Here we will discuss, suggested answers of Corporate & Allied Laws - CA Final old course May 2018
Question 1(a): M/s Growmore Plantations Limited, a listed company has unpaid/unclaimed dividend in respect of 1,50,000 equity shares for the past continuous 7 years. This period of 7 years ended on 30th June, 2017. Mr. Prasad the CFO of the company is of the opinion that these 1,50,000 equity shares should have been transferred to the DEMAT Account of the Investor Education & Protection Fund (IEPF) Authority within 30 day from the end of the 7 years period i.e. by 30th July, 2017 respectively. Is the opinion of the CFO correct as per the provisions of the Companies Act, 2013 read with rules framed there under? What would be your answer had this continuous period of 7 years expired on 30th November, 2017. Also state the condition under which these equity shares will not be transferred to the IEPF Authority by the company.
Answer: As per section 124 of Companies Act, 2013, the company shall transfer all shares in respect of which dividend have not been paid or claimed for consecutive 7 years to IEPF D'mat Account. At the time of transfer of shares, the company shall file a statement containing necessary details as may be prescribed. As per Rule 6 of Companies (Declaration & Payment of Dividend) Rules, 2014, the shares shall be credited to the D'mat Account within period of 30 days after expiry of 7 years. However, company is not required to transfer shares to IEPF D'mat Account:
• If beneficial owner has encashed any dividend warrant during last 7 years; or
• If Court or authority has issue restraining order
Therefore, the contention of Mr. Prasad, CFO of the company is correct to transfer 1,50,000 equity shares to the D'mat account of IEPF by 30th July, 2017. In case, if continuous period of 7 years expired on 30th November 2017, then shares shall be transferred on or before 30th December, 2017.
Question 1(b): ABC Limited, an unlisted company having a paid up share capital of Rs. 10 crores during the preceding financial year has appointed Shri X, a fellow member of the Institute of Chartered Accountant of India as Chief Financial Officer of the company who is appointed as Key Managerial Personnel under section 203 of the Companies Act, 2013. Shri X is also a Fellow member of the Institute of the Company Secretaries of India. The Company Secretary post has become vacant. In order to reduce the administrative expenses, the company proposes to appoint Shri X as company secretary in addition to Chief Financial Officer Post. Whether the proposal is legally valid under the provisions of the Companies Act, 2013?
Answer: As per Section 203 of Companies Act, 2013 read with Rule 8 provide that certain specified companies shall have the following whole time KMP:
• Managing director or CEO or manager and in their absence, whole time director;
• Company Secretary; and
• CFO
As per Section 2(19), CFO means a person appointed as CFO of company. No qualification of a CFO is prescribed under Companies Act. Section 203 provides following restrictions:
• Individual cannot be appointed as Chairman of company as well as MD or CEO in certain cases
• Whole time KPM shall not hold office in more than one company except in subsidiary company and as director in any other company with permission of Board.
Companies Act defines who can be MD, CS etc. Accordingly, there is no express bar on one-person holding two posts in one company. Hence, the proposal to appoint Shri X as Company Secretary of company in addition to CFO is legally valid. However, company shall take into consideration provisions of section 184 & 188, if any applicable.
Question 1(c): M/s Systemtek India Private Limited (Appellant- Corporate Debtor) has challenged the order dated 3rd July, 2017 passed by the Adjudicating Authority (National Company Law Tribunal) Mumbai Bench, Mumbai, in the National Company Law Appellate Tribunal (NCLAT). NCLT had admitted the application preferred by appellant under section 10 of the Insolvency and Bankruptcy Code, 2016 and an order of Moratorium was passed and Insolvency Resolution Professional was ordered to be appointed by the Ld. Adjudicating Authority (NCLT). The only grievance of the appellant in its challenge is that the movable and immovable property of Guarantor (promoter) has been attached pursuant to a Corporate Insolvency Resolution Process initiated under section 10 against the Appellant by the Ld. Adjudicating Authority (NCLT) which is violative of section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016 though the Code prescribes a Moratorium for certain types of transactions. Decide.
Answer: Question is based on facts of case Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. & Ors. In this case, NCLT-Mumbai Bench has admitted petition under section 10 of the Insolvency and Bankruptcy Code, 2016 and an order of Moratorium has been passed after the appointment of Insolvency Resolution Professional. Movable and immovable property of Guarantor (promoter) has been attached pursuant to Corporate Resolution Process initiated under section 10 against the Corporate Debtor. It was challenged by preferring an appeal to NCLAT claiming that it is violate section 14(1)(c) of IBC, 2016.
Provision of section 14 suggests as to which properties can be attached. On careful reading, it is noticed that the term 'its' is significant. The plain language of the section is that on the commencement of the Insolvency process the 'Moratorium' shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of "its" property. Doctrine of Nositur a Socis' is applicable here. According to this doctrine, the associated words take their meaning from one another so that common sense meaning coupled together in their cognate sense be interpreted. As a result, 'its' denotes the property owned by the Corporate Debtor. The property not owned by the Corporate Debtor does not fall within the ambits of the Moratorium. In view of above judgment, challenge by Guarantor (promoter) that movable and immovable property attached pursuant to CIRP under section 10 is in order.
Question 1(d): The Promoters of M/s. Star Steels Limited, during the month of June, 2017, have raised money from public through issue of prospectus and still have 20% un-utilized amount out the total money so raised. The promoters in control of the company have passed resolution in the general meeting for effecting change in the objects and/or variations in terms of a contract referred to in the prospectus for utilization of this un-utilized amount in respect of which around 15% of the shareholders have voted against the proposal. The company has decided to give these dissenting shareholder an exist offer as per the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. The company seeks your advice regarding the conditions and eligibility under these regulations.
Answer: Refer paragraph no. 56 of Chapter 15 - SEBI Act, 1992 (Including SEBI Guidelines)
Question 1(e): The Board of Directors of M/s XRL Limited, a banking company incorporate in India, for the accounting year ended 31st March, 2018, has transferred 10% of its net profit during the year to the Reserve Fund account. A few shareholders of the company have objected the above act of the board on the ground that it is violative of the provisions of the Banking Regulation Act, 1949. The Board of Directors of the company in their defense have stated that the company has received an order dated 30th April, 2018 from Central Government exempting the company from the provisions of sub section (1) of section 17 of the Act. It is further informed that on the date of the Central Government order i.e. 30.04.2018 the paid up capital of the company was Rs. 200 crores and the amount standing in the reserve fund account and share premium account was Rs. 100 crores and Rs. 75 crores respectively. Decide whether the order of the Central Government exempting the company is justified as per the provisions of the
Banking Regulation Act, 1949.
Answer: Amount in reserve fund (Rs. 100 Cr.) and share premium account (Rs. 75 cr.) is less than paid up capital Rs. 200 cr.). Hence, the order of Central Government exempting the company is not justified. Refer paragraph no. 7 of Chapter 23 - Banking Regulation Act, 1949.
Question 2(a): Referring to the provisions of the Competition Act, 2002, answer the following:
Mr. KUN was initially appointed as the Chairperson of the Competition Commission on 1st June, 2015, for a term of 3 years, when he exactly attained 58 years of age. The Central Government is considering re-appointing him after his term for the maximum period permissible under the provisions of the act. State the period till which he can be re-appointed as the Chairperson of the Commission. What will happen to the place of office of the chairperson, in case vacancy arises due to resignation or death of the Chairperson during the tenure of his office? What will happen to the place of office of the Chairperson, in case the Chairperson is unable to discharge his functions owing to illness?
Answer: The Chairperson and other members of the commission shall hold office for a term of 5 years and shall be eligible for reappointment. The Chairperson or members shall not hold office after he has attained the age of 65 years. Therefore, Mr. KUN shall hold office for further 4 years after reappointment. The senior most member shall work in his absence as Chairperson. Refer paragraph no. 13 of Chapter 17 - Competition Act, 2002.
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