Ltd. (Indian parent) has a foreign sub (Best Shoes) which doesn’t
require audit under local law and provides local-language FS. How to consolidate?

• Answer Gist:

o The subsidiary’s unaudited FS can be used, but must be translated into English.

o The parent co. must attach a declaration that it’s unaudited. For group consolidation,
it’s aligned with parent’s policies.

25. Vouchers Not Required to be Preserved for 8 Years?

Revision Note:

• Question Essence: Some staff claims vouchers needn’t be kept for 8 years.

• Answer Gist:

o False. Section 128(5) says books of account + vouchers relevant to any entry must be
preserved for at least 8 years.

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26. Whether a Company May Keep Books on Cash Basis?

Revision Note:

• Question Essence: Is it permissible under the Act for a company to maintain books on cash
basis?

• Answer Gist:

o No. Section 128(1) explicitly requires accrual basis. Hence a company cannot maintain
them on cash basis.

27. Deviation From Accounting Standards & Required Disclosures

Revision Note:

• Question Essence: If a company’s financial statements do not comply with an accounting

standard, what must be disclosed?

• Answer Gist:

o It must disclose:

1. The deviation from the accounting standard,

2. The reasons for the deviation,

3. The financial effects of such deviation.

28. Circulating Unaudited Accounts Before AGM

Revision Note:

• Question Essence: ABC Ltd. wants to circulate unaudited financials before its AGM. Is that
permissible?

• Answer Gist:
o No. Under Sections 129 and 134, only audited and signed financial statements can be
circulated. Unaudited accounts cannot be filed/circulated as final. So it is not
permissible.

29. Disclosure of Internal Financial Controls in Director’s Responsibility Statement

Revision Note

• Question Essence: Can directors claim controls were adequate and effective despite a failure?

• Answer Gist: Since a control failure occurred, controls were not consistently effective
throughout the year. Directors cannot state they were adequate and operating efficiently.

30. Authentication of Financial Statements in a One-Person Company

Revision Note

• Question Essence: Who shall authenticate the financial statements and Board’s report in a
One-Person Company (OPC)?

• Answer Gist: As per the Companies Act, 2013, in an OPC, the sole director signs the financial
statements before submission to the auditor. This is considered valid.

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31. CSR Committee Requirement for ABC Ltd.

Revision Note

• Question Essence: Is ABC Ltd. required to constitute a CSR committee despite incurring a loss
in one of the preceding three financial years?

• Answer Gist: As per Section 135(1), if any one of the CSR criteria (net worth, turnover, or
net profit) is met, CSR provisions apply. Since ABC Ltd.’s turnover exceeds ₹1000 crores in
each of the last three years, it must constitute a CSR committee, irrespective of the loss in one
year.

32. Internal Auditor Requirement for Unlisted Public Companies

Revision Note

• Question Essence: Which unlisted public companies must appoint an internal auditor?

• Answer Gist: As per the Companies Act, 2013, an unlisted public company must appoint an
internal auditor if it meets any of the following in the preceding financial year:

1. Paid-up share capital of ₹50 crore or more.

2. Turnover of ₹200 crore or more.

3. Outstanding loans/borrowings of ₹100 crore or more.

4. Outstanding deposits of ₹25 crore or more.

33. Engagement of an International Organization for CSR Projects

Revision Note

• Question Essence: Can an international organization be engaged for CSR project

implementation?

• Answer Gist: Yes, but only for designing, monitoring, evaluation, and capacity building as
per Rule 4(3) of CSR Rules. They cannot directly implement CSR projects.

34. Compliance of RELM Industries Ltd. with Section 136

Revision Note

• Question Essence: Has RELM Industries Ltd. complied with Section 136 by not placing its
foreign subsidiary’s financial statements on its website?

• Answer Gist: No, even if the foreign subsidiary is not required to be audited, its unaudited
financial statements must be placed on the website. If not in English, a translated copy must
be provided.

35. Treatment of Foreign Subsidiary's Financial Statements for Consolidation

Revision Note

• Question Essence: How should Vandana Ltd. handle its Italian subsidiary’s unaudited
financial statements for consolidation?

• Answer Gist: The statements must be translated into English and aligned with Indian
accounting policies. As per Section 137(1), Vandana Ltd. must file them with a declaration
explaining deviations if alignment is not possible.

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36. Filing of Financial Statements When AGM Is Not Held

Revision Note

• Question Essence: What should R Ltd. do if the AGM for March 31, 2022, was not held?

• Answer Gist: As per Section 137(2), financial statements must be filed within 30 days from
the AGM due date (by 30th October 2022) along with a statement of reasons for not holding
the AGM and prescribed fees.

37. Filing FS if AGM Not Held / Not Adopted

Revision Note:

• Question Essence: If no AGM is held by the due date, or if accounts aren’t adopted at the AGM,
what must the company do?

• Answer Gist:

o Section 137(2): File unadopted statements within 30 days of the last date on which
the AGM should have been held (or from the AGM date if it was held but statements
not adopted).

o Later, once adopted at an adjourned AGM, re-file those final statements.

38. Must a Listed Co. Appoint an Internal Auditor Regardless of Thresholds?

Revision Note:

• Question Essence: Perfect Ltd. is listed, wants in-house internal auditing, dropping the
external. Is that acceptable?

• Answer Gist:

o They can do in-house or external. The Act only says a listed co. must appoint an
internal auditor but it can be an individual or an in-house arrangement. Dropping the
external CA firm is permissible if an in-house system is designated as “internal
auditor,” fulfilling the law.

39. Applicability of CSR Provisions to ABC Security Services

Revision Note

• Question Essence: Is ABC Security Services required to form a CSR committee?

• Answer Gist: Yes, as net worth ₹520 crore exceeds the ₹500 crore threshold under Section
135(1), CSR provisions apply, and a CSR committee must be formed.

40. Requirement of Internal Auditor for Unlisted Public Companies

Revision Note

• Question Essence: Which unlisted public companies must appoint an internal auditor?

• Answer Gist: Required if any of the following apply: Paid-up capital ≥ ₹50 crore, Turnover ≥
₹200 crore, Loans ≥ ₹100 crore, or Deposits ≥ ₹25 crore.

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41. (i) Signing of Board’s Report

Revision Note

• Question Essence: Who must sign the Board’s report?

• Answer Gist: Chairperson (if authorized) or at least two directors, one being a Managing
Director must sign.

(ii) Filing Financial Statements When AGM Is Not Held

Revision Note

• Question Essence: What should a company do if the AGM is not held?

• Answer Gist: File financial statements with reasons for no AGM within 30 days of the due date,
as per Section 137(2).

42. CSR Requirement for Red Limited

Revision Note

• Question Essence: Is Red Ltd. required to allocate funds for CSR, and if so, how much?

• Answer Gist: Yes, as net profit ₹7 crore exceeds the ₹5 crore threshold. CSR contribution =
₹12 lakh (2% of average net profits).

43. Requirement to Preserve Vouchers

Revision Note
• Question Essence: Are vouchers required to be preserved for eight years?

• Answer Gist: Yes, as per Section 128(5), vouchers must be preserved for eight years with
books of account.

44. Requirement to Send AGM Notice in a Nidhi Company

Revision Note

• Question Essence: Was Upkaar Nidhi Ltd. required to send the AGM notice to all members?

• Answer Gist: No, notice is required only for members holding shares above ₹1000 face value
or more than 1% of paid-up capital. For others, a public notice in a newspaper is sufficient.

45. Single-Entry System vs. Mandatory Accrual & Double Entry, Who Must Ensure Compliance
With Maintenance of Books of Account?

Revision Note:

• Question Essence: K Ltd. in its first year of incorporation kept books under a single-entry
system. Is it permitted under the Companies Act, 2013?

• Answer Gist:

o Section 128(1) requires every company’s books to be kept on accrual basis and
double-entry system of accounting.

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o Single-entry system is not permitted. So K Ltd. must shift to double-entry on accrual

basis.

o Managing director,Whole-time director in charge of finance,Chief Financial Officer,Or

any other person of a company charged by the Board are responsible for maintainance
of books.

46. Abridged Form and Signing of Annual Return

Revision Note

• Question Essence: What is the abridged form of the annual return, and who must sign it?

• Answer Gist: OPC & small companies must file Form MGT-7A. The return is signed by a
director & company secretary or, if none, by a practicing company secretary. For OPC,
small & start-up private companies, it can be signed by either the company secretary or
director.

47. Mr. Naveen’s Objection re: Summaries from Abroad

Revision Note:

• Question Essence: He objected that London branch must do monthly, not quarterly, and that
the accounts must be physically at the head office.

• Answer Gist:

o Legally, foreign branches can keep their own books if they send periodic (quarterly)
returns. So the objection is invalid.

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AUDIT AND AUDITORS

1. Securities Held by Auditor’s Relative Within Prescribed Limit

Revision Note:

• Question Essence: Ram (brother of CA Suresh) acquired securities in Laxman Ltd. with a face
value of ₹95,000. Does this disqualify CA Suresh from being the company’s auditor?

• Answer Gist: An auditor is disqualified if his relative holds securities in excess of ₹1,00,000
face value. Since Ram’s holding is ₹95,000 (within the limit), CA Suresh is not disqualified.

2. Auditor’s Indebtedness to Company & Subsidiary—Aggregate Limit

Revision Note:

• Question Essence: Prabhat (CA) owes ₹2 lakh to Airtel Ltd. + ₹3 lakh to Apollo Hospitals. His
wife owes ₹3 lakh to Aircel Ltd. (subsidiary of Airtel). Can Prabhat be appointed auditor of
these companies?

• Answer Gist: Disqualification if indebtedness to company + subsidiary exceeds ₹5 lakh. Here,

(₹2 lakh + ₹3 lakh) = ₹5 lakh total for Airtel & Aircel—exactly the limit, so no disqualification.
For Apollo Hospitals (not connected group-wise), his ₹3 lakh debt alone does not exceed any
threshold for disqualification. Thus, valid appointments all around.

3. Prohibited Services: Designing & Implementing Financial Info Systems

Revision Note:
• Question Essence: A Ltd. wants its statutory auditor to design and implement a financial
information system for better internal controls.

• Answer Gist: Under the Companies Act, 2013, auditors cannot provide services involving
designing and implementing financial information systems to the auditee. Hence, the auditor
must refuse; the service is strictly prohibited.

4. Appointment of Auditor in a Government Company vs. Non-Govt. Company

Revision Note:

• Question Essence:

1. How is first and subsequent auditor appointed in a Government company?

2. How is an auditor appointed in a public company when a nationalized bank holds only
18% of shares?

• Answer Gist:

o Govt. Company:

▪ First Auditor by CAG within 60 days; if CAG fails, Board within next 30 days; if
Board fails, members within 60 days in EGM.

▪ Subsequent Auditor by CAG within 180 days from the start of each financial
year.

o Non-Govt. Company: Bank holding 18% does not make it a government company.
Auditor is appointed in the AGM (first AGM for 5-year term, etc.) under normal rules.

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5. (A) Joining Firm with Company’s Finance Executive as Partner

Revision Note:

• Question Essence: Rosy is statutory auditor of Gagan Ltd. Later, she joins a firm where Mr.
Vikas (Finance Executive of Gagan Ltd.) is already a partner.

• Answer Gist: An auditor is disqualified if he/she becomes partner or employee of an

officer/employee of the company. She must vacate office as soon as she joins that firm.

5. (B) Holding Company’s Securities of Face Value ₹2,000

Revision Note:

• Question Essence: Vipul, a practicing CA, holds securities of Chaman Ltd. face value ₹2,000. Is
he qualified to be auditor?

• Answer Gist: Even one share is disqualification for the auditor himself. There is no ₹1,00,000
relaxation for the auditor directly—that relaxation applies only to the auditor’s relative. Hence,
disqualified.

6. Removal of Re-appointed Auditors: Procedure & Validity

Revision Note:

• Question Essence: AB & Associates re-appointed on 30-09-2019. Board passes resolution on

31-03-2020 for removal. General meeting on 25-05-2020 removes them by special resolution,
subject to CG approval. Is it valid?

• Answer Gist: Removing auditor before expiry needs: (1) Prior Central Govt. approval in form
ADT-2 within 30 days of Board resolution, (2) Special resolution within 60 days (3) Opportunity
of being heard.

7. First Auditor Appointment & Subsequent 5-year Term

Revision Note:

• Question Essence: Moon Light Ltd. (listed) appoints first auditor (Mr Tel) within 30 days of
registration. Then reappoints him from 1st AGM till 6th AGM. Is that valid?

• Answer Gist:

1. First Auditor by Board within 30 days—valid.

2. Reappointment from conclusion of 1st AGM to 6th AGM—valid for an individual

auditor.

3. If an auditor is appointed only up to 5th AGM (4-year tenure), that is not as per
standard 5-year block.

8. First Auditor of a Government Company

Revision Note:

• Question Essence: How is the first auditor of a Government company appointed?

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• Answer Gist: CAG appoints within 60 days from incorporation. If CAG fails → Board appoints
within next 30 days. If Board fails → members appoint within 60 days in EGM. The appointee
holds office till the end of the first AGM.

9. Auditor’s Remuneration—Who Fixes & Scope

Revision Note:

• Question Essence: HD Software Pvt. Ltd. engaged an auditor with “fees to be decided later.”
Who actually fixes the remuneration?

• Answer Gist: Under Companies Act, remuneration is fixed by the company in general meeting
(or by the Board for the first auditor). Remuneration includes audit fee + out-of-pocket
expenses+facility.

10. (A) Appointment of First Auditor if Board Fails

Revision Note:

• Question Essence: If Board doesn’t appoint first auditor within 30 days, what is the
procedure?

• Answer Gist: They must inform members. Members appoint in an EGM within 90 days. That
auditor holds office until conclusion of the first AGM.

10. (B) Removal of Statutory Auditor Before Expiry of Term

Revision Note:

• Question Essence: How to remove auditor before term ends?

• Answer Gist:

1. Prior Central Govt. approval in form ADT-2 within 30 days of Board resolution,
2. Special resolution within 60 days
3. Opportunity of being heard.

11. Rotation: Common Partner in Multiple Firms

Revision Note:

• Question Essence: Govind Ram (partner in P & Associates) is auditor of Fletcher Motors for
7 years. He retires, joins another firm, but that firm is proposed as next auditor. Any
restriction?

• Answer Gist: If a partner in charge of the audit (who signs FS) moves to another firm, that
new firm is also ineligible for 5 years (cooling-off) if it’s the same client (listed). Hence cannot
be appointed for that period.

12. Partner Retiring & Joining Another Firm—Cooling-Off

Revision Note:

• Question Essence: Govind Ram retires from P & Associates (auditor of Kanha Ltd.) and joins
Gupta & Gupta. Kanha appoints Gupta & Gupta next. Valid?

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• Answer Gist: If the retiring partner was signing partner “in charge,” the new firm with that
partner is ineligible for 5 years. Kanha Ltd. cannot appoint Gupta & Gupta during that cooling-
off.

13. Rotation & Cooling Period for Listed Companies (Firm Level)

Revision Note:

• Question Essence: Hardman & Specter (LLP) audits Mekernien Motors (listed) for 6 years.
One partner is also in Jessica & Co. Can Jessica & Co. become auditor during cooling-off? Can
Hardman & Specter be the internal auditor?

• Answer Gist:

o Statutory Audit: No new appointment in the same company if there’s a common

partner from the old firm within 5-year cooling. So Jessica & Co. cannot replace them
at Mekernien.

o For the subsidiary (McLaren Motors), Jessica & Co. can be appointed (the bar is
specifically about the same company).

o Internal Audit is not covered by that rotation restriction. Hence Hardman & Specter
can be internal auditor.

14. Special Notice for Replacing Retiring Auditor—Shareholding Requirement

Revision Note:

• Question Essence: Members of Zara Ltd. (holding less than 1%) want special notice for
appointing new auditor instead of retiring one. Is it valid?

• Answer Gist: Special notice can be given by members holding at least 1% voting power or
shares of paid-up sum ≥ ₹5 lakh. If they really hold <1% but ≥₹5 lakh, they can give notice.
Otherwise not valid. The company itself does not give special notice; the members do.

15. Appointment for 10 Years—Individual Auditor

Revision Note:

• Question Essence: Nirbhay Ltd. appoints Mansi (individual CA) for 10 years in a single
resolution. Is it valid?iIs it same for Gratton Gould & Associates?

• Answer Gist: An individual auditor’s maximum term is 5 consecutive years. A direct 10-year
appointment violates rotation rules. Not valid.

• For Gratton Gould & Associates (firm), two 5-year terms are possible.

16. Certificate by Proposed Auditor

Revision Note:

• Question Essence: PKC Ltd. asks proposed auditor (Mr. Praveen) for a certificate. What are
the contents?

• Answer Gist: Auditor must certify:

1. Eligibility & non-disqualification under the Act and CA Act.

2. Appointment is within overall limits and as per Act.

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3. No pending professional misconduct proceedings or proper disclosure made.

4. He is a CA (if individual).

17. Govt. Holding 25% Shares—Is It a Government Company?

Revision Note:

• Question Essence: AMC Ltd. has 25% held by Rajasthan Govt. Auditor is appointed by
ordinary resolution. A shareholder objects that it should follow govt. company procedure.
Valid?

• Answer Gist: A government company means ≥51% shares held by Govt. With only 25%, AMC
is not a government company. Normal procedure by ordinary resolution is valid.

18. Casual Vacancy by Resignation in Govt. Company vs. Non-Govt. Company

Revision Note:

• Question Essence: Mr. Kamal resigns on 31 Dec from XYZ Ltd. (Government company). How
is the vacancy filled? Would it differ if it’s non-government?

• Answer Gist:

o Govt. Company: CAG fills vacancy within 30 days; if CAG fails, Board within next 30
days.

o Non-Govt. Company: Board fills casual vacancy within 30 days; if due to resignation,
members must also approve in a general meeting within 3 months.

19. MD Appointing First Auditor Singlehandedly

Revision Note:

• Question Essence: MD of ABC Ltd. himself appoints the first auditor (Mr. Aakash). Valid?

• Answer Gist: First auditor must be appointed by the Board within 30 days of incorporation.
The MD alone has no such power. Hence invalid appointment.

20. Special Notice by 60 Members (Paid-up ₹7 Lakh) to Remove Retiring Auditor

Revision Note:

• Question Essence: Abhiyogic Ltd. (1,000 members, ₹1 cr capital) receives special notice from
60 members holding ₹7 lakh capital to replace Chepal & Co. Retiring auditor’s representation
was received 3 days before meeting—too late to circulate. What happens?

• Answer Gist:

1. Eligibility for special notice: They hold >₹5 lakh, so valid.

2. If representation is late, company need not send it to members. But the auditor can
ask for it to be read out at the meeting + to be filed with the Registrar.

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21. LLP as Auditor—Whether Allowed?

Revision Note:

• Question Essence: R & Associates LLP (with 3 CAs) proposed as auditor of SR Ltd. Is LLP (a
body corporate) eligible?

• Answer Gist: A normal “body corporate” is disqualified, but LLP where all partners are CAs is
specifically permitted to be appointed as an auditor. So it’s valid.

22. Fraud by One Partner in an Audit Firm—Liability

Revision Note:

• Question Essence: ABC & Co. audits Moon Exports. Partner A committed fraud.
Consequences?

• Answer Gist: If a partner in an audit firm colludes in fraud, both that partner and the firm are
liable jointly and severally for civil/criminal liability, including Section 447 consequences. Only
the guilty partner(s) face criminal liability besides fine.

23. Voluntary Audit Committee vs. Board’s Disagreement

Revision Note:

• Question Essence: Modern Furniture Ltd. (not mandated but voluntarily formed an Audit
Committee) recommends a certain auditor. Board disagrees with the recommendation. Is that
valid?

• Answer Gist: Where an Audit Committee is voluntarily constituted, the Board may or may not
consider its recommendation. Board’s disagreement is still legally valid because the strict
mandatory process applies only if section 177 is actually required.

24. First Auditor Appointed for 5 Years?

Revision Note:

• Question Essence: Unicorn Steel Pvt. Ltd. (incorporated 02.06.2022) appoints first auditor
(Jain Ajmera & Associates) in Board Meeting on 15.06.2022 for a 5-year term. Validity?

• Answer Gist: First auditor’s tenure is only till the conclusion of the first AGM. Appointing for 5
years directly is invalid.

25. MD Unilaterally Appointing First Auditor

Revision Note:

• Question Essence: MD of PQR Ltd. alone appoints Ganpati as the first auditor. Valid?

• Answer Gist: Same principle: first auditor must be appointed by the Board within 30 days, not
by the MD alone. So invalid.

26. Fraud by Auditor—Central Govt. Seeking Tribunal’s Intervention

Revision Note:

• Question Essence: FLP Ltd. is involved in large fraud. Central Govt. finds the auditor also
involved. What action can be taken?

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• Answer Gist: The Central Govt. can apply to Tribunal to change the auditors. The Tribunal can
bar those auditors from auditing any company for 5 years, plus they face action under section
447.

27. Auditor & Partnership with Company’s Employee

Revision Note:

• Question Essence: Mr. Anil is auditor of Laxman Ltd. He offers partnership to Bharat
(Manager-Finance in Laxman). Valid?

• Answer Gist: An auditor cannot be partner of an employee/officer of the same company. He

becomes disqualified and must vacate office.

28. Holding Securities (Auditor Himself) of ₹900

Revision Note:

• Question Essence: Mr. Ashish (CA) holds securities of XYZ Ltd. with face value ₹900. Is he
qualified to be XYZ’s auditor?

• Answer Gist: If the auditor himself (not merely a relative) holds any shares, it’s a
disqualification. Hence not qualified.

29. Relative Holding Securities Within ₹1 Lakh

Revision Note:

• Question Essence: Mr. P is a practicing CA; his relative Q holds face value ₹90,000 in ABC Ltd.
Is Mr. P disqualified?

• Answer Gist: If auditor’s relative holds shares in the auditee up to ₹1,00,000 face value, no
disqualification. Hence Mr. P is qualified.

30. Relative Holding Securities Above ₹1 Lakh (Firm Scenario)

Revision Note:

• Question Essence: BC & Co. has partners B & C. C’s relative holds ₹1,10,000 face value in MWF
Ltd. Is BC & Co. eligible as auditor?

• Answer Gist: Exceeds the ₹1 lakh limit for relative. This disqualifies the entire firm. So not
eligible.

31. Audit Firm with Multiple Partners—Ceiling on Audits

Revision Note:

• Question Essence: ABC & Co. has 3 partners (A, B, C) holding 4, 6, and 10 company audits
individually. How many more can the firm and each partner take?

• Answer Gist:

o Each partner can sign up to 20 company audits (excluding OPC, small, dormant, and
certain private cos).

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o Combined for the firm: 3 partners × 20 = 60 max. Already 4+6+10 = 20 taken. So 40

more audits remain for the firm.
o Individually:

▪ A can take (20 – 4) = 16 more,

▪ B can take (20 – 6) = 14 more,

▪ C can take (20 – 10) = 10 more.

32. Whether Auditor Must Review Director’s Report/MD&A

Revision Note:

• Question Essence: MNO Ltd. is a listed company. Auditors finished audit but wait for
Director’s Report & MD&A, which management says is not needed for the audit opinion.

• Answer Gist: Statutory audit is primarily on financial statements. The Director’s

Report/MD&A are not part of the audited financials themselves. However, typically an auditor
reviews other information for inconsistencies.Auditor need not to wait for such reports.

33. Fraud Found by Management First—Reporting Obligation

Revision Note:

• Question Essence: NSH Ltd. found suspicious transactions and informed auditor. Must the
auditor report to Central Govt.?

• Answer Gist: Under section 143(12), if the auditor himself detects the fraud, he must report
to the Board/Audit Committee and, if material, to Govt. If management discovered and already
reported, the auditor only notes it and does not have to re-report to the Government—unless
he had first knowledge.

34. Reading the Entire Audit Report at General Meeting?

Revision Note:

• Question Essence: Must the entire audit report be read aloud at the AGM?

• Answer Gist: Only the qualifications, observations, or comments with adverse effect must be
read out; not the entire report. Members may inspect the full report if they wish.

35. Auditor’s Right & Obligation to Attend General Meetings

Revision Note:

• Question Essence: If an auditor is sent notice for a general meeting, is attendance mandatory?

• Answer Gist: The auditor shall attend (unless exempted by the company). Attendance can be
in person or by authorized representative (who is also qualified to be auditor).

36. Same Firm as Statutory Auditor & Cost Auditor?

Revision Note:

• Question Essence: Can an LLP with both CAs and CMAs be statutory auditor and
simultaneously cost auditor of the same company?

• Answer Gist: No. The Act prohibits appointing the same person/firm as statutory auditor and
cost auditor of the same company.

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37. Spouse Holding Security/Guarantee—Disqualification

Revision Note:

• Question Essence: P Limited appoints XYZ & Co. Partners are X, Y, Z. Cases: (i) X’s wife holds
₹1 lakh shares. (ii) X’s wife guaranteed ₹1.5 lakh loan. (iii) X’s wife indebted to associate for
₹10 lakh.

• Answer Gist:

1. Wife holding shares face value exactly ₹1 lakh → Allowed under relatives’ limit.

2. Wife’s guarantee to the company above ₹1 lakh → Disqualified.

3. Wife indebted for ₹10 lakh in associate → Over ₹5 lakh limit → Disqualified.

38. Aggregating Partner’s Indebtedness & Relative’s Indebtedness

Revision Note:

• Question Essence: Mr. B (partner in ABC & Co.) owes ₹4 lakh to XYZ Ltd.’s subsidiary; Ms. C
(Mr. A’s relative) owes ₹2 lakh to XYZ’s associate. Total ₹6 lakh. Is Mr. A disqualified?

• Answer Gist: If a firm or its partners/relatives collectively exceed ₹5 lakh indebtedness to the
company/group, that triggers disqualification. Here, ₹6 lakh total → disqualified.

39. Disagreement with Audit Committee Recommendation (Listed Co.)

Revision Note:

• Question Essence: Stallworth Ltd. (listed) has an Audit Committee that insists on ANC &
Associates as new auditor. Board disagrees. How to resolve? And if it’s a casual vacancy
scenario?

• Answer Gist:

o For a mandatory Audit Committee company: The committee recommends; if the Board
disagrees, it must record reasons and still forward its own recommendation to
members. Members decide at AGM. Same approach for filling casual vacancy.

o If no requirement for Audit Committee, the Board simply recommends an auditor to

members in AGM.

40. Signing the Audit Report & Reading Qualifications in AGM

Revision Note:

• Question Essence: Who signs the audit report in case of (i) proprietary concern, (ii) a firm?
Also, do we read entire report at AGM?

• Answer Gist:

o Signing: If an individual, that CA signs; if a firm (including LLP), only partners who are
CAs can sign on behalf of the firm.

o Reading in AGM: Only the qualifications/observations with adverse effect on

functioning are read out; not the entire report. Shall be open to inspection by
members.

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COMPANIES INCORPORATED OUTSIDE INDIA

1. Electronic Mode Business – Requirement to File Documents Under Section 380

Revision Note

• Question Essence: A Singapore-based company (Search & Find Pte. Ltd.) sells goods via e-
commerce in India but has no physical office here. Must it file documents under Section 380
of the Companies Act, 2013?

• Answer Gist: Even without a physical office, conducting business activity through electronic
mode in India makes it a “foreign company” as per Section 2(42). It must comply with Section
380 filing requirements.

2. Branch Office of Foreign Company in India – Documents for Compliance

Revision Note

• Question Essence: DEJY (incorporated in Singapore) wants to establish a branch in Mumbai.

Which documents must be submitted under Section 380, and does this make it a “foreign
company”?

• Answer Gist:

o Yes, the branch in India counts as a “place of business,” so DEJY becomes a “foreign
company.”

o It must file within 30 days:

(a)Certified charter/statutes (translated if not in English),

(b) Registered/principal office address,
(c) List of directors and secretary with prescribed details (name, nationality,
passport, PAN, DIN, etc.),
(d) Name & address of an authorized person in India for legal notices,
(e) Principal place of business in India,
(f) Previous business establishment details,
(g) Declaration of no conviction/debarment of directors/representatives,
(h) Any prescribed information.

3. Preparation & Filing of Financial Statements – Foreign Company in India

Revision Note

• Question Essence: Galilio Ltd. (Germany) has a place of business in Mumbai. How must it
prepare/file financial statements and what attachments are required?

• Answer Gist:

o Must prepare Indian business operation FS in accordance with Schedule III (or as near
as possible) each year and deliver them to the Registrar within 6 months of year-end.

o Must attach certain other documents: consolidated FS of parent (if any), statement of
related-party transactions, repatriation of profits, transfer of funds (including
dividends), etc.

o must submit a list of all Indian business locations in Form FC-3 along with financial
statements.

o If the originals are not in English, certified translations must be annexed.

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4. Various Scenarios – Is It a Foreign Company?

Revision Note

• Question Essence: Deciding if certain companies are “foreign companies” under Section
2(42).

1. Red Stone Ltd. (Singapore) only holds Board meetings in India (no other activity).

2. Xen LLC (Dubai) provides cloud services to Indian clients, presumably with an
electronic presence.

3. Blue Star PCL (Thailand) has an agent in India authorized to find customers and
execute contracts.

• Answer Gist:

o Red Stone: Merely holding BOD meetings in India doesn’t constitute a “place of
business” or “conducting business.” Not a foreign company.

o Xen LLC: Operating digitally for Indian clients = place of business in India through
electronic mode → foreign company.

o Blue Star: Has an agent in India entering contracts → place of business (agent) +
business activity → foreign company.

5. Prospectus of a Foreign Company – Required Procedures

Revision Note

• Question Essence: Abroad Ltd. (foreign company, no Indian place of business) wants to issue
a prospectus in India. What is the compliance?

• Answer Gist:

o Must deliver a copy of the prospectus for registration to ROC before issue/circulation.

o Must have endorsements/certifications (chairperson + 2 directors) and all consents

attached.

o States on its face that it has been delivered to ROC.

o Hence Abroad Ltd. must follow Section 389 rules before offering securities in India.

6. Online Business Without Physical Place of Business – Foreign Company?

Revision Note

• Question Essence: Teresa Ltd. (USA) has no physical office in India but conducts online (data
interchange) business in India. Is it a foreign company?

• Answer Gist:

o A company outside India doing business here by electronic mode is a foreign company
as per Section 2(42).

o Physical presence is not mandatory.

o Yes, Teresa Ltd. is treated as a foreign company.

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7. Foreign Company’s Indian Accounts – Audit, Filing, and Legal Impact

Revision Note

• Question Essence: Phil Heath Systems (Australia) has a place of business in India. Queries
about:

1. Must Indian operations’ accounts be audited? By whom?

2. Filing deadline?

3. Effect of non-filing on contractual validity?

4. Filing annual return form and timeline?

• Answer Gist:

o (i) Yes, by a practicing CA in India (individual/firm/LLP).

o (ii) Must file within 6 months of FY end (extendable by 3 months).

o (iii) Contracts remain valid. But the foreign company cannot sue or claim set-
off/counter-claim until it complies.

o (iv) File annual return in Form FC-4 within 60 days from end of financial year.

8. Delivery of Documents to ROC & Penalty for Non-Compliance

Revision Note

• Question Essence: (i) ABC Ltd. (foreign) has principal place in Kolkata but must deliver
certain documents to the ROC. Where?
(ii) What is penalty if foreign company fails to file under Section 380?

• Answer Gist:

o (i) Deliver the documents to ROC New Delhi (per the rules).

o (ii) As per Section 392, fine for the company: minimum ₹1,00,000 up to ₹3,00,000 +
continuing offence fine ₹50,000/day. Officer in default: fine from ₹25,000 to
₹5,00,000.

9. Place of Business in India – Whether a Foreign Company?

Revision Note

• Question Essence:

1. A company incorporated outside India but has a share registration office in Mumbai.

2. A company in Singapore formed by Indians for business there.

• Answer Gist:

o (1) If a share registration office in India exists (a “place of business”) and it conducts
business activity, it’s a foreign company.

o (2) Simply incorporating abroad by Indian citizens does not make it a foreign company
unless it also has a place of business + activity in India.

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10. Service of Notice on a Foreign Company & Entitlement to Sue if Non-Compliant

Revision Note

• Question Essence: (i) Global Commercial LLC (foreign co.) has place of business in Mumbai.
How must the Indian lender serve notice?
(ii) MNO LLC fails to file returns & FS with ROC—can the vendor and MNO sue each other?

• Answer Gist:

o (i) Service is valid if addressed to the authorized person (delivered or posted or

electronically) whose name & address is filed with ROC under Section 380.

o (ii) Vendor can sue MNO LLC. MNO LLC cannot sue or claim set-off/counter-claim until
it cures its non-compliance. But the contract is still valid.

11. Foreign Company – Procedure for Alteration of MOA & Closure of One Branch

Revision Note

• Question Essence: CNC Ltd. (foreign co. in India) amends MOA on 1 June and closes its
Mumbai office. What must it do about:

1. The MOA amendment?

2. The closure of that branch?

• Answer Gist:

o Must file particulars of the alteration with ROC in Form FC-2 within 30 days of
alteration.

o If it completely ceases place of business in India, it must notify ROC; then no further
filings. But CNC still has another place of business (Ahmedabad), so it continues
normal filing.

12. Paid-up Capital Structure & Applicability of Chapter XXII

Revision Note

• Question Essence: RFC Ltd. (Singapore) with a branch in Mumbai. 50%+ of its paid-up share
capital is held by Indian citizens/companies? Also, is notice from ROC served validly?

• Answer Gist:

o If Indian shareholders + Indian companies together hold ≥50% of the paid-up capital,
RFC must comply with Chapter XXII “as if it were a company incorporated in India.”

o Serving notice is valid if done at the address filed with ROC under Section 380.

13. Foreign Company FS in Non-English Language, IFRS Format, & Filing Location

Revision Note

• Question Essence: MNO Ltd. (foreign JV) uses IFRS and German language. How to file in India
regarding:

1. Language,

2. Format (IFRS vs. Indian rules),

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3. Authentication,

4. Where to file?

• Answer Gist:

o Must translate documents into English if original not in English.

o FS for Indian business to align with Schedule III “as near as possible.”

o Translations must be authenticated as per rules (advocate/notary, etc.).

o Must file with ROC New Delhi, not with local ROC (Mumbai).

14. Foreign Company Changes Principal Office Overseas – Filing Obligation

Revision Note

• Question Essence: Swift Pharmaceuticals (Singapore) changed its principal office on 1 March
2023. Does it need to inform ROC?

• Answer Gist:

o Yes, must file alteration return in Form FC-2 within 30 days of the change.

o If not in English, attach certified translation. This is mandatory under Section 380(3).

15. Cross-Border Amalgamation – Amalgamation With a Company Registered Outside

Revision Note

• Question Essence: Unicorn Rubber (UK) merges with Artha Rubber (India). CFO says “both
must be Indian-registered.” Is that correct?

• Answer Gist:

o No, Section 234 allows cross-border mergers subject to RBI approval. So the CFO’s
contention is incorrect.

16. Translation of Charter Documents in India – Authentication

Revision Note

• Question Essence: Qinghai Huading Industrial Co. (China) sets up in Mumbai. Its documents
are in Mandarin. Who can authenticate the translated version, if done in Mumbai?

• Answer Gist:

o As per Rule 10, if translation is done within India, it can be authenticated by an

advocate entitled to appear before any High Court, or by affidavit of a competent
person with knowledge of both languages.

17. Filing Requirements for a Foreign Company – Key Highlights

Revision Note

• Question Essence: ZIZA Software (New Zealand) with an Indian branch in Mumbai:

1. Where to file?

2. How ROC serves documents?

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3. Deadline for FS filing?

4. Additional FS if any?

5. Auditor for Indian operations?

• Answer Gist:
o (1) Deliver docs to ROC New Delhi.

o (2) Service by addressing the authorized person’s registered address or electronically.

o (3) File audited FS within 6 months of FY end (extendable 3 months).

o (4) Must also file consolidated FS of parent or equivalent if not exempted.

o (5) Accounts must be audited by practicing CA in India or a CA firm/LLP.

18. When to Comply With Full Indian Company Provisions (≥50% Indian Holding)

Revision Note

• Question Essence: Zell Power LLC (ZPL) is a foreign co. But ROC says it must comply not just
with foreign co. provisions (Sections 380–386, 392, 393) but also “as if incorporated in India.”
ZPL disputes. Indian citizens + Indian companies hold more than half of the paid-up share
capital.

• Answer Gist:

o Section 379(2) states if ≥50% of paid-up capital is held by Indian citizens/companies,

the foreign company must comply with all provisions as if it were Indian-incorporated.

o So ROC’s opinion is correct and legally valid.

19. Prospectus – Which Contracts Must Be Annexed?

Revision Note

• Question Essence: Blue Star Inc. (USA, no Indian office) wants to issue securities in India.
Over the last 4 FYs, it did several material contracts + 1 manager’s contract. Which must be
attached to the prospectus?

• Answer Gist:

o Must attach any managing director or manager’s contract and all material contracts
entered into (not in the ordinary course) in the past 2 years.

o Contracts in the ordinary course don’t need annexing, but manager’s contract does.

20. Different Financial Year for an Indian Subsidiary of a Foreign Company

Revision Note

• Question Essence: Herry Ltd. (Thailand) wholly owns SKP Ltd. (India). SKP wants a different
financial year for consolidation with the foreign parent. Is this possible?

• Answer Gist:

o Yes, under Section 2(41) read with Section 381/379 and the amendments, the Central
Government can allow a different FY for consolidation if it’s a foreign
holding/subsidiary or JV. SKP must apply to CG (earlier it was NCLT) and obtain
approval.

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21. Name Board Requirements for a Foreign Company

Revision Note

• Question Essence: A French company sets up office in Baroda, displays its name only in
English in big letters. ROC notices lapses.

• Answer Gist:

o Section 382 requires:

▪ Display the company’s name and the country of incorporation in English and
local language,

▪ Also note the liability status (“Limited”) in both languages.

o Failing these details leads to non-compliance.

22. Online Education & Over 50% Paid-up Capital Held by Indian Entities

Revision Note

• Question Essence:

1. UK-based online educator (no physical presence in India) but 100% students from
India. Is it an Indian or foreign company?

2. If >50% of its paid-up capital is held by Indian companies/citizens, does that change
compliance?

• Answer Gist:

1. Merely having all Indian customers does not make it an Indian company. It’s still a
foreign company (electronic mode).

2. If Indians hold ≥50% paid-up capital, it must comply with Chapter XXII + other
provisions of section 380-386 and 392,393“as if it were an Indian company.”

23. Checking “Foreign Company” Status & Issue of IDRs

Revision Note

• Question Essence:

1. A company outside India with share registration office in New Delhi.

2. A company outside India with all Indian-citizen shareholders.

3. A company in India but foreign shareholders.

And: can they issue Indian Depository Receipts (IDRs)?

• Answer Gist:

o Being a foreign co. requires place of business in India + actual business activity in
India.

o Indian incorporation means not foreign.

o IDRs can only be issued by a company incorporated outside India. They must comply
with relevant rules (Section 390, SEBI regulations, RBI regulations).

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24. Foreign Company Prospectus – Omission to State the Country of Incorporation

Revision Note

• Question Essence: Blue Berry Ltd. (incorporated outside India) has 50% preference capital
+ 20% equity capital held by Indian companies. It issued a prospectus in India without
mentioning the country of incorporation. Valid?

• Answer Gist:

o With ≥50% total paid-up capital from Indian sources, it must follow Chapter XXII +
additional provisions.

o Section 387 demands the country of incorporation be stated. Omission → prospectus

is invalid.

25. Three Cases of Potential “Foreign Company” Status

Revision Note

• Question Essence:

1. No place of business in India but telemarketing.

2. Incorporated outside India, no place of business, but uses an agent?

3. Incorporated outside India, all Indian shareholders.

• Answer Gist:

1. Electronic/telemarketing in India = foreign co. if incorporated abroad.

2. If truly no place of business or agent in India, then not a foreign co. But if there is an
agent conducting business, that counts as a place of business.

3. Even if all Indian shareholders, if incorporated outside India + place of business in

India → foreign co.

26. Foreign Company’s Documents in Non-English Language

Revision Note

• Question Essence: Jackson & Jackson LLC (Germany) proposes business in Mumbai with
official documents in German. Can they file as is?

• Answer Gist:

o They must provide documents to registrar within 30 days along with certified English
translations for all original instruments not in English. Just filing in German is non-
compliant.

27. Expert’s Consent in a Prospectus (Companies Incorporated Outside India)

Revision Note

• Question Essence: Which provisions govern expert’s consent included in the prospectus for
a foreign company issuing securities in India?

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• Answer Gist:

o Under Section 388, an expert’s statement is considered included if referenced or

attached. The expert must give written consent and not withdraw it before
registration of the prospectus.

o The prospectus must mention that the expert consented and hasn’t withdrawn
consent. Otherwise, issuance contravenes the Act.

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LIMITED LIABILITY PARTNERSHIP

1. Designated Partner – Meaning & Mandatory Appointment

Revision Note

• Question Essence: Definition of "designated partner" and whether every LLP must appoint
at least one designated partner who is resident in India.

• Answer Gist:

o A “designated partner” is one so designated under Section 7 of the LLP Act.

o Every LLP must have at least two designated partners who are individuals, one of
whom is resident in India (residing in India ≥120 days in the previous year).

o If all partners are bodies corporate, at least two individuals (nominees) must act as
designated partners.

2. LLP’s Dual Nature – "Limited Liability + Flexibility of Partnership"

Revision Note

• Question Essence: Why is an LLP called an alternative corporate business form with benefits
of limited liability plus partnership flexibility?

• Answer Gist:

1. Limited liability: Liability of each partner is limited to the agreed contribution; the
LLP itself is liable to the full extent of its assets.

2. Partnership flexibility: Internal organization of an LLP is governed by a mutual

agreement among partners, giving the operational flexibility of a partnership.

3. Essential Elements for Incorporating an LLP

Revision Note

• Question Essence: Key requirements under the LLP Act for forming an LLP.

• Answer Gist:

1. At least two partners (individuals or bodies corporate).

2. Designated partners: Minimum two, one must be resident in India, each must have a
DPIN.

3. LLP must have a registered office.

4. Must file incorporation document + statement with the Registrar electronically.

5. Must execute an LLP Agreement; if none, First Schedule applies.

6. Reserve a unique LLP Name.

4. Unlimited Liability in Case of Fraud

Revision Note

• Question Essence: When can an LLP and its partners face unlimited liability?

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• Answer Gist:

o If the LLP or its partners act with intent to defraud creditors or any fraudulent
purpose, liability becomes unlimited for those debts.

o If a partner acted fraudulently without the LLP’s knowledge, only that partner is liable.

o Persons knowingly party to fraud face imprisonment up to 5 years and fine from
₹50,000 up to ₹5 lakh.

o They may also be liable for compensation to those who suffered from the fraudulent
conduct.

5. Circumstances for Tribunal-Ordered Winding Up

Revision Note

• Question Essence: Grounds on which the Tribunal can order winding up of an LLP.

• Answer Gist:

1. LLP decides (by resolution) that it be wound up by the Tribunal.

2. Number of partners falls below two for more than six months.

3. LLP unable to pay its debts.

4. LLP acts against India’s sovereignty, integrity, security, or public order.

5. Default in filing Statements of Account & Solvency/Annual Return for five consecutive
years.

6. Tribunal concludes it’s just and equitable to wind up.

6. Steps for Incorporating an LLP

Revision Note

• Question Essence: Outline the procedure for forming an LLP.

• Answer Gist:

1. Name Reservation: File e-form 1 to reserve LLP name.

2. Incorporation: File e-form 2 with details of proposed LLP, partners, consent of

designated partners, etc.

3. LLP Agreement: Execute within 30 days of incorporation; file e-form 3 with Registrar.

7. Who Cannot Become a Partner in LLP?

Revision Note

• Question Essence: Which individuals are disqualified from being LLP partners?

• Answer Gist:

1. Those found of unsound mind by a competent court (still in force).

2. Undischarged insolvents.

3. Persons who have applied for insolvency adjudication and application is pending.

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8. LLP’s Liability for Partner’s Acts

Revision Note

• Question Essence: When does the LLP become liable for a partner’s acts?

• Answer Gist:

o LLP is not bound if the partner has no authority and the third party knows of the lack
of authority (or doesn’t know he’s a partner).

o LLP is liable if a partner commits a wrongful act or omission in the course of the LLP’s
business or with its authority.

o LLP’s debts/obligations are met from the LLP property.

9. Conditions When LLP Is or Is Not Liable for a Partner’s Acts

Revision Note

• Question Essence: Summarizes Section 27(1) and 27(2).

• Answer Gist:

o LLP is liable (Sec. 27(2)) for any wrongful act/omission by a partner in the ordinary
course of business or with LLP’s authority.

o LLP is not liable (Sec. 27(1)) if the partner has no authority to act and the third party
knows he has no authority or doesn’t know or believe him to be a partner.

10. Effects of LLP Registration

Revision Note

• Question Essence: What powers/capabilities does an LLP get upon registration?

• Answer Gist:

1. It becomes a body corporate with legal personality.

2. Can sue and be sued.

3. Can own property (movable, immovable, tangible, intangible).

4. May have a common seal (if it chooses).

5. Can do all lawful acts as a corporate entity.

11. Procedure for Changing LLP Name

Revision Note

• Question Essence: LLP name is identical/too similar to another LLP, company, or registered
trademark. Steps to change name?

• Answer Gist:

1. CG may direct LLP to change name within 3 months. (Application must be within 3
years from LLP’s incorporation/change of name.)

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2. LLP must notify Registrar of the new name within 15 days of change, and Registrar
amends the certificate.

3. Then LLP must update its agreement within 30 days of the changed certificate.

4. If LLP defaults, CG may allot a new name unilaterally.

12. Concept of LLP – Key Features

Revision Note

• Question Essence: What is an LLP and how is it a “hybrid” structure?

• Answer Gist:

1. Separate legal entity, perpetual succession.

2. Liability is limited to contribution.

3. Flexibility akin to partnership.

4. Internal governance via an agreement.

5. Hybrid of a company (corporate structure) + partnership features.

13. Registered Office of LLP & Change Therein

Revision Note

• Question Essence: Rules for LLP’s registered office and consequences if not complied with?

• Answer Gist:

1. Every LLP must have a registered office to receive communications/notices.

2. Service of documents at that office is valid.

3. Change in address requires notice to ROC in prescribed form.

4. Penalty for default: ₹500/day up to ₹50,000 (for LLP and each partner).

14. Differences Between LLP & Partnership

Revision Note

• Question Essence: A & B want to set up a supermarket – which form is better? Key
differences?

• Answer Gist:

1. Regulation: LLP by LLP Act 2008, Partnership by Partnership Act 1932.

2. Legal entity: LLP is separate legal entity, partnership is not.

3. Registration: Mandatory for LLP, optional for firm.

4. Liability: Limited in LLP, unlimited in firm.

5. Perpetual succession: LLP continues, partnership may dissolve if partner

dies/insolvent.

6. Annual filings: LLP must file annual statements; partnership has no such requirement,
etc.

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15. Maintenance & Audit of Books of Account of LLP

Revision Note

• Question Essence: Procedure for accounting, records, and audit under LLP Act?

• Answer Gist:

1. LLP must maintain proper books of account on cash or accrual basis and per double
entry system.

2. Must keep these at the registered office.

3. Prepare a Statement of Account & Solvency within 6 months of financial year-end,

signed by designated partners.

4. File it with ROC within the prescribed time.

5. Audit is required as per prescribed rules (depending on turnover/contribution

thresholds).

16. Differences Between LLP & LLC (Company)

Revision Note

• Question Essence: Contrasts LLP vs. Private/Public Limited Company (LLC).

• Answer Gist:

o Regulation: LLP Act 2008 vs. Companies Act 2013.

o Members: LLP has “partners”; company has “shareholders/members.”

o Internal governance: LLP governed by agreement, company by statute + MOA/AOA.

o Suffix: “LLP” vs. “Limited” or “Private Limited.”

o Liability: Partners’ liability is limited to contribution in LLP, while company members’

liability is typically up to unpaid share capital.

o Minimum partners/directors: LLP → 2 designated partners; Company → 2 or 3

directors (private/public).

17. Small LLP – Definition

Revision Note

• Question Essence: What is a Small LLP?

• Answer Gist:

o Contribution ≤ ₹25 lakh (extendable up to ₹5 crore).

o Turnover ≤ ₹40 lakh (extendable up to ₹50 crore) in the previous financial year.

o Must meet such other prescribed conditions as well.

18. Whether HUF Can Be a Partner in LLP

Revision Note

• Question Essence: Mr. A, Mrs. A, and one HUF want to form LLP. Is HUF valid as a partner?

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• Answer Gist:

o Partners can be individuals or body corporates as defined under the Act.

o HUF does not fall under “body corporate.”

o Hence HUF cannot be a partner in LLP.

19. Designated Partners – Must One Be Resident in India?

Revision Note

• Question Essence: Ram Infra Development LLP has 4 partners, 2 of them non-resident. They
want to designate the non-resident + a resident as DPs. Is that enough?

• Answer Gist:

o At least two designated partners in total. One must be resident in India.

o If they pick a non-resident plus a resident, that is fine, but they must ensure two
designated partners exist overall.

o If they only choose both non-residents, it’s invalid. One designated partner must be
resident.

20. Creditor Claims Against LLP – Liability of Partners?

Revision Note

• Question Essence: A creditor cannot recover the full debt from the LLP’s assets. Can they
claim from partners personally?

• Answer Gist:

o LLP is a separate legal entity; partners’ liability is limited to their contribution.

o Creditors of the LLP cannot pursue partners’ personal assets unless there’s fraud.

o Hence no personal liability for normal business debts.

21. Name Resemblance With a Partnership Firm

Revision Note

• Question Essence: M/s Vardhman Steels LLP (incorporated 01.09.2022) is nearly similar to
a partnership firm name “Vardhimaan Steels” (registered since 2000). Must LLP change its
name?

• Answer Gist:

o Under Section 17, name change is required if it’s identical/too similar to another LLP,
company, or registered trademark.

o A partnership firm that is neither an LLP nor a company nor a registered trademark
cannot enforce name change under LLP Act.

o So, no compulsion to change the LLP’s name in this situation.

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22. Failure to Notify Resignation – Continued Liability

Revision Note

• Question Essence: Abhinav resigned from an LLP but neither the LLP nor Abhinav informed
ROC. Is he liable for subsequent acts?

• Answer Gist:

o A former partner is deemed to remain a partner for third parties until notice of
resignation is given to the ROC or the third party knows he’s no longer partner.

o Since no notice to ROC, Abhinav remains liable for post-resignation transactions.

23. Whistleblower Protection in an LLP

Revision Note

• Question Essence: What protection does the LLP Act grant to whistleblowers?

• Answer Gist:

o Court/Tribunal may reduce/waive penalty for a partner/employee who provides

useful information in an investigation or leads to a conviction under the LLP Act or
other laws.

o Such partner/employee cannot be demoted, suspended, harassed, or discriminated

against by the LLP for whistleblowing.

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GENERAL CLAUSE ACT 1897

1. Presumption of Service by Registered Post & Return with Endorsement “Refusal”

Revision Note

• Question Essence: Whether a notice sent by registered post, returned by tenant as “refused,”
is deemed served on the landlord (Prabhat)? Also, does “registered post” suffice when
statutory rules stipulate “registered post acknowledgment due”?

• Answer Gist:

o Section 27 GCA: If properly addressed, prepaid, and posted by registered post, service
is presumed to be effected at the ordinary course of post.

o Even if returned with an endorsement of refusal, it is deemed served.

o However, if the specific law requires “registered post acknowledgment due,” then
“registered post only” may not fulfill that stricter requirement; it depends on the
statute’s phrasing. If no such explicit requirement, “registered post” suffices to get
presumption of service.

2. Computation of Time – Court Holiday on the Last Day

Revision Note

• Question Essence: Date of hearing fixed on 29.04.2018, which becomes a holiday. How is time
counted?

• Answer Gist:

o Section 10 GCA: If the last day/appointed day for an act or proceeding falls on a day
when court/office is closed, the act can be done on the next day the court/office is
open.

o Thus, hearing would be on the next open day (30.04.2018).

3. Whether Sale of Timber Is Sale of Immovable Property

Revision Note

• Question Essence: X owns land + 50 tamarind trees. He sells the land (minus standing trees,
which are cut as timber). Is that timber immovable property?

• Answer Gist:

o Immovable property (Sec. 3(26) GCA) = land, benefits arising from land, things
attached, or permanently fastened to the earth.

o Timber (cut trees, no longer attached) is not immovable property. Land is immovable,
but once the trees are severed, they become movable property.

4. “Financial Year” vs. “Calendar Year”

Revision Note

• Question Essence: GCA meaning of “Financial Year” – is it the same as calendar year?

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• Answer Gist:

o Financial Year under GCA starts April 1 and ends March 31 of the following year.

o “Year” by default means the calendar year (Jan–Dec).

o So the difference is: “Financial year” = 1 April to 31 March; “Calendar year” = 1 Jan to
31 Dec.

5. Commencement of Legislation – No Specific Date vs. Specific Date

Revision Note

• Question Essence: (i) If an Act of Parliament doesn’t mention a commencement date, from
when does it start?
(ii) If a notification prescribes a future date, which date is valid?

• Answer Gist:

o (i) If no specific date: It takes effect from the day it receives Presidential assent.

o (ii) If a specific date is prescribed in the Official Gazette, then it commences from that
date (e.g., 1 Jan 2016).

6. Meaning of “Good Faith” Under GCA & Example of Negligent Purchase

Revision Note

• Question Essence: Does “good faith” under GCA require due diligence or only honesty?

• Answer Gist:

o Section 3(22) GCA: “Good faith” = done honestly, whether negligently or not.

o An honest but careless act can still be “in good faith,” provided no malafide intention.

o In the example: A watch purchased without proper enquiry is not necessarily in good
faith if honesty is questionable or if the context requires due diligence (the scenario
can vary depending on the facts).

7. Distinction Between “Repeal” and “Deletion”

Revision Note

• Question Essence: Repeal vs. deletion in an Act.

• Answer Gist:

o Repeal: Typically erases the provision as though it never existed, affecting

rights/liabilities from that law.

o Deletion: Operates from the date of the amending legislation; it doesn’t fully wipe out
the prior existence of the provision.

8. Computation of time of Dividend Payment

Revision Note

• Question Essence: A company declares dividend on 31 July 2020. By when must it pay? By
when must unclaimed dividend be transferred?

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• Answer Gist:

o for computation of time, for the purpose of excluding the first in a series of days , use
the word “from” and for the purpose of including the last in a series of days use the
word “to”.

o Dividend must be paid within 30 days “from” the date of declaration. So, 31 July is
excluded; 30th day is 30 August.

o Any unpaid/unclaimed portion must be transferred to Unpaid Dividend Account

within 7 days after the 30-day period, i.e., 31 August to 6 September.

9. “Affidavit” Definition Under GCA

Revision Note

• Question Essence: Does GCA define “affidavit”?

• Answer Gist:

o Section 3(3) GCA: “Affidavit” includes affirmation or declaration for persons allowed
by law to affirm instead of swearing.

o It is an inclusive definition; the Act doesn’t give a full definition, just clarifies it includes
affirmation/declaration.

10. Act Done Negligently Still in Good Faith?

Revision Note

• Question Essence: Under GCA, can an act done negligently be deemed “good faith”?

• Answer Gist:

o Yes, if done honestly, it’s considered in good faith, even if done negligently.

o This is subject to no contradictory definition in the specific statute.

11. Validity of Statements: (i) Insurance Policies as Immovable Property; (ii) “Bullocks”
Includes “Cows”?

Revision Note

• Question Essence: (i) Are insurance policies covering immovable property themselves
“immovable property”? (ii) Does “bullocks” include “cows”?

• Answer Gist:

o (i) Immovable property = land, benefits from land, things attached. Insurance policy
is not in itself land or benefit from land; if the context or specific law deems them so,
it might be recognized under “benefits.”

o (ii) “Bullocks” is gender-specific, typically male bovines. Under GCA, words in the
masculine may include females only if context allows. Generally, “bullocks” cannot be
stretched to mean “cows.”

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12. “Government” – Includes Both Central & State?

Revision Note

• Question Essence: Does “Government” in a statute also include “State Government”?

• Answer Gist:

o Section 3(23) GCA: “Government” includes both Central and State Government unless
context says otherwise.

o So if gratuity is exempt for “Government,” that covers both.

13. Effect of Repeal & Saving of Past Operations

Revision Note

• Question Essence: Consequences of repealing an Act under Section 6 GCA.

• Answer Gist:

o Repeal does not:

1. Revive anything not in force,

2. Affect the prior operation or anything done/suffered,

3. Affect rights/obligations acquired/accrued,

4. Affect penalties/incurred liabilities,

5. Affect investigations/proceedings.

o Those can continue as if the repealed law was still in force for that limited purpose.

14. Offence Punishable Under Two or More Enactments

Revision Note

• Question Essence: If an act is an offence under two laws, can the person be punished under
both?

• Answer Gist:

o Section 26 GCA: The offender can be prosecuted under either or any of such
enactments but shall not be punished twice for the same offence.

o Mirrors the principle that no double jeopardy for the same offence.

15. Measurement of Distance – Road vs. Water

Revision Note

• Question Essence: How is distance measured if there are two routes (100 km by road, 80 km
by water)?

• Answer Gist:

o Section 11 GCA: Distance is measured “in a straight line on a horizontal plane” unless
otherwise stated.

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o So presumably neither 100 km nor 80 km is controlling; the straight-line distance is

the statutory measurement.

16. KMP in Holding Company – Office in Multiple Subsidiaries?

Revision Note

• Question Essence: Companies Act says KMP “shall not hold office in more than one company
except its subsidiary.” Is it singular subsidiary or multiple subsidiaries?

• Answer Gist:

o Section 13 GCA: Words in singular include plural.

o So the KMP can hold office in more than one subsidiary, unless context repugnant.

17. Definitions Under GCA: “Rule,” “Oath,” “Person”

Revision Note

• Question Essence: Summaries of these GCA definitions.

• Answer Gist:

1. “Rule” = any rule made under enactment, includes regulation.

2. “Oath” = includes affirmations/declarations for persons allowed to affirm.

3. “Person” = includes companies, associations, or bodies of individuals (incorporated or

not).

18. “May” vs. “Shall” – Section 3(1) Companies Act

Revision Note

• Question Essence: Does “A company may be formed…” mean optional or mandatory?

• Answer Gist:

o Generally, “may” = directory/optional, “shall” = mandatory. But context can invert

meaning.

o Formation of a company for “any lawful purpose” cannot be read as optional for
compliance; it’s mandatory compliance. So “may” is read as “shall” in context.

19. “Official Gazette” Definition

Revision Note

• Question Essence: “Official Gazette” or “Gazette” under Section 3(39) GCA.

• Answer Gist:

o Means the Gazette of India or the Official Gazette of a State.

o It’s the formal government publication for official notices.

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20. Reference to Repealed Enactment – Now Re-enacted?

Revision Note

• Question Essence: Sec. 2(18)(aa) of IT Act references Sec. 25 of Companies Act 1956. After
2013 Act replaced 1956, which law applies?

• Answer Gist:

o Section 8 GCA: If an Act is repealed and re-enacted (with or without modification),

references to the old Act are construed as references to the new Act.

o So references to Sec. 25 (1956) now read as references to Sec. 8 (2013).

21. Gender Interpretation – “He” or “Director” Also Applies to Females

Revision Note

• Question Essence: Director’s obligations in Companies Act use “he/his.” Does it exclude
female directors?

• Answer Gist:

o Section 13(1) GCA: Words importing the masculine gender include females unless
context contradicts.

o “He” includes “She”.

o So a woman director is equally bound by the same duties. She cannot claim it’s for
males only.

22. Rules/Bye-laws After “Previous Publication” – Steps

Revision Note

• Question Essence: If an Act says rules are to be made after “previous publication,” what steps
apply under Sec. 23 GCA?

• Answer Gist:

1. Draft published for persons likely affected.

2. Notice specifying a date after which draft will be considered.

3. Objections/suggestions are considered by rule-making authority.

4. Final publication in Official Gazette is conclusive proof of due compliance.

23. Lockdown on Last Day to File Appeal – Effect on Time

Revision Note

• Question Essence: Last day to file appeal is 8 Sep 2023, court closed due to lockdown. What
next?

• Answer Gist:

o Section 10 GCA: If the court is closed on the last day, the act can be done on the next
open day.

o So the appeal can be filed on the next day the court reopens.

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24. Draft Rules Published by MCA – Queries on Irregularities, Changes, & Re-Publication

Revision Note

• Question Essence: Under Sec. 23 GCA, must the ministry republish if they modify the draft
slightly? Can irregularities be challenged?

• Answer Gist:

1. They must publish a draft for stakeholders.

2. Publication in the Gazette is conclusive proof that procedure was followed—

irregularities not challengeable.

3. Authority can make modifications before finalizing.

4. No re-publication if changes are ancillary/minor to the earlier draft.

25. Duty Rate Pro Rata – Section 12 GCA

Revision Note

• Question Essence: A new law imposes 15% duty on value of perfumes. If 100 bottles @ $50
each, how do we apply duty?

• Answer Gist:

o Section 12 GCA: If a duty is levied on a “given quantity,” the same rate extends to
greater or smaller quantities pro rata.

o Calculation: 100 bottles × $50 = $5,000 value; 15% duty = $750.

26. Power to Appoint = Power to Suspend/Dismiss

Revision Note
• Question Essence: If a CEO was authorized only to appoint employees, can he also dismiss
them?

• Answer Gist:

o Section 16 GCA: Power to appoint includes power to suspend or dismiss the

appointee.

o So dismissal is valid even if the resolution said “appoint.”

27. LLP false statements (this is from LLP Act 2008)

Revision Note

• Question Essence: Consequences of false statements under Sec. 37 of LLP Act.

• Answer Gist:

o If any person makes a statement in a return or document that is false in a material

particular, knowing it to be false, or omits material facts, punishable with
imprisonment up to 2 years and fine between ₹1 lakh–₹5 lakh.

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INTERPRETATION OF STATUTES
1. Proviso & Explanation – Role in Statutory Interpretation

Revision Note

• Question Essence:

1. What function does a proviso serve in an enactment? Does it qualify the main
provision?

2. Does an explanation added to a section broaden that section’s scope?

• Answer Gist:

1. Proviso

▪ A proviso typically excludes something from the main provision or qualifies it.

▪ It is not a general rule but an exception or qualification to the main clause.

▪ Proviso only embraces the field covered by the main provision and does not
affect other sections.

2. Explanation

▪ An explanation is added to clear up ambiguities or clarify the main provision.

▪ It may “add to” or “exclude” something from the main provision, but it should
not be construed to expand the entire section beyond its original scope.

▪ Its primary role is to harmonize or clarify, not to widen the ambit unless
clearly indicated.

2. Preamble as an Aid – It Does Not Override Plain Words

Revision Note

• Question Essence:

o Does the preamble control the plain text of the statute?

o When do we use the preamble for interpretation?

• Answer Gist:

o The preamble expresses the object, scope, or purpose of an Act.

o It does not override unambiguous words in the Act.

o It’s used only if the main text is ambiguous or capable of multiple interpretations.

o If the language is clear, the preamble cannot alter or contradict that clarity.

o Example: Gullipoli Sowria Raj v.Bandaru Pavani “may be solemnized” was read as
mandatory, also considering the preamble’s objective.

3. “Means” vs. “Includes” in Definitions

Revision Note

• Question Essence: How to interpret statutory definitions if they say “means” or “includes”?

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• Answer Gist:

o Means → restrictive/exhaustive: The definition is limited to what the statute explicitly

states.

o Includes → expansive: The definition extends beyond the normal sense, incorporating
more than the standard meaning.

o Example:

▪ Director means a director appointed to the Board → exhaustive.

▪ Whole-time director includes a director in the whole-time employment → can

cover other similar categories.

4. Effect of Usage or Practice Under Statute

Revision Note

• Question Essence: How do past “usage” or “practice” help interpret a statute?

• Answer Gist:

o A long-standing, uniform practice under a statute indicates how contemporaries

understood its words.

o old statutes and documents should be interpreted as they would have been at the time
when they were enacted/written

o Legislative inaction to amend might reinforce that practice.

o Such usage (especially if recognized by courts or legislation) is a strong guide

(contemporanea expositio).

5. Grammatical vs. Logical Interpretation

Revision Note

• Question Essence: Distinguish grammatical from logical interpretation and the court’s role.

• Answer Gist:

o Grammatical interpretation: Focuses on the literal meaning of the words used; does
not go beyond the text.

o Logical interpretation: Goes beyond the literal words to ascertain the legislative intent
if there is ambiguity or apparent defect.

o If the language is clear, the court follows the literal (grammatical). Only if there’s
serious ambiguity or inconsistency does the court resort to logical interpretation to
discover true legislative intent.

6. Use of Foreign Decisions

Revision Note

• Question Essence: Can we rely on foreign judgments to construe an Indian statute?

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• Answer Gist:

o Yes, if those foreign laws are substantially similar and follow a similar legal system.

o But Indian statute language & Indian precedents take priority.

o Foreign decisions are persuasive, not binding.

7. Mandatory vs. Directory Provisions

Revision Note

• Question Essence: How do we decide if a statutory provision is “mandatory” or “directory”?

• Answer Gist:

o Mandatory → must be strictly followed. Non-compliance invalidates the act.

o Directory → substantial compliance suffices.

o Substance is key; form alone is not decisive. Look at the provision’s purpose, object,
and who benefits from it.

8. Mischief Rule (Heydon’s Rule)

Revision Note

• Question Essence: What is the mischief rule and its four considerations?

• Answer Gist:

o If language is ambiguous, the mischief rule (Heydon’s case) says interpret in a way that
suppresses the mischief and advances the remedy.

o Court examines:

1. The old law before the Act,

2. The mischief/defect in the old law,

3. The remedy provided by the new Act,

4. The reason for that remedy.

9. Dictionary Definitions as External Aid

Revision Note

• Question Essence: When the statute is ambiguous or a word is undefined, how do we use
dictionary definitions?

• Answer Gist:

o If the Act itself does not define a term, courts may look to dictionaries.

o Must consider the context in the statute, not just pick a dictionary meaning blindly.

o Judicial decisions on similar statutes carry more weight than dictionary references.

o For technical terms, technical dictionaries may be consulted.

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10. Literal Construction & Disclosure of Interest Scenario

Revision Note

• Question Essence: A director claims no personal interest in a matter, so thinks no disclosure

is needed. Is that correct under literal construction?

• Answer Gist:

o Even if the director is not personally interested, the law (broad reading) may require
disclosure if a relative or associated party is interested.

o Literal rule typically requires full, frank disclosure of any relevant interest—covering
sister/brother, etc.

o So, presumption of “I’m not personally interested” is incorrect if the relative’s interest
triggers the disclosure requirement.

11. Noscitur a Sociis – “Known by its Associates”

Revision Note

• Question Essence: Meaning of the doctrine that “words derive color from accompanying
words.”

• Answer Gist:

o Noscitur a sociis: The meaning of an unclear word can be taken from the context or
words around it.

o The more general word is restricted to the same class as the specific words preceding
it.

o Not absolute; if the statute clearly intends a broader scope, that overrides the
principle.

12. Definitions Subject to a Contrary Context & Ambiguous Definitions

Revision Note

• Question Essence: (i) What if a definition is “subject to a contrary context”? (ii) What if a
definition is itself ambiguous?

• Answer Gist:

o (i) “Subject to a contrary context” → Even if the Act defines a term, one must see if
context demands a different meaning.

o (ii) If the definition section is ambiguous, read it in light of the entire Act. The function
of a definition is to bring clarity, not to create contradictions.

13. Interpretation of “Instrument”

Revision Note

• Question Essence: What does “instrument” mean in legal usage?

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• Answer Gist:

o An instrument is a formal legal document creating, confirming, or recording a legal

right or liability (e.g., deeds, contracts, charters).

o E.g., The Indian Stamp Act defines instrument as any document by which a right or
liability is created, transferred, etc.

14. Rules for Interpreting Deeds/Contracts

Revision Note

• Question Essence: What guidelines apply when interpreting a deed/document?

• Answer Gist:

1. Ascertain the intention of parties from the entire document, giving words their normal
sense.

2. Avoid referencing another deed’s terms to interpret this one.

3. A word repeated in a deed typically keeps the same meaning throughout unless
context says otherwise.

4. Resolve conflicts among clauses so each is given effect, if possible.

5. If irreconcilable, earlier clauses in the deed may override later ones (in certain
contexts).

15. Reading a Statute “as a Whole”

Revision Note

• Question Essence: Why must the entire Act be read together?

• Answer Gist:

o Each provision should be interpreted in harmony with every other provision.

o This ensures consistent meaning and avoids contradictions.

o E.g., if “notice” in one section implies a particular form, the same term in another
section might confirm that form or reveal a consistent legislative intent.

16. Exceptions to the Ejusdem Generis Rule

Revision Note

• Question Essence: Under what conditions is ejusdem generis not applicable?

• Answer Gist:

1. If the prior words do not form a distinct genus.

2. Where the specific words exhaust the entire category.

3. If the enumerated items are diverse in nature (no single genus).

4. If there’s a clear legislative intention that the general words are not limited by the
prior specific words.

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17. “Company means…” vs. “Person includes…”

Revision Note

• Question Essence: In one statute, “Company means a company under the 2013 Act,” in
another, “Person includes …”. How to interpret?

• Answer Gist:

o “Means” → the definition is exhaustive; “company” is strictly an entity under 2013 or

previous Companies Acts.

o “Includes” → the definition is extensive; “person” can cover more entities than just the
enumerated ones, if context allows.

18. “Without Prejudice”

Revision Note

• Question Essence: What does “without prejudice” imply in a statute/section?

• Answer Gist:

o It signals that the subsequent or specific provision does not derogate from or limit the
earlier general provision.

o The particular provision operates in addition to, not in conflict with, the general
provision.

19. External Aids & Dictionary Definitions

Revision Note

• Question Essence: What are “external aids” and how do dictionary definitions fit in?

• Answer Gist:

o External aids are materials outside the statute that help interpret ambiguous language
(e.g., legislative history, dictionaries, foreign decisions).

o Dictionary definitions are used if the term isn’t defined in the Act itself. The chosen
meaning must suit the context.

o Courts prefer Indian precedents over dictionary meanings if available.

20. When Ejusdem Generis Applies

Revision Note

• Question Essence: Conditions needed for applying the rule of ejusdem generis?

• Answer Gist:

1. The statute has an enumeration of specific words forming a class.

2. The class is not exhausted by those specifics.

3. General words follow the specifics.

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4. No contrary legislative intent.

5. The specific words form a distinct genus or category.

21. Non-Obstante Clause – “Notwithstanding Anything…”

Revision Note

• Question Essence: What is a “non-obstante” clause in legal drafting?

• Answer Gist:

o A clause starting with “Notwithstanding anything contained in…” indicates that this
provision overrides conflicting provisions in the same or another statute.

o It ensures the specified provision prevails over other conflicting clauses.

o E.g., “Notwithstanding anything contained in other clauses, the company may

terminate….”

22. “Reading the Statute as a Whole” – Example

Revision Note

• Question Essence: Illustrate the principle with an example.

• Answer Gist:

o The principle: every section/part must be viewed in context of the entire statute.

o Example: If “notice” is mentioned in multiple sections, reading them all clarifies if the
notice must be written, served personally, etc. You don’t interpret one mention in
isolation from the rest.

23. Headings/Titles of Chapters as Internal Aids

Revision Note

• Question Essence: How do headings/titles help interpret an Act?

• Answer Gist:

o Headings/titles group sections covering a particular topic.

o They can clarify the scope of ambiguous words or the drift of the provision.

o But they cannot override clear text in the section.

o They serve as a mild internal guide, akin to a short summary.

24. Difference Between “Interpretation” and “Construction”

Revision Note

• Question Essence: How do these concepts vary, and how are they related?

• Answer Gist:

o Interpretation: Explaining/expounding the ordinary meaning of words to ascertain

legislative intent.

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o Construction: Extending the meaning where text is ambiguous or silent, to cover

broader or implied aspects.

o If the language is clear, we do interpretation. If it’s ambiguous or incomplete, we resort

to construction for filling in gaps consistent with legislative purpose.

25. Generalia Specialibus Non Derogant

Revision Note

• Question Essence: What is the principle “generalia specialibus non derogant”?

• Answer Gist:

o Latin for “the general does not override the specific.”

o If there’s a special provision covering a particular subject, that prevails over any
general provision in the same or another Act dealing with the same subject matter.

o So special law carves out an exception to general law.

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THE FOREIGN EXCHANGE MANAGEMENT ACT 1999

1. Residential Status of an Indian-Headquartered Branch & Its Overseas Branch

Revision Note

• Question Essence: A Japanese company (Toy Ltd.) has a robotic unit headquartered in
Mumbai (India) and a branch in Singapore, both controlled from Mumbai. What is the
residential status under FEMA of these units?

• Answer Gist:

o Toy Ltd. (Japanese) → Person resident outside India.

o Mumbai Robotic Unit → An office/branch in India owned/controlled by a person

resident outside India → Person resident in India.

o Singapore Branch → Since it is controlled by the Indian headquarters (which is

“person resident in India”), the Singapore branch is also a person resident in India.

2. Availing Foreign Exchange for Studies Abroad & Gift Remittance

Revision Note

• Question Essence:

1. Rohan wants US$120,000 for studies abroad (as per university estimates).

2. Wants to gift US$10,000 abroad.

• Answer Gist:

o Studies Abroad: Under the Liberalised Remittance Scheme (LRS) / FEMA current
account rules, up to US$250,000 p.a. can be remitted for studies, or even exceeding
that limit if the institution’s estimate requires. US$120,000 is within the limit; no RBI
approval needed.

o Gift Remittance: Up to US$250,000 is permissible for gift without RBI approval.

US$10,000 is within that limit, so no approval needed.

3. Holding/Transfer of Foreign Assets by a Returning Indian

Revision Note

• Question Essence: Bharat (Indian origin) has assets/bank balances abroad from his work in
the USA. After returning to India, can he still hold/transfer/invest those foreign assets under
FEMA?

• Answer Gist:

o Section 6(4)/(5) FEMA: A person resident in India can hold/own/transfer foreign

currency, security, or immovable property if it was acquired while he was resident
outside India or inherited from someone resident outside India.

o So Bharat can keep/use/sell or invest those assets without RBI approval.

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4. Type of Approval Needed for Certain Current Account Transactions

Revision Note

• Question Essence:

1. M needs US$5,000 for transponder hire charges.

2. P needs US$2,000 for “call back” telephone services.

• Answer Gist:

o Transponder hire: Requires Central Government approval (it’s specified in the

relevant schedule).

o Call-back services: This is prohibited under Current Account Transactions Rules. So

no foreign exchange permitted.

5. Residential Status of a Student Abroad + Foreign Exchange for Studies

Revision Note

• Question Essence: Suresh, an Indian resident, leaves on July 15, 2021, for 2 years to
Switzerland for higher studies. What’s his status under FEMA for FY 2021-22 and 2022-23?
Also, can he get US$25,000 + US$30,000 annually for tuition + living?

• Answer Gist:

o Generally, if you’re out of India for an uncertain period (e.g., employment or indefinite
stay), you become resident outside.

o RBI clarifies: Students are treated as non-residents once they go abroad for studies.

o He may remain “resident in India” until departure date, but from the date he leaves,
he’s effectively “resident outside.”

o For foreign exchange, up to US$250,000 p.a. is allowed for studies. He only needs
US$55,000, so no RBI approval needed.

6. i) Remittance of US$20,000 from Lottery Winnings

ii) Remittance for Medical Treatment Abroad

Revision Note

• Question Essence:

o (i) Is lottery winning remittance allowed?

o (ii) How about medical treatment abroad and relevant limit/approval?

• Answer Gist:

o (i) Lottery winning remittances are prohibited under the Current Account
Transactions Rules.

o (ii) Medical treatment abroad: No RBI approval if total does not exceed US$250,000.
Above that, the authorized dealer can allow if supported by a medical estimate (no
separate RBI approval if properly documented).

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7. Remitting Funds for: (i) Lottery Winnings (ii) Cultural Troupe

Revision Note

• Question Essence: Sane wants to remit US$50,000 from lottery winnings and US$100,000 for
sending a cultural troupe. Permissible?

• Answer Gist:

o Lottery Winnings: Prohibited.

o Cultural Troupe: Requires Central Govt. (Ministry of HRD/Culture) approval. So

possible only with that permission.

8. (i) Acquiring Foreign Securities by Inheritance from Person Resident in India

(ii) Prohibition of Gift from Person Resident Outside India

Revision Note

• Question Essence:

1. A inherits foreign securities from someone in India—valid under FEMA?

2. Gift of foreign securities from a person resident outside India—permitted or not?

• Answer Gist:

o Acquisition by inheritance from someone resident in India → Allowed without limit.

o Gift by a non-resident → Allowed if it complies with Foreign Contribution

(Regulation) Act, 2010 (FCRA). So a blanket prohibition is incorrect; it’s permissible
subject to FCRA compliance.

9. Sale of Inherited Agricultural Land by NRI & Repatriation of Proceeds

Revision Note

• Question Essence: Narendra is an NRI, inherited agricultural land in India from

father/grandfather. Can he sell/transfer it and repatriate proceeds?

• Answer Gist:

o Section 6(5) FEMA: An NRI can hold/sell inherited property in India.

o Repatriation of sale proceeds requires compliance with RBI’s guidelines—often a limit

applies, or RBI permission might be needed if exceeding certain thresholds.

o So yes, he can sell; repatriation may need specific permission from RBI.

10. Import of Indian Currency by Resident Temporarily Abroad

Revision Note

• Question Essence: AX returns with ₹20,000 from London + ₹1,00,000 from Bhutan in ₹50
denominations. Is that allowed under FEMA?

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• Answer Gist:

o Non-Nepal/Bhutan: Upto ₹25,000 is permissible. AX brought ₹20,000 from London

→ permissible.

o From Nepal/Bhutan: No ceiling if denomination ≤ ₹100. So ₹1 lakh in ₹50 notes from

Bhutan → permissible.

o If it was in ₹100 notes, also permissible from Bhutan with no ceiling.

11. NRI’s Investment in Development of Township vs. Real Estate

Revision Note

• Question Essence: MGJ (person resident outside India) invests in an Indian company building
a township. Is that allowed?

• Answer Gist:

o FEMA prohibits NRI investment in “real estate business” (buy/sell real property for
profit) or farmhouses.

o But development of townships is not considered real estate business—so it’s allowed.

o Hence feasible for MGJ to invest in the township project.

12. Returning Indian’s Foreign Assets – Holding/Transfer Under FEMA

Revision Note

• Question Essence: Vivek (Indian citizen) worked in Singapore for 10 years, has assets abroad,
now returning. Can he hold them?

• Answer Gist:

o Yes, under Section 6(4)/(5), he can keep, own, transfer or invest those foreign assets
acquired while resident outside.

o He can freely utilize income/sale proceeds of those assets even after returning,
without RBI approval.

13. Importing Machinery, Gifting Money Abroad – Are These Current Account Transactions?

Revision Note

• Question Essence:

1. Import of machinery paid upfront.

2. Import of machinery on 3-month credit.

3. Gift of US$1,000 to an NRI brother.

• Answer Gist:

o All are current account transactions under FEMA since none create continuing
assets/liabilities across borders (other than short-term credit under ordinary course
of business).

o So permissible as current account transactions.

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14. Prohibited Acquisition by NRI & Allowed Township Development

Revision Note

• Question Essence: Bandha (NRI/PIO) wants:

1. Farmhouse in Kerala,

2. Investment in Nidhi co.,

3. Invest in real estate co. for township.

Also, the brother wants to file an appeal from Appellate Tribunal’s order under
FEMA.

• Answer Gist:

o Farmhouse: Prohibited for NRI to purchase agricultural/farmhouse.

o Nidhi: Prohibited for persons outside India to invest in Nidhi.

o Township: Allowed because it’s not “real estate business” but “township
development.”

o Appeal from FEMA Appellate Tribunal goes to High Court if needed.

15. Type of Approval for Cultural Tour & Medical Expenses Abroad

Revision Note

• Question Essence:

1. X & associates want US$20,000 for cultural performance in New York.

2. R wants a heart surgery in the UK.

• Answer Gist:

o Cultural Tour: Must get prior permission from Ministry of HRD/Culture.

o Medical: Up to US$250,000 is freely allowed under LRS. If above that, the AD bank can
release based on doctor’s estimate. No separate RBI approval if properly documented.

16. Residential Status of an Indian-Headquartered Printer Unit & Its Overseas Branch

Revision Note

• Question Essence: Printex Computer (Singapore-based) has a printer unit in Pune (HQ) and
a Dubai branch. The Pune unit controls Dubai. Which are “resident in India”?

• Answer Gist:

o The Pune unit is an office/branch in India controlled by a foreign person → person

resident in India.

o The Dubai branch is controlled by the Pune HQ (which is “resident in India”) → so

Dubai branch is also “person resident in India.”

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17. Airhostess Stationed in India for 182+ Days – Still Resident or Non-Resident?

Revision Note

• Question Essence: Alia is an airhostess with British Airways, physically in India for 182+ days
(base in Mumbai for security reasons). Is she resident in India?

• Answer Gist:

o She did not come for “employment” in India or indefinite stay. She’s just based here
temporarily.

o Under Section 2(v)(B), if staying in India is not for an uncertain period or for local
employment, she is still not a resident.

o So she remains person resident outside India.

18. Student Abroad for 3 Years – Yearwise Residential Status

Revision Note

• Question Essence: Z resided in India in FY 2019-20, left 1 Aug 2020 for 3-year studies in the
US. Residential status for 2020-21 & 2021-22?

• Answer Gist:

o Per RBI clarification, students going abroad become non-residents.

o For 2020-21, after leaving on 1 Aug 2020, he is effectively a non-resident. (Though

the question says maybe up to 31 July considered resident, but RBI says treat students
as non-resident from date of departure.)

o For 2021-22, definitely a non-resident, as he’s out for long study.

19. Person Doing Business in India Then Leaving – When Does He Cease to Be Resident?

Revision Note

• Question Essence: X was in India less than 182 days in FY19-20, but arrived 1 Apr 2020 for
business, plans to leave 30 June 2021. Residential status for 2020-21 & 2021-22?

• Answer Gist:

o Once he’s in India for business, he’s treated as resident from arrival date if he stays
with intention for that business.

o If on 30 June 2021 he leaves India for employment/business abroad, from that

departure date, he ceases to be resident. If not, he might remain a resident until
further facts.

20. Donation to Create a “Chair” in a Foreign University by an Indian Company

Revision Note

• Question Essence: Lifesys Ltd. (Indian co.) wants to donate to a foreign university for a
“Chair” in Computer Science. Is it permissible, and what are the limits/requirements?

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• Answer Gist:

o Any person (not an individual) can donate up to the lesser of US$5 million or 1% of
their average foreign exchange earnings in previous 3 years for such creation of a
Chair. Above that limit, RBI approval is required.

o So it is permissible within that limit without prior RBI approval; beyond that, they
must get RBI permission.

22. Remittance of Salary Earned in India by a Foreign National on Deputation

Revision Note

• Question Essence: Can Mr. Manthan remit his salary earned in India to the USA?
• Answer Gist: Yes, as per FEMA Rules, a resident but not permanently resident (deputation ≤
3 years) can remit net salary after deductions. Hence, Mr. Manthan can transfer his salary to
the USA.

22. Remittance of Salary Earned in India by a Foreign National on Deputation

Revision Note

• Question Essence: Taylor (German technician) provided services in India, is to be paid

US$40,000. Is this permissible?

• Answer Gist:

o Payment of salary to foreign technicians in India is a current account transaction.

There’s no restriction unless specifically stated. So it’s permitted.

23. Meaning of Capital Account Transaction & Overseas Investment by Resident

Revision Note

• Question Essence: Define capital account transaction under FEMA. Can an Indian resident
invest in foreign securities?

• Answer Gist:

o “Capital Account Transaction” is one that alters assets/liabilities across borders.

o Under FEMA, some capital account transactions are permissible (Schedules).

Residents can invest abroad within prescribed LRS limits or specific RBI guidelines.
So yes, it’s permissible subject to the regulation’s conditions.

24. Acquisition of Immovable Property in India by a Director (NRI or Non-NRI)

Revision Note

• Question Essence: If a director is a Person of Indian Origin (PIO) but US citizen, can he buy
commercial premises in India and lease it to the company? What if non-Indian origin?

• Answer Gist:

o PIO can buy property (other than agricultural/farmhouse) in India. Payment must be
via Indian banking channels or NRE/NRO/FCNR account.

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o If Non-Indian origin foreign citizen, then generally cannot acquire immovable

property in India except with RBI approval or in special cases (inheritance, etc.).
Commercial property acquisition is not allowed unless special approvals or treaty
exceptions exist.

25. Remittance for a Sports Event Organized Abroad by a Private Club

Revision Note

• Question Essence: Rohan Sharma Cricket Academy wants to remit US$200,000 to Melbourne
Cricket Academy for a cricket event. Is it allowed?

• Answer Gist:

o For sports sponsorship/prize money abroad by a person other than an

international/state sports body, the limit is US$100,000 beyond which permission
from Ministry of Youth Affairs & Sports is needed (Schedule II).

o So they need clearance from that ministry to remit US$200,000.

26. Residential Status Change after 183 Days + Purpose of Return

Revision Note

• Question Essence: L works in India for 183 days in 2023-24, leaves for a foreign job on 2 Apr
2024. Then returns to India on 30 Apr for a family function. Does he become a resident again?

• Answer Gist:

o Once he’s left India to take up foreign employment, he’s a “person resident outside
India.”

o A temporary return visit (e.g., family function) does not restore “resident in India”
status unless he’s returning for employment or indefinite stay in India.

o If he returns to take up a new job in India, he reverts to “person resident in India.”

27. Remittances by Persons Other Than Individuals Requiring RBI Approval (Schedule II)
Revision Note

• Question Essence: Under Current Account Transaction Rules, what approvals are required
for certain categories, e.g.,

1. Commission to foreign agents for selling Indian flats,

2. Payment for consultancy from outside India,

3. Reimbursement of pre-incorporation expenses.

• Answer Gist:

o Commission to agents abroad for sale of Indian property: Allowed up to 5% of inward

remittance or US$25,000 per transaction (whichever is less). Beyond that, RBI
approval needed.

o Consultancy: Up to US$10 million per project if it’s an infrastructure project; US$1

million otherwise, without RBI approval. Above that requires RBI approval.

o Pre-incorporation expenses: Up to 5% of the investment or US$100,000, whichever

is less, without approval. Over that, requires RBI nod.

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