GROUP 1 : PAPER 1 JURISPRUDENCE, INTERPRETATION
LAWS
GROUP 1 : PAPER 2 COMPANY LAW & PRACTICE
PART 1
COMPANY LAW –
PRINCIPLES
&
CONCEPTS
CASE STUDY 1 : Accounts & Auditor & Investigation 81
CASE STUDY 2 : Charges, Investigation & Members and Shareholders 83
CASE STUDY 3 : Investigation, Charges & Accounts and Audit 85
CASE STUDY 4 : MOA & AOA & Inspections and Investigations 89
CASE STUDY 5 : Shares and Share Capital, Introduction of Company Law & Members and Shareholders 91
CASE STUDY 6 : Evolution of Company Law 93
CASE STUDY 7 : MOA & AOA 98
CASE STUDY 8 : Legal Status of a Registered Company (Various Sections) 100
CASE STUDY 9 : Legal Status of a Registered Company & Introduction of Company Law 102
CASE STUDY 10 : Legal Status of a Registered Company 104
CASE STUDY 11 : Alteration of Articles and Memorandum 105
CASE STUDY 12 : Introduction of Company Law & MOA and AOA 106
CASE STUDY 13 : Introduction of Company Law & MOA and AOA 108 CASE STUDY 14 : Share and Share Capital & Kinds of Shares
CASE STUDY 15 : Kinds of Share Capital
CASE STUDY 16 : Reduction of Shares and Buy Back 116
CASE STUDY 17 : Members and Shareholders & Legal Status of a Registered Company 119
CASE STUDY 18 : MOA and AOA & Members and Shareholders 121
CASE STUDY 19 : Debt Instruments (Sections 180 & 71) 124
CASE STUDY 20 : Deposits – Definition of Deposits 2(31) & Quantum of Deposits
CASE STUDY 21 : Charges – Definition of Charge, Registration & Modifications 129
CASE STUDY 22 : Distribution of Profits (Sections 123 & 127) 132
CASE STUDY 23 : Distribution of Profits (Sections 123 & 124) 135
CASE STUDY 24 : Accounts and Audit 137
CASE STUDY 25 : Accounts and Audit (Sections 128, 129 & 130) 139
CASE STUDY 26 : Compromise and Arrangements 143
CASE STUDY 27 : Legal Status of A Registered Company –Private Company & Government Company & Dormant Company 145
PART 2
COMPANY ADMINISTRATION AND MEETINGS
CASE STUDY 28 : General Meetings & Board and Committee Meetings 149
CASE STUDY 29 : General Meetings & Directors 152
CASE STUDY 30 : Power of the Board & Meetings of Board 154
CASE STUDY 31 : Power of the Board & KMP 156
CASE STUDY 32 : KMP (Section 196, Section 197) 159
CASE STUDY 33 : KMP (Sections 196, 197) 161
CASE STUDY 34 : Board Meeting & Directors 163
CASE STUDY 35 : Directors & KMP 167
CASE STUDY 36 : Power of the Board & Meetings of the Board 171
CASE STUDY 37 : Meetings of the Board, CSR & Annual Report 174
CASE STUDY 38 : General Meetings & KMP 178
CASE STUDY 39 : Directors (DIN and Register of Shareholdings) 181
CASE STUDY 40 : General Meetings, Directors & Accounts and Audit 184
CASE STUDY 41 : General Meetings & Meetings of Board 187
CASE STUDY 42 : General Meetings, Power of the Board & KMP 189
CASE STUDY 43 : General Meetings, Directors & Board Meetings 192
CASE STUDY 44 : Accounts and Audit & Directors 194
CASE STUDY 45 : Directors (Various Sections) 197
CASE STUDY 46 : Various Sections 198
CASE STUDY 47 : Various Sections 201
CASE STUDY 48 : Various Sections 204
CASE STUDY 49 : Directors, Power of the Board & Meetings of the Board 207
CASE STUDY 50 : Power of Board, CSR & KMP 210
GROUP 1 : PAPER 3
SETTING UP OF BUSINESS, INDUSTRIAL & LABOUR LAWS
PART I
SETTING UP OF BUSINESS
CASE STUDY 1 : Selection of Business Organization & Corporate Entities – Companies 217
CASE STUDY 2 : Selection of Business Organization, Startups have emerged as a fast-growing business & –Identifying Laws applicable to Various Industries and their Initial Compliances 219
CASE STUDY 3 : Selection of Business Organization, Corporate Entities – Companies, Identifying Laws Applicable to Various Industries and their Initial Compliances & Various Initial Registrations and Licenses 222
CASE STUDY 4 : Limited Liability Partnership, Conversion of Business Entities, & Identifying Laws Applicable to Various Industries and their Initial Compliances 225
CASE STUDY 5 : Business Collaborations, Setting up of Branch Office/Liaison Office/Wholly Owned Subsidiary by Foreign Company & Setting up of Business outside India and Issues Relating Thereto 228
CASE STUDY 6 : Selection of Business Organization, Micro, Small and Medium Enterprises, Business Collaborations & Identifying Laws Applicable to Various Industries and their Initial Compliances 230
CASE STUDY 7 : Selection of Business Organization, Startups and its Registration, Non-Corporate Entities & Financial Services Organization 233
CASE STUDY 8 : Limited Liability Partnership, Identifying Laws Applicable to Various Industries and their Initial Compliances & Various Initial Registrations and Licenses 235
CASE STUDY 9 : Conversion of Business Entities, Identifying Laws Applicable to Various Industries and their Initial Compliances & Various Initial Registrations and Licenses 238
CASE STUDY 10 : Selection of Business Organization, Micro, Small and Medium Enterprises & Financial Services Organization 240
CASE STUDY 11 : Selection of Business Organization, Business Collaborations, & Setting up of Business outside India and Issues Relating thereto 243
CASE STUDY 12 : Financial Services Organization, Business Collaborations & Setting up of Business outside India and Issues Relating thereto 245
CASE STUDY 13 : Corporate Entities – Companies, Conversion of Business Entities & Various Initial Registrations and Licenses 248
CASE STUDY 14 : Selection of Business Organization, Corporate Entities – Companies & Identifying Laws Applicable to Various Industries and their Initial Compliances 250
CASE STUDY 15 : Limited Liability Partnership, Micro, Small and Medium Enterprises & Financial Services Organisation 252
CASE STUDY 16 : Startups and its Registration, Business Collaborations & Setting up of Business outside India and Issues Relating thereto 255
CASE STUDY 17 : Conversion of Business Entities, Financial Services Organisation & Various Initial Registrations and Licenses 257
CASE STUDY 18 : Corporate Entities – Companies, Financial Services Organisation & Identifying Laws Applicable to Various Industries and their Initial Compliances 259
CASE STUDY 19 : Corporate Entities – Companies, Financial Services Organisation & Identifying Laws Applicable to Various Industries and their Initial Compliances 261
CASE STUDY 20 : Startups and its Registration, Micro, Small and Medium Enterprises & Various Initial Registrations and Licenses 264
CASE STUDY 21 : Selection of Business Organization, Setting up of Branch Office/Liaison Office/Wholly Owned Subsidiary by Foreign Company & Various Initial Registrations and Licenses 266
CASE STUDY 22 : Startups and its Registration, Non-Corporate Entities & Setting up of Business outside India and Issues Relating Thereto 269
CASE STUDY 23 : Startups and its Registration, Non-Corporate Entities & Various Initial Registrations and Licenses 271
CASE STUDY 24 : Startups and its Registration, Micro, Small and Medium Enterprises & Identifying Laws Applicable to Various Industries and their Initial Compliances 274
CASE STUDY 25 : Business Collaborations, Setting up of Branch Office/Liaison Office/ Wholly owned Subsidiary by Foreign & Setting up of Business outside India and Issues Relating Thereto 276
CASE STUDY 26 : Selection of Business Organization, Micro, Small and Medium Enterprises & Various Initial Registrations and Licenses 278
CASE STUDY 27 : Non-Corporate Entities, Business Collaborations & Various Initial Registrations and Licenses 281
CASE STUDY 28 : Selection of Business Organization, Identifying Laws Applicable to Various Industries and their Initial Compliances & Various Initial Registrations and Licenses 284
CASE STUDY 29 : Corporate Entities – Companies, Business Collaborations, Setting up of Branch Office/ Liaison Office/Wholly Owned Subsidiary by Foreign Company & Setting up of Business outside India and Issues Relating thereto 287
CASE STUDY 30 : Micro, Small and Medium Enterprises, NonCorporate Entities & Identifying Laws Applicable to Various Industries and their Initial Compliances 290
PART II
INDUSTRIAL AND LABOUR LAWS
CASE STUDY 31 : Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 293
CASE STUDY 32 : Constitution and Labour Laws, Evaluation of Labour Legislation and Need of Labour Code, Law of Welfare & Working Condition, Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 295
CASE STUDY 33 : Constitution and Labour Laws & Law of Industrial Relations 297
CASE STUDY 34 : Evaluation of Labour Legislation and Need of Labour Code, Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 300
CASE STUDY 35 : Law of Wages, Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 303
CASE STUDY 36 : Evaluation of Labour Legislation and Need of Labour Code & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 305
CASE STUDY 37 : Constitution and Labour Laws, Law of Welfare & Working Condition & Law of Wages 308
CASE STUDY 38 : Constitution and Labour Laws, Evaluation of Labour Legislation and Need of Labour Code & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 311
CASE STUDY 39 : Constitution and Labour Laws, Law of Welfare & Working Condition & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 313
CASE STUDY 40 : Constitution and Labour Laws, Evaluation of Labour Legislation and Need of Labour Code & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 316
CASE STUDY 41 : Constitution and Labour Laws, Law of Wages & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 319
CASE STUDY 42 : Law of Industrial Relations & Law of Wages 322
CASE STUDY 43 : Law of Wages, Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 324
CASE STUDY 44 : Law of Welfare & Working Condition & Law of Industrial Disputes 326
CASE STUDY 45 : Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 329
CASE STUDY 46 : Constitution and Labour Laws, Law of Welfare & Working Condition & Social Security Legislations 331
CASE STUDY 47 : Law of Welfare & Working Condition & Social Security Legislations 334
CASE STUDY 48 : Law of Wages, Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 336
CASE STUDY 49 : Constitution and Labour Laws, Law of Welfare & Working Condition & Law of Industrial Relations 338
CASE STUDY 50 : Law of Wages, Social Security Legislations & Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 341
CASE STUDY BASED QUESTIONS
PART 1
COMPANY LAW – PRINCIPLES & CONCEPTS
CASE STUDY - 1
Topics Covered: Accounts & Auditor & Investigation
Moon Star Ltd. has registered office at Delhi and branch office in California. The company is mainly working under processed food manufacturing segment. The Board of directors of the company have very sound knowledge of processed food segment, management and finance. The company planned to set up an Agro Cluster Food Park in India in due course of time.
After some time, the board noticed chaos among themselves on the issue of positions and holdings in the company. Consequently, it was observed that the company had not been reporting true and fair view of the state of affairs of its financial statements since more than ten years and the mis-reporting of financial statements had not came to the notice of none of the stakeholders.
The situation of the Company went from bad to worse and it had no option but to file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. Meanwhile one of the director of the company has released a press statement that there is a disparity between actual and reported financial statements due to accounting errors which was prevailing since many years.
The first question from shareholders of the Company was, as to why the auditors of the company had not spotted and corrected the fundamental accounting errors? Subsequently, the shareholders holding 75% of the paid up share capital of the company have approached to the Central Government as per the provisions of the Companies Act, 2013 for investigating into the affairs of the company and Central Government ordered for investigation into the affairs of company.
The investigation report stated that the auditors of the Company (one of the largest audit firms in the country) had compromised its independence by charging a
huge amount of audit fee and also consultancy income worth several times the audit fee. Auditors had knowingly signed inaccurate accounts in order to protect the management of the Company. Investigation revealed significant deficiencies in internal control system, external reporting processes and non-adherence of relevant accounting standards.
Q1. Whether Moon Star Ltd. is required to adhere to provision(s) of the Companies Act, 2013 pertaining to keeping and maintenance of proper books of account of branch office situated outside India?
Ans. According to Section 128 of the Companies Act, 2013, Moon Star Ltd., being a company incorporated in India with a branch office in California, is required to maintain proper books of account at its registered office in Delhi and also at its branch office in California. The books of account must give a true and fair view of the state of affairs of the company, including its branch operations. Therefore, Moon Star Ltd. must adhere to these provisions and ensure proper maintenance of books of account at both locations.
Q2. Whether the above case highlights the importance of independence of auditors?
Ans. Section 141 of the Companies Act, 2013 emphasizes the importance of auditor independence. In the case of Moon Star Ltd., the investigation revealed that the auditors compromised their independence by charging substantial audit fees and consultancy income, which undermined their objectivity. This compromised independence led to the auditors signing off on inaccurate financial statements to protect the management of the company. Such instances underscore the critical need for auditors to maintain independence to ensure they can objectively report on the financial affairs of the company.
Q3. Whether shareholders holding 75% of the paid-up share capital of Moon Star Ltd. can approach the Central Government to order an investigation into the affairs of the company? Whether the Central Government can suo motu order an investigation into the affairs of the company?
Ans. As per Section 210 of the Companies Act, 2013, shareholders holding 75% of the paid-up share capital of Moon Star Ltd. have the right to approach the Central Government to order an investigation into the affairs of the company. This provision allows shareholders to petition for an investigation if they believe it is necessary for the protection of the company’s interests.
Additionally, under Section 206 of the Companies Act, 2013, the Central Government has the authority to initiate a suo motu investigation into the affairs of Moon Star Ltd. if it deems it necessary in the public interest or in the interest of the company. Therefore, both shareholders and the Central Government have the power to order investigations into the affairs of the company under the provisions of the Companies Act, 2013.
CASE STUDY - 2
Topics Covered: Charges, Investigation & Members and Shareholders
In the metropolis of Mumbai, Sakshi Limited, a prominent conglomerate listed on the stock exchange, found itself at the centre of legal and corporate governance challenges that tested its resilience and commitment to compliance. Sakshi Limited, known for its diverse portfolio spanning industries from finance to technology, made strategic moves to expand its global footprint. One such endeavour led Sakshi Limited to acquire a prime immovable property in London, a strategic move to bolster its international presence. To secure financing for this acquisition, Sakshi Limited meticulously adhered to the legal framework of the United Kingdom, creating a charge in favour of a prominent bank. This step was crucial in leveraging the property for a substantial loan, underlining Sakshi Limited’s proactive approach in international business dealings.
However, back in India, Sakshi Limited faced a different set of challenges on the regulatory front. The Central Bureau of Investigation (CBI), acting in the public interest, initiated an investigation into Sakshi Limited’s operations. Allegations of financial irregularities and corporate misconduct prompted the CBI to intervene initially. Yet, as the investigation progressed, the central government redirected the case to the Serious Fraud Investigation Office (SFIO), citing specialized expertise in handling complex corporate fraud cases. The transfer of the investigation from the CBI to the SFIO sparked a legal debate over jurisdiction and investigative powers. The CBI, asserting its authority as a premier investigating agency, contested the SFIO’s mandate, claiming precedence in matters of national interest. This jurisdictional tug-of-war highlighted the complexities within India’s legal framework concerning corporate fraud and the respective roles of investigative bodies.
Meanwhile, within Sakshi Limited’s corporate governance landscape, another issue emerged concerning regulatory compliance with the Companies Act, 2013. Sunny Ltd., another listed entity, had recently faced scrutiny for temporarily closing its registers of members, debenture holders, and other security holders during the financial year 2017-18. Such closures, although permissible under certain conditions to facilitate administrative processes, raised concerns over shareholder rights and transparency.
As Sakshi Limited navigated these multifaceted challenges, its commitment to upholding rigorous corporate governance standards remained unwavering. The company proactively engaged with regulatory authorities, ensuring full compliance with Indian laws while respecting international legal obligations in its global ventures. Transparency in financial dealings and proactive measures to address regulatory inquiries underscored Sakshi Limited’s dedication to ethical business practices and stakeholder trust.
Case 1: Acquisition of Property and Creation of Charge
Q1. Should Sakshi Limited register the charge created in Favour of a UK bank for its London property under the Companies Act, 2013 in India? Analyse the legal requirements and implications.
Ans. Under Section 77(1) of the Companies Act, 2013, it is mandatory for every company, whether public or private, to register charges created on its properties or assets, whether within or outside India. The registration must be done with the Registrar of Companies within 30 days of the creation of the charge. The registration requires submission of particulars of the charge along with any related instruments and payment of prescribed fees.
In the case of Sakshi Limited acquiring an immovable property in London and creating a charge in favour of a UK bank to secure a loan, the property is situated outside India. According to Indian law, charges created on properties outside India are mandatorily required to be registered in India.
Sakshi Limited would be required to register the charge under Indian law. This ensures transparency and protection for creditors and stakeholders within India.
Case 2: Jurisdictional Dispute between CBI and SFIO
Q2. Was the Central Bureau of Investigation (CBI) justified in contesting the transfer of investigation to the Serious Fraud Investigation Office (SFIO)? Evaluate the legal basis and implications of jurisdictional conflicts in corporate fraud investigations.
Ans. Section 212(2) of the Companies Act, 2013 clearly delineates the jurisdictional authority concerning investigations into corporate fraud. It states that once a case has been assigned by the Central Government to the Serious Fraud Investigation Office (SFIO), no other investigating agency of the Central Government or any State Government can proceed with the investigation. This provision is aimed at streamlining investigations and avoiding duplicity or conflicting actions by multiple agencies.
In the case of Sakshi Limited, if the central government assigned the investigation to SFIO, then the CBI must comply with this directive. The SFIO, being a specialized body under the Companies Act, 2013, is entrusted with investigating serious corporate fraud cases. Its authority supersedes that of general investigating agencies like the CBI in matters falling under the purview of the Companies Act.
Therefore, the CBI would not be justified in contesting the transfer of the investigation to SFIO once it has been officially assigned by the central government. The legal framework is designed to ensure efficient and effective investigation of corporate fraud, with SFIO possessing specialized expertise in handling such complex cases.
Case 3: Closure of Registers by Sunny Ltd.
Q3. Is the temporary closure of registers of members, debenture holders, and other security holders by Sunny Ltd. during the financial year 2017-
18 compliant with the Companies Act, 2013? Discuss the regulatory requirements and considerations for maintaining transparency in corporate governance practices.
These questions are designed to explore the legal nuances and implications of each scenario involving Sakshi Limited, providing a comprehensive analysis of regulatory compliance, jurisdictional disputes, and corporate governance practices.
Ans. According to Section 91 of the Companies Act, 2013, a company may temporarily close its register of members, debenture holders, or other security holders for up to a maximum of 45 days in a financial year, with no single closure period exceeding 30 days. The closure must be preceded by at least 7 days’ notice to shareholders, or a shorter period if specified by the Securities and Exchange Board of India (SEBI) for listed companies.
In the case of Sunny Ltd., it closed its registers at one stretch for 31 days during the financial year 2017-18. This action exceeded the maximum permissible duration of 30 days for a single closure period as stipulated by Section 91. However, the total aggregate closure period of 45 days in the financial year was within the statutory limit.
While Sunny Ltd. complied with the aggregate limit, it violated the provision regarding the maximum duration for a single closure period. This non-compliance raises concerns regarding transparency and shareholder rights, as uninterrupted access to registers is crucial for investors to exercise their rights and participate effectively in company affairs.
In conclusion, while Sunny Ltd. adhered to the aggregate closure limit under Section 91 of the Companies Act, 2013, it should ensure future compliance with the maximum duration for a single closure period to uphold transparency and governance standards. This approach fosters investor confidence and aligns with best practices in corporate governance.
These answers provide a detailed analysis of each scenario, addressing the legal requirements, implications, and regulatory considerations under the Companies Act, 2013 for Sakshi Limited.
CASE STUDY - 3
Topics Covered: Investigation, Charges & Accounts and Audit
Sumit Limited operates in the electronics manufacturing sector, renowned for its innovative products and robust corporate governance practices. Recently, the company faced legal challenges that tested its adherence to the Companies Act, 2013 and related regulations.
The recognized trade union representing Sumit Limited’s workforce filed an application with the National Company Law Tribunal (NCLT). They sought an investigation into the company’s alleged defaults in paying dues to workers and
suspicions of fraudulent business practices. Sumit Limited countered this move, arguing that the trade union lacked the legal standing (locus standi) to file such an application, as they were neither shareholders nor creditors. The company emphasized that the application should be dismissed on these grounds.
In another regulatory hurdle, Sumit Limited successfully repaid a significant loan of 50 crores to a scheduled bank, including all interest owed. According to the Companies Act, 2013, the company is obligated to file a satisfaction of charge with the Registrar of Companies upon receiving a no due certificate and a release letter from the bank. However, delays from the bank in issuing these documents raised concerns about potential late filing liabilities for Sumit Limited. The board composition of Sumit Limited includes four directors — A, B, C, and D — alongside Mr. R serving as the Managing Director. The company also employs Mr. Anupam as a full-time Company Secretary, crucial for ensuring compliance with statutory requirements. For the financial year ending March 31, 2023, Sumit Limited’s financial statements, including the Balance Sheet, Statement of Profit & Loss, and Board’s Report, were duly authenticated by directors A and B through their signatures. This authentication is pivotal under Section 134 of the Companies Act, 2013, ensuring transparency and compliance in financial reporting.
In a hypothetical scenario where Sumit Limited operates as a One Person Company (OPC), with a single director also serving as the sole shareholder, the director’s personal authentication of financial statements becomes paramount. Section 134(1) of the Companies Act, 2013 mandates that the sole director must authenticate the financial statements comprehensively, underscoring accountability and transparency in corporate disclosures.
1. Trade Union Application for Investigation:
As the Company Secretary of Sumit Limited, discuss the admissibility of the application filed by the recognized trade union before the National Company Law Tribunal (NCLT) seeking an investigation into the company. Include an analysis of whether the trade union has the locus standi to make such an application under the Companies Act, 2013.
2. Filing of Satisfaction of Charge:
Sumit Limited borrowed 50 crore from a scheduled bank and has repaid the entire loan along with interest. However, the company has not yet received the no due certificate and release letter from the bank to file satisfaction of charge with the Registrar of Companies. Discuss whether Sumit Limited would be liable for late filing of satisfaction of charge under the Companies Act, 2013, due to delays caused by the bank.
3. Authentication of Financial Statements:
Referring to the provisions of the Companies Act, 2013, examine the validity of the authentication of Sumit Limited’s financial statements, including the
Balance Sheet, Statement of Profit & Loss, and Board’s Report, for the year ended March 31, 2023. Discuss the significance of directors A and B signing these documents.
4. Scenario in One Person Company (OPC):
If Sumit Limited were a One Person Company (OPC) with only one director who is also the sole shareholder, analyse the implications under the Companies Act, 2013 regarding the authentication of financial statements. Discuss the responsibilities of the sole director in this context.
1. Trade Union Application for Investigation:
Q1. Discuss the admissibility of the application made by the recognized trade union of Water Purifier Ltd. before the Tribunal seeking an investigation into the company. Sumit Limited objected, claiming lack of locus standi for the trade union. What is your assessment based on the Companies Act, 2013?
Ans. Under Section 213 of the Companies Act, 2013, the National Company Law Tribunal (NCLT) has the authority to order an investigation into the affairs of a company if circumstances suggest fraudulent conduct, oppression of members, or unlawful practices. Importantly, the section allows for such investigations to be initiated not only by the company itself or its shareholders but also by any other person. This includes recognized trade unions who can demonstrate that the business of the company is being conducted with intent to defraud its creditors, members, or any other person, or in a manner oppressive to its members.
In the case of Sumit Limited, objecting to the trade union’s application on grounds of locus standi is not tenable under the Companies Act. The Act explicitly allows applications from any concerned party who has reasonable grounds to suspect fraudulent or oppressive business conduct. Therefore, the recognized trade union of Water Purifier Ltd. has the legal right to make an application before the Tribunal seeking an investigation into Sumit Limited’s affairs under Section 213.
2. Filing of Satisfaction of Charge:
Q2. Sumit Limited borrowed 50 crore from a scheduled bank and repaid the entire loan with interest. The company wishes to file satisfaction of charge with the Registrar but awaits a no due certificate and release letter from the bank. If the company delays filing due to the bank’s failure to provide these documents, will Sumit Limited be liable for late filing under the Companies Act, 2013?
Ans. According to Section 82 of the Companies Act, 2013, a company is required to file a satisfaction of charge with the Registrar within 30 days of the company satisfying the charge in full. The law mandates that this filing includes a certificate of satisfaction of charge issued by the charge holder (in this case, the scheduled bank).
While the Act imposes strict timelines for filing, it also recognizes practical challenges that may arise, such as delays in receiving necessary documents from external parties like banks. In such cases, the company is not held liable for late filing if the delay is due to circumstances beyond its control. However, Sumit Limited should promptly initiate the process of obtaining the no due certificate and release letter from the bank. Once these documents are received, the company must file the satisfaction of charge without further delay to comply with statutory requirements under Section 82 of the Companies Act, 2013.
3. Authentication of Financial Statements:
Q3. Discuss the validity of the authentication of financial statements, including the Balance Sheet, Statement of Profit & Loss, and Board’s Report, for Mithi Sugar Limited as per the Companies Act, 2013. The financial statements were signed by directors Mr. A and Mr. B, without the involvement of the managing director, Mr. R, and Company Secretary Mr. Anupam. Ans. According to Section 134(1) of the Companies Act, 2013, financial statements, including the Balance Sheet and Statement of Profit & Loss, must be approved by the Board of Directors before being signed on behalf of the Board. The signatures must include: The chairperson of the company, if authorized by the Board; or Two directors of the company, one of whom shall be the managing director, if any. Additionally, the financial statements must be signed by the CEO, CFO and Company Secretary, if appointed.
In the case of Mithi Sugar Limited, the financial statements were authenticated by Mr. A and Mr. B, who are directors of the company. However, the managing director, Mr. R, and the Company Secretary, Mr. Anupam, did not participate in the authentication process.
According to Section 134(1), the involvement of the managing director in the authentication of financial statements is mandatory when such a position exists in the company. Moreover, the Company Secretary’s signature is also required unless the company is exempted from appointing one under the law. Therefore, the authentication by only Mr. A and Mr. B is not valid under the Companies Act, 2013, as it does not meet the statutory requirements for approval and authentication of financial statements.
4. Scenario in One Person Company (OPC):
Q4. In the context of a One Person Company (OPC), how should the financial statements, including the Balance Sheet, Statement of Profit & Loss, and Board’s Report, be authenticated under the Companies Act, 2013?
Ans. In accordance with Section 134(1) of the Companies Act, 2013, in the case of a One Person Company (OPC), the financial statements must be approved and signed by the sole director of the company. This director is responsible for ensuring that the financial statements accurately reflect the company’s financial position and performance during the financial year.
Therefore, in an OPC scenario, the authentication process involves the sole director signing all financial statements, including the Balance Sheet, Statement of Profit & Loss, and Board’s Report. This ensures compliance with the legal requirements under the Companies Act, 2013, regarding the approval and submission of financial statements to the auditor for their report.
CASE STUDY - 4
Topics Covered: MOA & AOA & Inspections and Investigations
Joy Ltd., a company with a diverse business portfolio, recently found itself at the center of a series of legal and financial controversies. As the company navigated through its regular business activities, it became entangled in issues requiring scrutiny from both its creditors and its board of directors. This story follows the unfolding events around Joy Ltd., highlighting the legal implications and challenges faced by the company in two critical scenarios.
One of the major creditors of Joy Ltd., Mr. Ramesh, grew increasingly concerned about the financial practices and overall management of the company. Suspecting mismanagement and potential financial irregularities, Mr. Ramesh believed that an investigation into the affairs of Joy Ltd. was imperative for the protection of the company’s interests and its creditors. Determined to seek transparency and accountability, Mr. Ramesh decided to take legal action. He approached the National Company Law Tribunal (NCLT) with an application to initiate an investigation into Joy Ltd.’s affairs.
Mr. Ramesh, as a significant creditor, had the legal standing to make such an application. The NCLT, upon reviewing the application and the supporting evidence presented by Mr. Ramesh, found sufficient grounds to warrant an investigation into the company’s operations and financial dealings. This provision ensured that Mr. Ramesh’s concerns were addressed through a formal and thorough investigation, aiming to uncover any potential mismanagement or malpractices within Joy Ltd.
In a parallel development, Joy Ltd. was engaged in its principal business of acquiring vacant plots of land and erecting houses. During the course of this business, the company’s Chairman, Mr. Patel, leveraged his expertise in arranging finance for land development projects. Recognizing an opportunity, XYZ Company Ltd., a subsidiary of Joy Ltd., introduced a financier to another company, ABC Ltd., and facilitated the financing arrangement. For this service, XYZ Company Ltd. received an agreed fee of ` 2 lakhs.
The legality of this arrangement was questioned, prompting a review of XYZ Company Ltd.’s Memorandum of Association (MoA). The MoA authorized the company to engage in any other trade or business that the board of directors deemed advantageously connected to its general business. The board of directors had determined that arranging finance was beneficial and connected to XYZ
Company Ltd.’s general business of land development. Consequently, the contract with ABC Ltd. was deemed valid and legally enforceable, as it fell within the scope of the company’s authorized business activities.
Joy Ltd.’s journey through these legal challenges underscored the importance of regulatory compliance and the vigilant oversight by stakeholders. The investigation initiated by Mr. Ramesh highlighted the necessity of transparency and accountability in corporate governance. Simultaneously, the validation of the contract with ABC Ltd. demonstrated the company’s strategic maneuvering within the legal framework to expand its business operations. These events collectively emphasized the dynamic and often complex interplay between business practices and legal regulations in the corporate world.
Q1. Can Mr. Ramesh, a major creditor of Joy Ltd., make an application to the National Company Law Tribunal (NCLT) for an investigation into the affairs of the company in the interest of the company and its creditors?
Ans. No, a creditor is not entitled to make an application for the investigation of the affairs of Joy Ltd. to the Tribunal. According to the provisions of Section 210 of the Companies Act, 2013:
(a) Order of Central Government: The Central Government may order an investigation into the affairs of a company if: It receives a report from the Registrar or inspector under Section 208. A special resolution is passed by the company indicating that its affairs ought to be investigated.
It deems it necessary in the public interest.
(b) Order of Tribunal: The NCLT can order an investigation into the affairs of a company if, in any proceedings before it, it determines that the company’s affairs ought to be investigated.
(c) Appointment of Inspectors: For the purpose of investigation, the Central Government may appoint one or more persons as inspectors to investigate the affairs of the company and report thereon.
Therefore, the mechanism provided under Section 210 does not empower a creditor directly to apply for an investigation. Instead, a creditor like Mr. Ramesh must rely on the Central Government or the NCLT to take action based on the established criteria. Consequently, Mr. Ramesh does not have the standing to directly initiate an investigation application to the NCLT.
Q2. Is the contract between XYZ Company Ltd. (a subsidiary of Joy Ltd.) and ABC Ltd., wherein XYZ Company Ltd. received a fee of ` 2 lakhs for arranging finance, valid under the provisions of the Companies Act, given that the Memorandum of Association authorizes the company to carry on any other trade or business deemed advantageous by the board of directors?
Ans. No, the contract between XYZ Company Ltd. and ABC Ltd. for arranging finance is considered ultra vires and therefore invalid. This is because the act of
arranging finance falls outside the object clause of the company’s Memorandum of Association.
According to company law principles, a company can only engage in activities that are within the scope of its Memorandum of Association. In this case:
Ultra Vires Doctrine: The doctrine of ultra vires restricts a company from undertaking activities beyond those specified in its object clause. Any contract or activity that falls outside the specified objects is ultra vires and void.
Object Clause: The Memorandum of Association of XYZ Company Ltd. authorizes the company to engage in other trades or businesses deemed advantageous by the board of directors. However, this general authorization does not permit the company to undertake activities that are fundamentally different from its specified objects unless the memorandum is first amended.
Specific Purpose Requirement: The board of directors cannot use the general authorization clause to justify engaging in a business that is outside the company’s primary objects without first altering the memorandum in compliance with the legal requirements. This includes obtaining approval for any substantial changes in the company’s activities.
Ultra Vires Contracts: Since arranging finance was not a specified object in the Memorandum of Association, and the memorandum was not amended to include this activity, the contract with ABC Ltd. is beyond the company’s powers (ultra vires) and, thus, invalid. The company has no inherent power to engage in arranging finance, and the board cannot defend this action based on the general authorization clause without prior alteration of the memorandum.
In summary, the contract entered into by XYZ Company Ltd. with ABC Ltd. for arranging finance is invalid due to its ultra vires nature, as the company did not first alter its Memorandum of Association to include such activities within its scope.
CASE STUDY - 5
Topics Covered: Shares and Share Capital, Introduction of Company Law & Members and Shareholders
In the picturesque region of Munnar, three enterprising individuals — Amax, Akash, and Ashish — owned a thriving coffee estate. With a vision to streamline operations and expand their business, they decided to incorporate a new company, Mandoli Coffee Estate Private Limited. This decision set off a series of legal and procedural events that tested their understanding and adherence to the Companies Act, 2013.
