Accounting Fundamentals – CMA Inter Financial Accounting Study Material is designed strictly as per the latest syllabus and exam pattern.

Accounting Fundamentals – CMA Inter Financial Accounting Study Material

Short Notes

Question 1.
Write short note:
(c) Accounting convention of consistency; (Dec 2012, 5 marks)
Answer:
In order to enable the management to draw important conclusions regarding the working of a company over a number of years it is essential that accounting practices and methods remain unchanged from one accounting period to another. According to AS-1 consistency is a fundamental assumption and it is assumed that accounting policies are consistent from one period to another. Where this assumption is not followed, the fact should be disclosed with proper reasons.

Kohler has talked about three types of consistencies:

• Vertical consistency: Consistency maintained within the interrelated financial statements of the same date.
• Horizontal consistency: This enables the comparison of performance of the organization in one year with its performance of previous/next year.
• Third-dimensional consistency: Performance of one organization can be compared with that of another organization in the same industry.

Question 2.
Write short note on the following:
The Accrual Concept (June 2017, 5 marks)
Answer:
The Accrual Concept:
The accrual concept is based on recognition of both cash and credit transactions. In case of a cash transaction, owner’s equity is instantly affected as cash either is received or paid. In a credit transaction, however, a mere obligation towards or by the business is created. When credit transactions exist (which is generally the case), revenues are nt the same as cash receipts and expenses are not same as cash paid during the period.

When goods are sold on credit as per normally accepted trade practices, the business gets the legal right to claim the money from the customer. Acquiring such right to claim the consideration for sale of goods or services is called accrual of revenue. The actual collection of money from customers could be at a later date.

Similarly, when the business procures goods or services with the agreement that the payment will be made at a future date, it does not mean that the expense effect should not be recognized. Because an obligation to pay for goods or services is created upon the procurement thereof, the expense effect also must be recognized. Today’s accounting systems based on accrual concept are called as Accrual System or Mercantile System of Accounting.

Question 3.
Write short notes on the following:
(a) Objectives of Accounting
(b) Methods! Criteria for the selection and application of Accounting policies (Dec 2017, 5 marks each)
Answer:
(a) Objectives of Accounting:
The main objective of Accounting is to provide financial information to stakeholders. This financial information is normally given via financial statements, which are prepared on the basis of Generally Accepted Accounting Principles (GAAP). There are various accounting standards developed by professional accounting bodies all over the world.

In India, these are governed by The Institute of Chartered Accountants of India, (ICAI). In the US, the American Institute of Certified Public Accountants (AICPA) is responsible to lay down the standards. The Financial Accounting Standards Board (FASB) is the body that sets up the International Accounting Standards. These standards basically deal with accounting treatment of business transactions and disclosing the same in financial statements:

The following are the main objectives of accounting:

• To ascertain the amount of profit or loss made by the business i.e. to compare the income earned versus the expenses incurred and the net result thereof.
• To know the financial position of the business i.e. to assess what the business owns and what it owes.
• To provide a record for compliance with statutes and laws applicable.
• To enable in readers to assess progress made by the business over a period ot time.
• To disclose information needed by different stakeholders.

(b) The major considerations governing the selection and application of accounting policies are:
1. Prudence: Generally maker of financial statements has to face uncertainties a the time of preparation of financial statement, these uncertainties may be regarding collectability of recoverable, number of warranty claims that may occur. Prudence means making of estimates that are required under conditions of uncertainty.

2. Substance over form: It means that transactions should be accounted for in accordance with actual happening and economic reality of the transactions not by its legal form.

3. Materiality: financial statement should disclose all the items and facts which are sufficient enough to influence the decisions of reader or/user of financial statement.

Question 4.
Write short note on the following:
The Accrual concept (June 2019, 5 marks)
Answer:

The Accrual Concept:
The accrual concept is based on recognition of both cash and credit transactions. In case of a cash transaction, owner’s equity is instantly affected as cash either is received or paid. In a credit transaction, however, a mere obligation towards or by the business is created. When credit transactions exist (which is generally the case), revenues are nt the same as cash receipts and expenses are not same as cash paid during the period.

When goods are sold on credit as per normally accepted trade practices, the business gets the legal right to claim the money from the customer. Acquiring such right to claim the consideration for sale of goods or services is called accrual of revenue. The actual collection of money from customers could be at a later date.

Similarly, when the business procures goods or services with the agreement that the payment will be made at a future date, it does not mean that the expense effect should not be recognized. Because an obligation to pay for goods or services is created upon the procurement thereof, the expense effect also must be recognized. Today’s accounting systems based on accrual concept are called as Accrual System or Mercantile System of Accounting.

Question 5.
Write short notes on the following:
Users of Accounting Information (Dec 2019, 5 marks)
Answer:
Users of Accounting Information
Accounting provides information both to internal users as well as external users. The internal users are all the organizational participants, at all levels of management (i.e. top, middle, and lower). Generally top: level management requires information for planning. middle level management which requires information for controlling the operations. For internal use, the information is usually provided in the form of reports, for instance, Cash Budget Reports, Production Reports, Idle Time Reports, Feedback Reports, whether to retain or replace an equipment decision reports, project appraisal reports, and the like.

The external users (e.g. Banks, Creditors) do not have direct access to all the records of an enterprise, they have to rely on financial statements as the source of information. External users are basically, interested in the solvency and profitability of an enterprise.

Question 6.
Write short flotes on Source documents: (Dec 2021, 3 marks)
Answer:
Source documents:
Vouchers are the documentary evidence of the transactions so happened. Source documents at the basis on which transactions are recorded in subsidiary books, i.e source documents are the evidence and proof of transactions.

Question 7.
Write short notes on Errors of principle. (Dec 2021, 3 marks)
Answer:
An error of principle: Entering revenue expenses as capital expense or vice versa or entering revenue receipt as capital receipt or vice versa.

Question 8.
Write short notes:
(a) Advantages of Double Entry System.
(b) The main objective of the Depreciation Policy. (Dec 2022, 5 marks each)

Distinguish Between

Question 9.
The distinction between Fundamental ‘accounting assumptions and Accounting policies. (Dec 2018, 5 marks)
Answer:

Basis of Discountion	Fundamental Accounting Assumptions	Accounting Policies
1. Number	There are only three fundamental accounting assumptions viz. Going Concerned, Consistency, and Accrual.	There is no single list of accounting policies which are applied in all circumstances. As a result, there may be different accounting policies adopted by different enterprises.
2. Disclosure if followed	No disclosure is required if all the fundamental assumptions have been followed.	Disclosure is required if a particular accounting policy has been followed
3. Disclosure not ‘followed	In case the fundamental assumptions are not followed; the fact has to be disclosed in the financial statements together with the reasons.	In case, the policy is changed in subsequent year, the reasons for such change and the resulting financial consequences have to be disclosed.
4. Choice	There is no choice.	The firm has a choice to select a particular policy.

Descriptive Questions

Question 10.
Answer the following question (give workings wherever required):
State briefly the three fundamental accounting assumptions. (Dec 2013, 2 marks)
Answer:
The three fundamental assumptions are (a) going concern; (b) consistency; and (c) accrual. Going Concerned: It is assumed that the concern would be continuing in operation for the foreseeable future. It is also assumed the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of operations.

Consistency: The accounting policies followed are consistent from one accounting period to another.
Accrual: The revenues and expenses are accrued, that is recognized as they are earned or incurred, and recorded in the financial statements of the periods to which they relate.

Question 11.
What are the steps or phases of ‘Accounting Cycle’? (Dec 2013, 4 marks)
Answer:
Steps Phases of Accounting Cycle:

• Recording of Transaction: As soon as a transaction happens it is at first recorded in subsidiary book.
• Journal: The transactions are recorded in Journal chronologically.
• Ledger: All journals are posted into ledger chronologically and in a classified manner.
• Trial Balance: After taking all the ledger account’s closing balances, a Trial Balance is prepared at the end of the period for the preparations of financial statements.
• Adjustment Entries: All the adjustments entries are to be recorded properly and adjusted accordingly before preparing financial statements.
• Adjusted Trial Balance: An adjusted Trial Balance may also be prepared.
• Closing Entries: All the nominal accounts are to be closed by the transferring to Trading Account and Profit and Loss Account.
• Financial Statements: Financial statements can now be easily prepared which will exhibit the true financial position and operating results.

Question 12.
What is a depreciable cost? (Dec 2021, 1 mark)
Answer:
Depreciable cost = Cost of asset- Scrap value.

Question 13.
Name the side on Which increase in capital is recorded. (Dec 2021, 1 mark)
Answer:
Credit side.

Question 14.
Under which accounting concept provision ¡s made for doubtful debts. (Dec 2021, 1 mark)
Answer:
Prudent concept.

Question 15.
Why is the capital of the owner shown on the liability side of the balance sheet? (Dec 2021, 1 mark)
Answer:
Due to separate entity concept.

Question 16.
What type of account is a revaluation account? (Dec 2021, 1 mark)
Answer:
Nominal account.

Question 17.
What is the traditional function of accounting? (Dec 2021, 1 mark)
Answer:
Recording of financial transactions.

Question 18.
Should a transaction be first recorded in a journal or Ledger. Why? (Dec 2021, 1 mark)
Answer:
Transactions are first recorded in a journal because it is a book of original entries.

Question 19.
On which basis of accounting outstanding expenses are not recorded? (Dec 2021, 1 mark)
Answer:
Cash basis of accounting.

Question 20.
Name the error committed by violating the wies of accounting. (Dec 2021, 1 mark)
Answer:
Error of principle.

Question 21.
Define merchandise. (Dec 2021, 1 mark)
Answer:
Merchandise means goods for resale.

Question 22.
Which transactions will:
(i) Decrease the assets and decrease the capital.
(ii) Increase the assets and increase the liabilities.
(iii) Increase the assets and decrease other assets.
(iv) Decrease the assets and decrease the liabilities. (Dec 2021, 4 marks)
Answer:
(i) Drawing or expenses.
(ii) Purchase of an asset on credit.
(iii) Purchase or sale of an asset in cash.
(iv) Payment of liability.

Question 23.
When you proceed to reconcile the bank account starting with ‘credit’ cash book Balance, how is the following dealt with and why?
(i) Cheque issued but not presented for payment
(ii) Cheque deposited but not yet credited.
(iii) Bank charges charged by the bank not recorded in the cash book.
(iv) Interest allowed by the hank is not recorded in the cash book. (Dec 2021, 4 marks)
Answer:
(i) Cheques issued but not yet presented for payment are deducted because the bank shows lower overdrawn balance.
(ii) Cheques deposited but not deared are added because the bank shows a higher overdrawn balance.
(iii) Bank charges are added because the bank shows a higher overdrawn balance.
(iv) Interest allowed is deducted because the bank shows lower overdrawn balance.

Question 24.
Why is goodwill considered an “Intangible asset” but not a “fictitious assets? (Dec 2021, 2 marks)
Answer
Goodwill cannot be seen or touched. It can only be felt. Hence, it is treated an intangible asset. But it is not a fictitious asset because fictitious do not have a value. Whereas Goodwill has value and it can be purchased or sold with any other asset.

Practical Questions

Question 25.
Mr. X is owner of a Cinema Hall. He spent a heavy amount for complete renovation of the hail, for installation of air-conditioning machines and for sitting arrangement with cushion seats. As a result the revenue has been doubled. He also spent for few more doors for emergency exit. State your opinion about the treatment of the entire expenditure. (Dec 2012, 2 marks)
Answer:
If due to any expenditure, the future benefits from the assets increases beyond its previously assessed standard of performance. then it should be capitalized. The size of the expenditure is not Important for capitalizing the expenditure. In the present case, renovation expenses should be capitalized because it has enhanced the revenue-generating capacity of the hail but expenditure for making more emergency exit does not enhance the revenue-generating capacity of the hall, so it should be charged to revenue.

Question 26.
The total of debit side of the Trial Balance of Lotus Stores as at 31.03.2012 is ₹ 3,65,000 and that of the credit side is ₹ 2,26,000. After checking, the following mistakes were discovered:

Items of account	Correct figures (as it should be) (₹)	Figures as it appears in the Trial Balance (₹)
Opening stock	15,000	10,000
Rent and rates	36,000	63,000
Sundry creditors	81,000	18,000
Sundry debtors	1,04,000	1,58,000

Ascertain the correct total of the Trial Balance. (Dec 2012, 5 Marks)
Answer:
In the books of Lotus Stores calculation of correct Total of Trial Balance

Particulars	Dr.	Cr.
Total of Trial Balance as per on 31.03.12	3,65,000	2,26,000
Add understatement of op. stock	5,000	–
Less: overstatement of Rent & Rates	27,000	–
Add: understatement of sundry creditors	–	63,000
Less: overstatement of sundry debtors	54,000	–
Correct Total	2,89,000	2,89,000

Question 27.
State whether the following items are ¡n the nature of capital, Revenue and/or Deferred Revenue Expenditure:
(i) Expenditure on special advertising campaign ₹ 66,000; suppose the advantage will be received for six years.
(ii) An amount of ₹ 8000 spent as legal charges for abuse of trademark.
(iii) Legal charges of ₹ 15,000 incurred for raising loan.
(iv) Share issue expenses ₹ 5,000.
(v) Freight charges on a new machine ₹ 1,500 and erection charges ₹ 1,800 for that machine. (June 2013, 1 x 5 = 5 marks)
Answer:
(i) As per Para 56 of AS 26, the expenditure incurred on intangible items would have to expense off when they are incurred. So, the Advertisement Expenses is not carried forward to the next year, and the full amount is shown in the Profit & Loss A/c. So, ₹ 66,000
consider for revenue expenditure.
(ii) Revenue expenditure ₹ 8,000
(iii) Capital expenditure ₹ 15,000
(iv) Capital expenditure ₹ 5,000
(v) Capital expenditure = 1,500+ 1,800 = ₹ 3,300.

Question 28.
Answer the following questions (give workings wherever required):
(i) A trader acquired furniture & fittings for ₹ 10,000 but included the same in purçhase account. He paid ₹ 5,000 to a supplier which was omitted to be recorded in the books. State the types of errors and pass journal entries t rectify the errors.

(iii) The company maintains 10% of debtors as provision towards bad debts. It has routed all bad debts through the provision account. The opening balance of provision as on 01.04.2012 was ₹ 68,000. The closing provision i.e. on 31st March, 2013 was ₹ 92,000. Bad debts written off debited to provision account was ₹ 28,000. How much should be debited to Profit & Loss Account towards provision for doubtful debts for the year ended 31st March, 2013? (Dec 2013, 2 marks each)
Answer:
(i) The first error is error of principle. The capital expenditure has been claimed as revenue expenditure. The second one is error of omission.
The Journal Entries are:

Question 29.
State with reason whether the followings are capital or revenue expenditure:
(i) Freight charges of ₹ 12,000 incurred foie machinery purchased for ₹ 2,00,000.
(ii) ₹ 90,000 being expenditure incurred for a well-equipped labour welfare centre.
(iii) Compensation of ₹ 1,50,000 each paid to three employees who were retrenched.
(iv) Purchase of TV set for ₹ 30,000 to be installed in the reception hall. (Dec 2013, 1 x 4 = 4 marks)
Answer:
(i) Expenditure incurred towards freight charges for bringing the machinery to the location and till regular production is capital expenditure. Hence, the freight charge is to be capitalized.
(ii) Labour welfare centre is a permanent addition and therefore a capital expenditure.
(iii) Compensation to retrenched employees will not bring any permanent benefit and hence is revenue expenditure.
(iv) Television set purchased is a capital expenditure unless the person acquiring the same is a dealer of television sets.

Question 30.
Answer the question:
(b) Pass necessary journal entries to rectify the following errors assuming’ that the errors were detected after the preparation of final accounts:
(i) Return inward book was undercast by ₹ 18,000.
(ii) Goods purchased for proprietor’s use for ₹ 10,000 debited to purchase account.
(iii) ₹ 5,200 paid for freight on machinery was debited to freight account.
(iv) No adjustment entry was passed for an amount of ₹ 15,000 relating to outstanding rent. ‘
(v) Furniture of ₹ 13,000 purchased from Chandra Furniture House was entered in purchase book.
(vi) ₹ 10,000 received from Mohan has been credited to Sohan. (Dec 2014, 4 marks)
Answer:

Question 31.
Answer the question:
(a) Journalise the following transactions in the books of SHIVA.
01.05.2015 – Started business with ₹ 5,00.000 of which 50% amount was borrowed from SB! and 20% amount was borrowed from his sister Patta.
05.05.2015 – Purchased goods from China Mart worth ₹ 1,60,000 at 25% trade discount and 40% amount paid in cash.
08.05.2015 – Sold goods to Satish ₹ 60,000 at 20% trade discount and received ¼ amount in cash.
15.05.2015 – Paid to Chinu Mart ₹ 69,500 in full settlement of A/c. (June 2015, 4 marks)
Answer:

Question 32.
Answer the question.
(a) Trial Balance of ANKIT LTD. failed to agree and the difference was put into Suspense Account pending investigation which discovered the following:
(i) Discount received ₹ 1,320 had been debited to Discount allowed as ₹ 132.
(ii) Goods of the value of ₹ 200 returned by Kishan were entered in the Sales Day Book and posted therefrom to the credit of Krishan as ₹ 20.
(iii) A credit purchase of ₹ 500 from N. Kumar was recorded as sale to M. Kumar for ₹ 50.
(iv) A credit sale of machine of P. Dass for ₹ 600 recorded through Sales Day Book as sale to C. Dass for ₹ 60.
Required:
Pass the Rectifying Entries in the Book of Ankit Ltd. (Dec 2015, 4 marks)
Answer:

Question 33.
Answer the question.
MILTON LTD. sold goods worth ₹ 1,00,000 to NARMADALTD. Narmada Ltd. asked for discount of ₹ 16,000 which was agreed by Mton Ltd. The sale was effected and Goods despatched. After receiving, Goods Worth ₹ 14,000 was found defective, which they returned immediately. They made the payment of ₹ 70,000 to Milton Ltd. The accountant of Milton Ltd. booked the Sales for ₹ 70,000. Discuss whether the accounting entry passed by the accountant of the company is correct? (Dec 2015, 4 marks)
Answer:
The accounting entry passed by the accountant of the company is incorrect as it does not depict the original transaction. Sates should be shown at the gross amount and thereafter, entry of sales return should be passed. The goods returned cost 14,000 on which discount was availed which needs to be reversed.
Discount = \(\frac{14,000 \times 16,000}{1,00,000}\)
= 2,240

Question 34.
(a) The trial balance of M/s SEWADA & CO., on 31st March 2016 did not agree. In order lo close the books, the accountant placed the difference of ₹ 12,385 (Dr.) to Supens Account for necessary adjustments In the next period. On 30th April, 2016 the following errors, arising in 2015-16 were detected:
(i) ₹ 1,000 allowed as cash discount to a trade debtor was not debited to the discount account.
(ii) Credit sale of ₹ 4,850 was posted to the credit of the customer’s account as ₹ 4,535.
(iii) Machinery purchased for ₹ 50,000 in cash was posted to the Purchases Account in the ledger.
(iv) Sales Book was overcast by ₹ 2,000 in February 2016.

Required:
(a) Pass the necessary Journal Entries to rectify these errors.
(b) Prepare suspense account in the book of SEWADA & CO. (June 2016, 5 +2 =7 marks)
Answer:

Question 35.
The Trial Balance of a concern has agreed but the following mistakes were discovered after the preparation of Final Accounts.
(i) No adjustment entry was passed for an amount of ₹ 2,000 relating to outstanding rent.
(ii) Purchase book was overcast by ₹ 1,000.
(iii) ₹ 4,000 depreciation of Machinery has been omitted to be recorded in the book.
(iv) ₹ 600 paid for purchase of stationary has been debited to Purchase A/c.
(v) Sales books was overcast by ₹ 1,000.
(vi) ₹ 5,000 received, in respect of Book Debt had been credited to Sales A/c.
Show the effect of the above errors in Profit and Loss Account and balance Sheet. (June 2017, 6 marks)
Answer: .
Effects of the errors in Profit and Loss A/c and Balance Sheet

Profit and Loss A/c	Balance Sheet
(a) Profit was overstated by ₹ 2,000	(a) Capital was also overstated by ₹ 2,000 and outstanding Liability was understated by ₹ 2,000.
(b) Gross profit was understated by ₹ 1,000 and also the Net Profit.	(b) Capital was understated by ₹ 1,000.
(c) Net Profit was overstated by ₹ 4,000.	(c) Machinery was overstated by 4,000 and so the Capital A/c was also overstated by ₹ 4,000.
(d) No effect on Net Profit.	(d) No effect in Balance Sheet.
(e) Gross Profit & Net Profit were overstated by ₹ 1,000.	(e) Capital was overstated by ₹ 1,000.
(f) Gross Profit & Net Profit were overstated by ₹ 5,000.	(f) Capital & Sundry Debtors were overstated by ₹ 5,000.

Question 36.
(a) Khetan Ltd. has received two lakh subscriptions during the current year under its new scheme whereby customers are required to pay a sum of ₹ 4,500 for which they will be entitled to receive a magazine for a period of 3 years. Khetan wants to treat the entire amount as revenue for current year. Comment. (June 2017, 3 marks)

(b) Alex. Ltd. intends to set up a solar plant. Alex Ltd. has acquired a dilapidated factory, having an area of 7500 acres at a cost of ₹ 70,000 per acre. Alex Ltd. has incurred ₹ 50,00,000 on demolishing the old factory building thereon. A sum of ₹ 43,57,500 (including 5% Sales Tax) was realized from sale of material salvaged from the site. Alex Ltd. also incurred Stamp Duty and Registration Charges of 5% of Land Value, paid Legal and Consultancy Charges ₹ 5,00,000 for land acquisition, and incurred ₹ 2,00,000 on Title Guarantee Insurance. Compute the value of land acquired. (June 2017, 6 marks)
Answer: .
(a) As illustrated in AS 9 ‘Revenue Recognition’, revenue received or billed should be deferred and recognized either on a straight line basis over time or, where the items delivered vary ¡n value from period to period, revenue should be based on the sales value of the item delivered in relation to the total sales value of all items covered by the subscription.

Accordingly, in the given case the accounting treatment adopted by Khetan Ltd. to treat the entire amount as revenue for the current year is not in accordance with AS 9. The revenue should be recognized on a straight-line basis over the period of 3 years.

Question 37.
The Trial Balance of a concern Fas agreed but the following mistakes were discovered after the preparation of final Accounts.
(i) No adjustment entry was passed for an amount of ₹ 2000 relating to outstanding rent.
(ii) Purchase book was overcast by ₹ 1,000.
(iii) ₹ 4,000 depreciation of Machinery has been omitted to be recorded in the book.
(iv) ₹ 600 paid for purchase of stationary has been debited to Purchase A/c.
(v) Sales books was overcast by ₹ 1,000.
(vi) ₹ 5000 received in respect of Book Debt had been credited to Sales A/c.
Show the effect of the above errors in Profit and Loss Account and balance Sheet. (Dec 2017, 6 marks)
Answer:

Profit and Loss A/c	Balance Sheet
(a) Profit was overstated by ₹ 2,000	(a) Capital was also overstated by ₹ 2,000 and outstanding Liability was understated by ₹ 2,000.
(b) Gross profit was understated by ₹ 1,000 and also the Net Profit.	(b) Capital was understated by ₹ 1,000.
(c) Net Profit was overstated by ₹ 4,000.	(c) Machinery was overstated by 4,000 and so the Capital A/c was also overstated by ₹ 4,000.
(d) No effect on Net Profit.	(d) No effect in Balance Sheet.
(e) Gross Profit & Net Profit were overstated by ₹ 1,000.	(e) Capital was overstated by ₹ 1,000.
(f) Gross Profit & Net Profit were overstated by ₹ 5,000.	(f) Capital & Sundry Debtors were overstated by ₹ 5,000.

Question 38.
(a) The Trial Balance oIS Ltd. as on 31/03/2018 showed the credit in excess by ₹ 415 which was been carried to Suspense Account. On a closed scrutiny of the books, the following errors were revealed:
(i) A cheque of ₹ 3456 received from AB Ltd. after allowing it a discount of ₹ 46 was endorsed to CD Ltd. in full settlement for ₹ 3,500. The cheque was finally dishonoured but no entries are passed in the books of account.
(ii) Goods of the value of ₹ 230 returned by PQ Ltd. were entered in Purchase Day book and posted therefrom to MN Ltd. as ₹ 320.
(iii) Bad debts aggregating ₹ 505 written off during the year in Sales Ledger but were not recorded In Genéral Ledger.
(iv) Bill for ₹ 750 received from Z Ltd. for repairs to Machinery was entered in the Inward Invoice Book as ₹ 650.
(v) Goods worth ₹ 1,234 purchased from Y Ltd. on 28/03/2018 had not been entered in Day book and credited to Y Ltd. but Goods were not delivered till 5th April, 2018. The title of Goods was however passed on 28/03/2018 and was taken into stock on 31 -03-2018.
(vi) ₹ 79 paid for Freight on Machinery was debited to Freight account as ₹ 97. Pass the necessary Journal Entries to rectify the above-mentioned errors. (June 2018, 8 marks)
Answer:

Question 39.
(a) A bookkeeper extracted the following Thai Balance as on 31st March 2018:

You are required to:
(i) State the errors giving reasons,
(ii) Redraft the Trial Balance correctly. (Dec 2018, 7 marks)
Answer:
(i) (I) Stock on 31st March 2018, will not appear in the Trial balance because it represents a part of the goods purchased but not yet sold. As the total purchases have been included in the Trial balance, there is no need of including the Closing Stock again.
(II) Machinery is an asset and thus will appear in the debit column.
(III) Wife’s loan to the business is a liability. It will appear in the credit column.
(IV) Discount allowed, being an expense, will appear in the debit column.
(V) Drawings made by the proprietor is a decrease of capital (i.e., decrease of proprietor’s claim from the business). It will appear In the debit column.

Question 40.
(a) Rectify the following errors:
(i) A Credit Sale of goods to X ₹ 3,000 posted as ₹ 30,000.
(ii) A Cash Sale of goods to Y ₹ 3,000 posted as ₹ 30,000.
(iii) A Credit Sale of furniture to ₹ 3,000 posted as ₹30,000.
(iv) A Credit Sale of goods of ₹ 3,000 to Krishan entered in the purchases book as ₹ 30,000 and posted therefrom to the credit of Kishan as ₹ 3,000.
(v) A Cash Sale of goods of ₹ 3,000 to Krishan posted to the credited of Kishan as ₹ 30,000.
(vi) A Credit Purchase of old machinery from Sohan for ₹ 17,000 was entered in the Purchases Book as purchase from Mohan for ₹ 71,000. ₹ 3,000 paid as Repair Charges of this Machinery debited to General Expenses Account.
(vii) A Bill drawn on Meenu for ₹ 30,000 was passed through bills payable book with ₹ 3,000 and posted therefrom to the credit of Meena as ₹ 300.
(viiii) Sales included a sale of furniture having a book of value of ₹ 900 for ₹ 850 on 31st March 2018. , (June 2019, 8 marks)
Answer:

Question 41.
From the following particulars calculate operating profit.
Net profit. ₹ 1,00,000
Rent received. ₹ 10,000
Gain on the sale of machines. ₹ 15,000
Interest on loan paid. ₹ 18,000
Donation paid. ₹ 4,000 (Dec 2021, 2 marks)
Answer:
Operating Profit = 1,00,000 – 10,000 – 15,000 + 18,000 + 4,000 = 97,000
∵ Operating Profit = 97,000

Question 42.
Ruma Ltd. purchased a plant on 1st April 2015 for ₹ 2,40,000 it bought another plant on 1st July, 2016 for ₹ 1,60,000. On 1st January 2018 Plant bought on 1st April 2015 was sold for ₹ 1,60,000 and a fresh plant was purchased on the same date. Payment of this plant will be made as under.
1st January 2018 ₹ 40,000.
1st January 2019 ₹ 48,000.
1st January 2020 ₹ 44,000.
Payments made in 2019 and 2020 include interest of ₹ 8,000 and ₹ 4,000, respectively. Depreciation is charged at 10% P.a. on the diminishing balance method.
From the above particulars, Find out.
(i) Cost of plant bought on January 1st’, 2018.
(ii) Loss on sale of plants.
(iii) Closing balance of plant 2 and plant 3 as on 31-3-2018 (Dec 2021, 6 marks)
Answer:
(i) Cost of Plant:
40,000 + 48,000 – 8,000 + 44,000 – 4,000 = 1,20,000

(ii) Loss on sale of Plant:
WDV on 1.1.2018 2,40,000-24,000 – 21,600 – 14,580 = 179,820
Loss = 1,79,820 – 1,60,000 = 19,820

(iii) Closing balance of Plant:
Plant 2
1,60,000 – \(\left(1,60,000 \times \frac{10}{100} \times \frac{9}{12}\right) \) -14,800 = 1,33,200

Plant 3
1,20,000 – 1,20,000 × \(\frac{10}{100} \times \frac{3}{12}\)
= 1,17,000

Question 43.
ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom-made machine amounting to ₹ 4,00,000. As on 31st March, 2021 before delivery of the machine, ABC Ltd. had to change its method of production. The new method will not require the machine ordered and so it shall be scrapped after delivery. The expected scrap value is NIL. Show the treatment of machine in the books of ABC Ltd. (Dec 2022, 5 marks)

Repeatedly Asked Questions
Question	Frequency
1. Write short note on the following: The Accrual Concept 17-June, 19 June	2 Times

Accounting Fundamentals – CMA Inter Financial Accounting Notes

Accounting Concepts
Accounting Concepts refer to the assumptions and conditions that define the parameters and constraints within which the accounting operates. They lay down the foundation for accounting principles, and ensure recording of financal facts on sound bases and logical considerations.

Accounting Conventions
Accounting Conventions are customs and methods. procedures or guidelines associated with the practical application of accounting principles.

Capital Expenditure
Capital Expenditure refers to that expenditure, benefit from which can be enjoyed by an entity over a number of accounting periods. This type of expenditure happens to be non-recurring in nature. A capital expenditure takes place when an asset or service is acquired or improvement of a fixed asset is affected.

Revenue Expenditure
Revenue Expenditure refers to that expenditure, benefit from which can be enjoyed by an entity ¡n the current accounting period. This type of expenditure happens to be recurring in nature. Revenue expenditures are incurred to carry on the regular course of operations by an organisation.

Capital Receipts
Capital Receipts refer to the receipts which are obtained by an entity from operations other than the regular operations f the entity. Capital receipts do not have any effect on the operating result during the course of a year.

Revenue Receipts
Revenue Receipts refer to the receipts which are obtained by an entity from its regular course of operations. Receipts of money in the revenue nature increase the profits or decrease the losses of a business and must be set against the revenue expenses in order to ascertain the profit for the period.

Capital Profit
Capital Profit refers to a profit which anses out of the non-operating activities of an entity. It is non-recumng in nature. Generally, capital profits arise out of the sale of assets other than inventory, or in connection with the raising of capital or at the time of purchasing an existing business.

Revenue Profit
Revenue Profit refers to a profit which arises out of the regular operating activities of an entity. It is recurring in nature.

Capital Loss
Capital Loss refers to a loss which does not arise to an entity in the regular course of its operations.

Revenue Loss
Revenue Loss arises to an entity from the normal course of business.

Charts of Accounts
A Chart of Accounts (COA) is a listing of all accounts in the general ledger, each account accompanied by a reference number.

Double Entry System
Double Entry System of Bookkeeping is an accounting system which recognizes the fact that every transaction has two aspects and both aspects of the transaction are recorded in the books of accounts.

Journal
Journals the book of original entry in which financial transactions are firstly recorded after their occurrence in chronological order. It is in this book of accounts where the transactions are recorded in the first place.

Ledger
The book of account in which transactions are recorded in respective account after they have been entered in the journal is called the Ledger. It is the book of account in which the transactions are recorded in a classified and permanent manner. It is the final destination of all the accounts, and hence, it is also called the Book of Final Entry. The process of recording the entry in the ledger is technically known as posting.

Cash Book
The book of account that records all cash receipts and cash payments of an organization is referred to as cash book. The receipts ar entered on the debit side, while the payments are recorded in the credit side of the cash book.

Bank Book
Deviating from the traditional method of keeping an additional column for bank transactions in a double and triple-column cash book, today organizations keep a separate subsidiary book similar to cash book to record all receipts and payments made through the bank. This is known as Bank Book or Bank Journal.

Bank Reconciliation Statement
At any point of time, the balances as per cash book (bank column) and pass book should be equal in amount. But, in reality, it rarely happens due to certain specific reasons. To reconcile the balances as reflected by these two related books a statement is prepared, which ¡s referred to as the Bank Reconciliation Statement.

Trial Balance
The Trial Balance is a statement drawn up using the ledger balances to test of the arithmetical accuracy of the ledger account. The primary purpose of drafting a Trial Balance is to ensure that there are no arithmetical errors.

Depreciation
The gradual decline in the value of a tangible asset is termed as Depreciation. Thus, in ears be stated that depreciation is a part of cost of tangible fixed asset which has expired because of its usage, lapse of time, etc.

Amortization
Amortization is a gradual and systematic writing of of intangible asset over its estimated useful life. For example, patents, purchased goodwill, and copyrights are amortized over their useful life being intangible assets.

Depletion
Depletion is the value of wasting assets extracted from quarry, mine, etc. Extraction reduces the available quantity of material.

CMA Inter Business Laws and Ethics MCQs – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

CMA Inter Business Laws and Ethics MCQs

Question 1.
Fill in the Blanks based on Factories Act 1948
(i) No child shall be employed or permitted to work in any factory for more than ……………….. hours in a day.
Answer:
4½hours

(ii) No female Child shall be required or allowed to work in any factory except between ……………………. AM and PM.
Answer:
8 AM – 7 PM.

(iii) No Child shall be employed during the Night and Night means a period of at least twelve consecutive hours which shall include the interval between ………………… PM and ……………….. AM.
Answer:
10 P.M – 6 A.M.

(iv) No woman shall be required or allowed to work in any factory except between the hours of ……………………. AM and PM. (Dec 2012, 1 x 4 = 4 marks)
Answer:
6 A.M. – 7 P.M. (Sec. 66)

Question 2.
(i) A part-time employee engaged on regular basis is eligible for Bonus under Payment of Bonus Act 1965. Write only True or False.
Answer:
This statement is true.

(ii) Whether Gratuity under Payment of Gratuity Act, 1972 is payable for the period of layoff under the industrial Disputes Act 1947. Write only True or False.
Answer:
This statement is true.

(iii) Fill in the blanks:
No adult worker shall be required to allow to work in a factory

(1) for more than ……………………… hours in any week.
Answer:
48 hrs.

(2) for more than ………………… hours in any day.
Answer:
9 hrs.

(3) the period of work of adult workers in a factory shall be so fixed. that no period shall exceed ……………………. hours. (June 2013, 1 mark each)
Answer:
5 hrs.

Question 3.
Choose the correct answer from the given tour alternatives:
(i) Cash is withdrawn by a customer of a bank from the automatic teller machine is an example of
(a) Express Contract
(b) Void Contract
(c) Tacit Contract
(d) Illegal Contract
Answer:
(c) Tacit Contract

(ii) Which of the following is not implied condition under The Sale of Goods Act, 1930?
(a) Sale by description
(b) Sale by discount price
(c) Sale by sample
(d) Quality or fitness
Answer:
(b) Sale by discount price

(iii) The Occupier of every factóry shall provide and maintain suitable room or rooms for the use of the children under the age of six years of women workers where the number of such women workers exceed
(a) 20
(b) 50
(c) 30
(d) 150
Answer:
(c) 30

(iv) Examine as to which of the following payments form part of “salary” under the provisions of the Payment of Bonus Act, 1965.
(a) Traveling allowance
(b) Commission on sales
(c) Dearness allowance
(d) Overtime allowance
Answer:
(c) Dearness allowance

(v) The Employees Provident Funds Act, 1952 is applicable to every establishment mentioned in Schedule I and employed
(a) 10 persons or more
(b) 100 or more persons
(c) 20 or more persons
(d) 50 or more persons
Answer:
(c) 20 or more persons

(vi) A factory employs 250 workers. All the workers including workers above 60 years of age and below 15 years of age went on strike. The employer
(a) can deduct fine from all the workers
(b) can not deduct fines from workers who are under the age of 15
(c) no fine can be imposed from workers who are 60 years and above
(d) can not deduct any fine from any worker
Answer:
(b) Cannot deduct fine from workers who are under the age of 15

(vii) The employer’s and employee’s share of contribution of ESI fund is
(a) 1.75% and 4.75% of wages respectively
(b) 3.25% and 0.75% of wages respectively
(c) 10% and 3.75% of wages respectively
(d) 11 % and 3.75% of wages respectively
Answer:
(b) 3.25% and 0.75% of wages respectively

(viii) A Formal notarial certificate attesting the dishonour of a bill or note is called
(a) Noting
(b) Protest
(c) Attestation of Dishonour
(d) Endorsement
Answer:
(b) Protest

(ix) Public notice is not required when there is
(a) admission of new partner
(b) retirement of any partner,
(c) expulsion of any partner
(d) dissolution of the firm
Answer:
(a) Admission on new partner

(x) A LLP shall fiíe an annual return duly authenticated with the Registrar within……………….. of closure of a financial year under the Limited Liability Partnership Act, 2008.
(a) 30 days s
(b) 45 days
(c) 60 days
(d) 90 days
Answer:
(c) 60 days

(xi) The board of directors may appoint additional directors from time to time if so authorized by
(a) Artides of Associabon
(b) Memorandum of Association
(c) A resolution passed at general meeting
(d) A resolution passed at board meeting
Answer:
(a) Articles of Association

(xii) Business ethics are gaining importance because of
(a) smooth functioning
(b) good image
(c) the growth of consumer movement
(d) increasing profit
Answer:
(c) The growth of consumer movement.

(xiii) Which of the following statements is correct about business ethics?
(a) Social responsibility and business ethics are considered different concepts
(b) Making higher profits should be the main objective of a business
(c) A business may be sustained only if it cares for society
(d) Companies making ethical investments may not be able to compete
Answer:
(c) A business may sustain only If it cares for society

(xiv) Holders of public office should take decisions solely in terms of the public interest. This principle of public life is called
(a) Integrity
(b) Accountability
(c) Honesty
(d) Selflessness (Dec 2013, 1 x 14 = 14 marks)
Answer:
(d) Selflessness

Question 3.
Choose the correct answer from the given four alternatives:
(i) A party who does not suffer any loss in case of breach of contract is entitled to
(a) Statutory damages
(b) Liquidated damages
(c) Exemplary damages
(d) Nominal damages
Answer:
(d) Nominal damages

(ii) If part of the contract is illegal, then the whole contract will be
(a) Voidable
(b) Void
(c) Legal
(d) Illegal
Answer:
(b) Void

(iii) In which of the following cases, the claim of Quantum Meruit arise
(a) when there is no breach of contract
(b) when a contract is discovered to be valid
(c) where something has been done non gratuitously
(d) where the contract is divisible
Answer:
(d) Where the contract is divisible

(iv) Amit tells Bharat in the presence of Chetan that Amit is agent of Chetan. Chetan maintains silence instead of denying it. Later, if Amit sells Chetai goods to Bharat, Chetan cai1,ot dispute Bharat’s title to the goods. This is example of
(a) sale by the official receiver
(b) sale by a tinder of goods
(c) sale by estoppel
(d) execution of Sale
Answer:
(c) Sale by estoppel.

(v) An act to dissuade the intending buyer from bidding or from raising the price by pointing out defects in the goods or by doing some other acts which prevent persons from forming a fair estimate of the price of the goods is known as
(a) Knock out an agreement
(b) Damping
(c) Puffers
(d) None of the above
Answer:
(b) Damping

(vi) If a minor draws, endorses, delivers or negotiates an instrument, such instrument binds
(a) all parties to the instrument Including the minor
(b) only the minor and no other parties to the instrument
(c) all parties to the instrument except the minor
(d) None of the above
Answer:
(c) all parties to the instrument except the minor

(vii) If a partnership firm, the decision can be made by rule of majority when decisions relate to
(a) policy matters
(b) ordinary routine matters
(c) financial matters
(d) buying and selling of property
Answer:
(b) Ordinary routine matters

(viii) Power to exempt any LLP or class of LLP for audits of accounts is with
(a) Inspector
(b) Central Government
(c) Any other regulatory authority
(d) None of the above
Answer:
(b) Central Government

(x) No fine can be imposed on any employed person who is under the age of
(a) 10
(b) 12
(c) 15
(d) 18
Answer:
(c) 15

(xi) In case of employee covered under the ESI, the accídent report shall be sent in ………………. to local office of the ESI to which trie company is attached.
(a) Fcmi No. 18
(b) Form No. 18A
(c) Form No. 25
(d) Form No. 16
Answer:
(d) Form No. 16

(xiv) Application for Director Identification Number (DIN) is to be made to Central Govt. in Form
(a) Dir – 1
(b) Dir- 2
(c) Dir – 3
(d) None of the above
Answer:
(b) DIR-2

(xvii) Business ethics is based on well-accepted
(a) Moral and Social Values
(b) Social Values only
(c) Moral Values only
(d) None of the above
Answer:
(a) Moral and Social Values

(xviii) Out of seven principles of public life, the principle of objectivity means
(a) holders of public office should take decisions solely in terms of the public interest.
(b) in carrying out public business including making public appointments, holders of public office should make choices on merit.
(c) holders of public office are accountable for their decisions and actions to the public.
(d) holders of public office should be as open as possible about all the decisions and actions that they take.
Answer:
(b) In carrying out public business including making public appointments, holders of public office should make choices on merit.

(xix) Who is responsible for ethical behaviour?
(a) Lecturers and Supervisors
(b) The Psychologist
(c) The Participants
(d) The Psychological Community
Answer:
(b) The Psychologist

(xx) The three C’s of business ethics are
(a) Commitment, Contribution and Consequences
(b) Compliance, ContributIon and Con€equences
(c) Compliance, Customs and Contribution
(d) Codes, Compliance, and Contributions (June 2014, 1 x 15= 15 marks)
Answer:
(b) Compliance, Contribution, and Consequences.

Question 4.
Answer all questions: (Choose the correct answer from the given four alternatives.).
(i) In social agreements usual presumption is
(a) that parties do not intend to create social relations.
(b) that parties intend to perform them.
(c) that parties do not intend to make legal and social relations.
(d) that the parties do not intend to create legal relations between them.
Answer:
(d) that the parties do not intend to create legal relations between them.

(ii) In a sale of goods, the doctrine of caveat emptor will not apply when there is
(a) usage of trade
(b) consent by fraud
(c) buyer’s error of judgment
(d) Merchantable Quality
Answer:
(d) Merchantable Quality

(iii) A bill of exchange, that is drawn accepted or endorsed without consideration is called
(a) Accommodation bill.
(b) Promissory note
(c) Trade bill
(d) Bearer instrument
Answer:
(a) Accommodation bill

(iv) Employee’s State Insurance Act, 1948 is applicable to all
(a) factories including factories belonging to Government and seasonal factories.
(b) factories excluding seasonal factories.
(c) factories including factories ‘belonging to Government and seasonal but excluding Silk factory.
(d) factories including factories belonging to Government but excluding seasonal factories.
Answer:
(d) factories including factories belonging to Government but excluding seasonal factories.

(v) A partner must give a public notice of his retirement from the firm in order absolve himself from them: liability for the acts of the other partners done after his retirement is known as
(a) Dormant partner
(b) Ostensible partner
(c) Nominal partner
(d) partner by estoppel
Answer:
(b) Ostensible partner

(vi) A prospectus which does not have complete particulars on the price of securities offered and the quantum of securities offered by the company is known as
(a) Private Placement
(b) Red-herring prospectus
(c) Deemed prospectus
(d) Shelf prospectus
Answer:
(b) Red-herring prospectus

(vii) The crucial step in understanding business ethics is
(a) Establishing codes of ethics
(b) Learning to recognize ethical issues
(c) Having efficient operations
(d) Implementing a strategic plan (Dec 2014, 2 x 7 = 14 marks)
answer:
(b) Learning to recognize ethical issues

Question 5.
Answer all questions (Choose the correct answer from the given tour alternatives.)
(i) An agreement which is enforceable at the option of one or more parties thereto but not at the option of other or others is called
(a) Void contract
(b) Voidable contract
(c) Void agreement
(d) Unenforceable contract
Answer:
(b) Voidable Contract

(ii) Which of the following agency is irrevocable under The Indian Contract Act, 1872?
(a) Agency for fixed period
(b) Agency for single transaction
(c) Agency coupled with interest
(d) Continuing agency
Answer:
(c) Agency coupled with interest

(iii) A Sqrt of tacit understanding/agreement among the intending bidders to stifle competition by not bidding against each other in an auction sale is called as
(a) Damping
(b) Knock-out agreement
(c) Puffers
(d) By-bidders
Answer:
(b) Knock-out agreement

(iv) When ani instrument is drawn conditionally or for a special purpose as a collateral security and not for the purpose of transferring property therein, it is called
(a) Ambiguous.
(b) Inchoate
(c) Escrow
(d) Inland
Answer:
(c) Escrow

(v) Which Committee ¡s constituted by the occupier to promote cooperation between. the workers and management in maintaining proper safety and health at workplace?
(a) Safety Committee
(b) Health Committee
(c) Management Workers Consultative Committee
(d) Maintenance Committee
Answer:
(a) Safety Committee

(vii) Businessmen or industrialists take initiative to form new companies. Their main function is to manage the company after its promotion, they are known as
(a) Particular Promoters
(b) Occasional Promoters
(c) Professional Promoters
(d) General Promoters
Answer:
(d) General Promoters

(viii) The study of ethics can be divided into four operational areas namely meta-ethics, normative ethics, descriptive ethics and
(a) positive ethics
(b) physical ethics
(c) applied ethics
(d) natural ethics (June 2015, 2 x7= 14 marks)
Answer:
(c) applied ethics

Question 6.
Answer all questions (Choose the correct answer from the given four alternatives):
(i) Anchal purchased a motor car from Kamal who had no title to it. Anchal used the motor car for several months. True owner spotted the motor car and demanded it from Anchal. Ir, such case:
(a) Anchal is bound to hand over the motor car to true owner.
(b) Anchal is not bound to return the motor car to true owner as he has paid in full settlement to Kamal.
(c) Anchal shalt advise true owner to approach Kamal.
(d) True owner has no ñght to claim either from Anchal or from Kamal. (Dec 2015, 1 mark)
Answer:
(a) Anchal is bound to hand over the motor car to true owner.

(ii) Which of the following agreements is wagering agreement under the Indian Contract Act, 1872?
(a) Crossword competition involving application of skill and knowledge.
(b) Contract of Insurance.
(c) A promise to pay B ₹ 1,000 if it rains on Monday.
(d) A agrees to pay B ₹ 1,000 if two straight lines should enclose a space. (Dec 2015, 1 mark)
Answer:
(c) A promise to pay B ₹ 1,000 if It rains on Monday.

(iii) Under Sale of Goods Act, which of the delivery of goods is called as delivery by attornment?
(a) Actual
(b) Symbolic
(c) Constructive
(d) Physical (Dec 2015, 1 mark)
Answer:
(c) Constructive

(iv) Where the price of the goods under a contract of sale is to be fixed by the valuation of a third party who fails to fix the valuation, but goods are supplied to the buyer, under section 10 of the Sale of Goods Act, 1930, the buyer is:
(a) Liable to pay the reasonable price of the goods.
(b) Liable to pay the minimum price of the goods.
(c) Not liable to pay any price until fixed by the valuer.
(d) Liable to pay the maximum retail price. (Dec 2015, 1 mark)
Answer:
(a) Liable to pay the reasonable price of the goods.

(v) Under Factories Act, 1948, where work of the same kind is carried out by two or more sets of workers during different periods of the day, each of such periods is called a:
(a) Relay
(b) Shift
(c) Recess
(d) Overtime (Dec 2015, 1 mark)
Answer:
(b) Shift

(vi) Under Employee’s State Insurance Act, in order to qualify for sickness benefits, the insured worker is required to contribute for:
(a) 70 days in a contribution period of 6 months.
(b) 78 days in a contribution period of 3 months.
(c) 91 days in a contribution period of 3 months.
(d) 78 days in a contribution period of 6 months. (Dec 2015, 1 mark)
Answer:
(d) 78 days in a contribution period of 6 months.

(vii) Ankh purchased goods worth ₹ 20,000 from Anuj. In lieu of cash payment, Ankit accepts a bill of exchange of ₹ 20,000 to be payable after three months. This is an example of:
(a) Accommodation Bill
(b) Fictitious Bill
(c) Genuine Bill
(d) Documentary Bill (Dec 2015, 1 mark)
Answer:
(c) Genuine Bill

(viii) Under the NegoUable Instruments Act, 1881,whether acceptance of a bill of exchange in the following situation shall be treated as ‘qualified’ acceptance where the acceptor:
(a) Undertakes to pay only 10,000 for a bill drawn for ₹ 15,000.
(b) Declares the payment to be independent of any other event.
(c) Writes, ‘Accepted, payable at ABC Bank’.
(d) Writes, ‘Accepted, payable at Delhi’. (Dec 2015, 1 mark)
Answer:
(a) Undertakes to pay only 10,000 tar a bill drawn for ₹ 15,000.

(ix) When a partnership firm is continued even after the expiry of fixed term is called:
(a) Perpetual partnership
(b) Fixed partnership
(c) Contract partnership
(d) Partnership at will (Dec 2015, 1 mark)
Answer:
(d) Partnership at will.

(x) When a partnership firm is continued even after the expiry of fixed term is called:
(a) Perpetual partnership
(b) Fixed partnership
(c) Contract partnership
(d) Partnership at will (Dec 2015, 1 mark)
Answer:
(c) Partner by estoppel

(xi) A person who is not a partner of a Partnership Firm, but he may liable for firm’s debt as if he was a Partner. Such a person is called:
(a) Nominal Partner
(b) Sleeping Partner
(c) Partner by estoppels
(d) Partner for profit only (Dec 2015, 1 mark)
Answer:
(b) Improve customers’ confidence

(xii) Business ethics are needed to create a faith about the quality, quantity, price, etc, of products. The customers have more trust and faith in the businessmen who follow ethical rules. They feel that such businessmen would not cheat them. Which one of the following is appropriate for it?
(a) Safeguarding consumers’ right
(b) Improve customers’ confidence
(c) Survival of business
(d) Consumer movement (Dec 2015, 1 mark)
Answer:

(xiii) Holders of public office should not place themselves under any financial or other obligation to outside individuals or organizations that might influence them in the performance of their official duties. This principle of public life is called:
(a) Selflessness
(b) Honesty
(c) Objectivity
(d) Integrity (Dec 2015, 1 mark)
Answer:
(d) Integrity

Question 7.
Answer all questions:
(a) Multiple choice questions:
(i) A contract is a combination of
(a) agreement and free consent
(b) agreement and consideration
(c) agreement and enforceability
(d) agreement and competence of parties
Answer:
(c) agreement and enforceability.

(ii) The provisions regarding maximum number of members in a partnership are given in
(a) The Partnership Act
(b) The Companies Act
(c) The Societies Registration Act
(d) The Co-operative Societies Act
Answer:
(b) The Companies Act.

(iii) X and Y agree to divide the profits of a business In equal shares but the loss if any is to be borne by X only. The partnership agreement is
(a) void
(b) avoidable
(c) lawful
(d) illegal
Answer:
(c) Lawful.

(iv) First aid boxes or cupboards equipped with prescribed contents and not less than one in number must be provided and maintained in every factory so as to be accessible during all working hours for
every
(a) 200 workers for any time
(b) 150 workers for any time
(c) 500 workers for any time
(d) 30 workers for any time
Answer:
(b) 150 workers for any time.

(v) When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the
(a) Preceding day
(b) Next preceding business day
(c) Same day of next week
(d) 3 days following the date holiday
Answer:
(b) Next Preceding business day.

(vi) In case of an employee who has not completed 15 years of age at the beginning of the Accounting year, the minimum bonus will be
(a) ₹ 100 or 8.33% of salary or wages whichever is higher.
(b) ₹ 60 or 8.33% of salary or wages whichever is higher.
(c) ₹ 60 or 8.33% of salary or wages whichever is lower. ‘
(d) ₹ 8.33% of salary or wages.
Answer:
(b) ₹ 60 or 8.33% of salary or wages whichever is higher.

(vii) Every LLP firm shall have at least …………………. designated partners who are individuals.
(a) two
(b) three
(c) four
(d) five (June 2016, 1 x 7 = 7 marks)
Answer:
(a) two.

Question 8.
(b) Fill in the blanks.
(i) The maximum number of parties in a contract may be ……………………. .
Answer:
Infinite.

(ii) The Primary role of …………………….. committee is to assist the board In identifying prospective directors.
Answer:
Nomination.

(iii) If gratuity is not paid within 30 days from the date it becomes payable simple interest @ ……………………… p.a. is payable on the expiry of the said period.
Answer:
10%.

(iv) The appropriate Government may direct that the provision of Minimum Wages Act, 1948 will not be applicable in case of wages payable to a ………………… person. (June 2016, 1 x 4 = 4 marks)
Answer:
Disabled.

Question 9.
State whether the following statements. are True (or) False.
(i) All agreements are contracts but all contracts are not agreements.
Answer:
False.

(ii) In a contract of guarantee two parties are necessary.
Answer:
False.

(iii) Delivery means voluntary transfer of possession of goods from one person to another.
Answer:
True.

(iv) Shareholders and Stakeholders are synonyms.
Answer:
False.

(v) Ethics and Law have the same purpose. (June 2016, 1 x 5 =5 marks)
Answer:
True.

Question 10.
Answer all questions:
(a) Multiple choice questions:
(i) A contract creates
(a) jus in personam.
(b) Just in rem.
(c) only rights and no obligations.
(d) only obligations and no rights.
Answer:
(a) Jus in personam.

(ii) Provisions of EPF & Miscellaneous Provision Act, 1952 are applicable to. Cinema/Theatre employing:
(a) 10 or more persons.
(b) 20 or more persons.
(c) 5 or more persons.
(d) 15 or more persons.
Answer:
(c) 5 or more persons.

(iii) In the absence of Partnership agreement, the Partner has:
(a) right to avail interest on advances paid to partnership firm.
(b) right to avail interest on advances paid to partnership firm provided there is profit.
(c) has no right to avail interest on advances.
(d) has right to avail interest on advances even after dissolution of the firm.
Answer:
(a) Right to avail interest on Advances paid to Partnership Firm.

(iv) A person who is employed by the seller to raise the price by fictitious bids. Such person is known as:
(a) Puffer
(b) By bidder
(c) Decoy Ducks
(d) All of the above.
Answer:
(d) All of the above.

(v) In case of banker’s refusal to honour the cheque in spite of sufficient funds in customer’s account, the banker is:
(a) liable to compensate the drawer.
(b) not liable to compensate the drawer.
(c) criminally liable under section 138.
(d) liable to be delisted.
Answer:
(a) Liable to compensate the drawer.

(vi) Dependants benefit is paid at the rate of:
(a) 60% of wages in the form of monthly payments.
(b) 75% of wages In the form of monthly payments.
(c) 80% of wages in the form of monthly payments.
(d) 90% of wages in the form of monthly payments.
Answer:
(d) 90% of wages in the form of monthly payments.

(vii) Board of Directors of every listed Company shall constitute an Audit Committee which shall consists of a minimum of:
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors
(d) 5 Directors.
Answer:
(b) 3 Directors.

(viii) The maximum limit of bonus payable to an employee is fixed by way of percentage of salary or wages earned by the employee during the accounting year, the percentage is:
(a) 10%
(b) 15%
(c) 20%
(d) 25%.
Answer:
(c) 20%.

(ix) Who is the head of Central Information Commission?
(a) The State Information Commissioner.
(b) The Chief Information Commissioner
(c) The Chief Information Officer
(d) The Chairman of Information Commission.
Answer:
(b) The Chief Information Commissioner.

(x) Business Ethics also called as Corporate Ethics is a form of:
(a) Positive Ethics
(b) Applied Ethics
(c) Physical Ethics
(d) Practical Ethics. (Dec 2016, 1 x 10 = 10 marks)
Answer:
(b) Applied Ethics.

Question 11.
(b) Fill in the blanks:
(i) No adult worker can be allowed to work more than ……………………….. hours in a day.
Answer:
Nine.

(ii) A Meeting of Board of Directors must be held at least once in every ……………………… months.
Answer:
Three/Four

(iii) Only designated partners are liable to obtain unique identification number called as ……………… .
Answer:
Designated Partner Identification Number (DPIN)

(iv) Where the paid-up share capital of an One Person Company exceeds …………………. or its average annual turnover during the relevant period exceeds, it shall cease to be entitled to continue as a One Person Company. (Dec 2016, 1 x 4 = 4 marks)
Answer:
Fifty lakh rupees. two crore rupees.

Question 12.
(c) State whether the followin9 statements are True ‘(or) False:
(i) Broader definitions of Corporate governance stress a broader level of ‘ accountability to shareholders and other stakeholders.
Answer:
True

(ii) According to the Payment of Wages Act, 1936 other deductions cannot be more than 50% of wages.
Answer:
True

(iii) Limited Liability Partnership should have a minimum paid-up capital of INR 1,00,000.
Answer:
False

(iv) Two-thirds of total directors can be given permanent appointment in the company.
Answer:
False

(v) There is a prescribed Performa for RTI application. (Dec 2016, 1 x 5 = 5 marks)
Answer:
False.

Question 13.
Answer all questions.
(a) Multiple choice questions:
(i) The term ‘sub-agent’ in the business of agency is defined as a person employed by, and acting under the control of the
(a) Principal
(b) Original agent
(c) Lawyer
(d) Third person
Answer:
(b) Original agent.

(ii) The first endorsement of an instrument can be made by the
(a) Banker
(b) Payee
(c) Holder in due course
(d) Agent
Answer:
(b) Payee

(iii) Which of the following is not the mode of dissolution of a firm under voluntary dissolution?
(a) Dissolution by agreement
(b) Dissolution on the happenings of certain contingencies
(c) Dissolution on becoming a partner of unsound mind
(d) Compulsory dissolution
Answer:
(c) Dissolution on becoming a partner of unsound mind.

(iv) Whitewash or color wash should be carried out at least once In every period of
(a) 14 months
(b) 24 months
(c) 48 months.
(d) 60 months.
Answer:
(a) 14 months

(v) The term family’ as defined in ESI Act, 1948 does not Include
(a) a spouse
(b) a minor adopted child
(c) a dependent unmarried daughter
(d) an independent married sister
Answer:
(d) an independent married sister

(vi) Which one of the following amounts to safety measure?
(a) Artificial humidification
(b) Ventilation
(c) Fencing of factory
(d) First aid appliances.
Answer:
(c) Fencing of factory

(vii) if a company does not have a çommon seal, the share certificate shall be signed by
(a) Two Directors
(b) One Director and Company Secretary
(c) Two Directors and Company Secretary
(d) Company Secretary
Answer:
(b) One Director and Company Secretary.

(viii) In case of e-voting, notice shall be sent as attachment ¡n
(viii) PDF file.
(b) Word file
(c) Excel file
(d) Access file
Answer:
(viii) PDF file.

(ix) A Director may be elected by small shareholders upon a notice by
(a) not less than 1000 small shareholders.
(b) one-tenth of the total number of shareholders.
(c) not less than 1000 small shareholders or one-tenth of such shareholders, whichever is lower.
(d) one-tenth of 1000 small shareholders.
Answer:
(c) not less than 1000 small shareholders or one-tenth of such shareholders, whichever is lower.

(x) Meta ethics deal with the nature of ………………. .
(a) external influences.
(b) Moral judgment.
(c) material facts.
(d) animal rights. (June 2017, 1 mark each)
Answer:
(b) Moral judgment.

Question 14.
(b) Fill in the blanks:
(i) Misrepresentation must relate to some fact which is material to the ……………………. .
Answer:
Contract

(ii) The LLP shall inform the concerned Registrar within ………………. of the date of registration about the conversion and the particulars of LLP.
Answer:
15 days

(iii) The term of office of a member of the standing committee, constituted under ESI Act, be two years from the date on which his election is ……………….. .
Answer:
notified.

(iv) The registered office shall be opened within 15 days from the date of ……………………. of the company.
Answer:
incorporation

(vi) A company shall send copy of each of the documents such as memorandum etc., to a member within ……………….. days of the request made by him. (June 2017, 5 marks)
Answer:
7 days

Question 15.
(c) True or False:
(i) In an agreement to sale, the buyer is entitled to recover the same from the official liquidator in case of insolvency of the seller.
Answer:
False

(ii) The term employed person’ includes the legal representatives of a deceased employed person.
Answer:
True

(iii) Payment of Gratuity Act, 1972 applies to every shop and establishment 9mploying seven or more persons.
Answer:
False

(iv) Any misstatement in the prospectus would attract the liability on the issuer.
Answer:
True

(v) Continuous improvement or kaizen is a popular theme. (June 2017, 5 marks)
Answer:
True

Question 16.
Match and Pair:

Column I	Column II
1. Presentment	(A) Determines acceptable conduct if business organization
2. Form no. INC – 23	(B) Issue of global depository receipt
3. Continuing guarantee	(c) Bill of exchange
4. Business ethics	(D) Shifting of registered office within the same state
5. Section 41 of the Companies Act	(E) Guarantee which extends to a series of transactions

(June 2017, 5 marks)
Answer:

Column I	Column II
1. Presentment	(C) Bill of exchange
2. Form no. INC – 23	(D) Shifting of registered office within the same state
3. Continuing guarantee	(E) Guarantee which extends to a series of transactions
4. Business ethics	(A) Determines acceptable conduct in business organization
5. Section 41 of the Companies Act	(B) Issue of global depository receipt

Question 17.
(a) Answer all questions:
Multiple choice questions:
(i) Which one of the following is not the discharge by operation of law?
(a) By merger
(b) By insolvency.
(c) By breach of contract
(d) By the unauthorized alteration of items of a written document
Answer:
(c) By breach of contract

(ii) Which of the following Is a method of discharge form liability?
(a) By endorsement
(b) By promising
(c) By cancellation
(d) By registration
Answer:
(c) By cancellation

(iii) A partner may contribute to the LLP
(a) tangible of intangible property.
(b) moveable or immovable property.
(c) money, promissory note, etc.
(d) Any of the above
Answer:
(d) Any of the above

(iv) Gratuity is payable to an employee after he has rendered continuous service for not less than five years on his
(a) transfer
(b) daughter’s marriage
(c) re-employment
(d) resignation
Answer:
(d) resignation

(v) Who will not be considered as an employee?
(a) Canteen workers
(b) Casual workers
(c) Partners
(d) Part-time employee
Answer:
(c) Partners

(vi) “Individual pension account” means an account of subscriber, executed by a contract setting out the terms and conditions under the
(a) Provident fund scheme
(b) National pension system
(c) Citizen welfare system
(d) Minimum wage payment scheme
Answer:
(b) National pension system

(vii) Which of the following is not a category of company?
(a) Inactive company.
(b) Assistant Company
(c) Dormant Company
(d) Producer Company
Answer:
(b) Assistant Company

(viii) Section 92 of the Companies Act, 2013 requires a company to prepare and file annual return in form no.
(a) MGT-12
(b) INC-23
(c) MGT-7
(d) SH-10
Answer:
(c) MGT-7

(ix) An instrument of the proxy shall be deposited with the registered office of the company within …………………….. before the conduct of the meeting.
(a) 7 hours
(b) 21 hours
(c) 48 hours
(d) 60 hours
Answer:
(c) 48 hours

(x) A proper foundation of ethics requires a standard of …………………… goals and actions can be compared to. (Dec 2017, 1 x 10 = 10 marks)
(a) value
(b) living
(c) life
(d) speech
Answer:
(a) value

Question 18.
Match and pair:

Column I	Column II
1. Hybrid between a company and a partnership	(A) Existence from the time of incorporation to winding up
2. Perpetual succession	(B) Powers of the controlling authority
3. Red herring prospectus	(C) Need for business ethics
4. Requiring the discovery and production of documents	(D) A limited liability partnership
5. Smooth functioning	(E) Does not include complete particulars of the quantum or price of securities

(Dec 2017, 5 marks)
Answer:

Column I	Column II
1. Hybrid between a company and a partnership	(D) A limited liability partnership
2. Perpetual succession	(A) Existence from the time of incorporation to winding up
3. Red herring prospectus	(E) Does not include complete particulars of the quantum or price of securities
4. Requiring the discovery and production of documents	(B) Powers of the controlling authority
5. Smooth functioning	(C) Need for business ethics

Question 19.
True and False:
(i) The seller of the goods is not bound to deliver them until the buyer applies for the delivery.
Answer:
True

(ii) The partners of a LLP may remove an auditor from office at any time by following the procedure as laid down in the LIP agreement.
Answer:
True

(iii) The certificate of fitness granted by the certifying surgeon shall be valid for a period of 24 months from the date thereof.
Answer:
False

(iv) The e-voting shall remain open for not less than 3 days and shall close at 5.00 P.M. on the date preceding the date of general meeting.
Answer:
True

(v) The term ‘ethics’ derived from French word ‘ethos which means character. (Dec 2017, 5 marks)
Answer:
False

Question 20.
Fill in the blanks:
(i) Remission means ………………….. of a lesser performance that what is actually due under the contract.
Answer:
acceptance

(ii) A promissory note or bill of exchange, in which ho time for payment is specified, and a cheque, are payable on ………………. .
Answer:
demand

(iii) Where a person provides labour or service to another for remuneration which is less than the minimum wage, such labour is called …………………. .
Answer:
forced labour

(iv) The monies received on application shall be kept in a separate bank account in a ……………….. bank.
Answer:
schedule

(v) The seven principles of ………………… were set out by Lord Nolan in 1995. (Dec 2017, 5 marks)
Answer:
public life

Question 21.
Answer all the following questions:
(a) Choose the correct answer from the given alternatives (you may write only the Roman numeral and the alphabet choosen for your answer):
(i) The main feature of e-contract is
(a) Cost and acceptability
(b) Purity and clarity
(c) Speed, accurate and reliable
(d) Perfection and attractive
Answer:
(c) Speed, accurate and reliable

(ii) Which of the following is not an unpaid seer’s right against the goods?
(a) The right of retention
(b) The right of stoppage in transit
(c) The right of seeking claim for damage
(d) The right of resale
Answer:
(c) The right of seeking claim for damage

(iii) Where the endorser does not want that the endorsee or any other holder to incur any expense on his account is called
(a) Restrictive endorsement
(b) Sans frais endorsement
(c) Conditional endorsement
(d) Unwanted endorsement
Answer:
(b) Sans frais endorsement

(iv) The liability of the partners will continue for the acts done before the dissolution, even after the dissolution, until
(a) ‘Public notice ¡s given of the dissolution
(b) Partners are getting the final payment
(c) Claim is demanded by the creditors
(d) The death of partners
Answer:
(a) ‘Public notice is given of the dissolution

(v) Every employee shall be entitled to receive bonus from his employer in an accounting year if he has worked for not less than
(a) Ten working days
(b) Twenty working days
(c) Thirty working days
(d) Forty working days
Answer:
(c) Thirty working days

(vi) Under Employee’s State Insurance Act, 1948, the term of the office of the members of Medical Benefit Council shall be
(a) 2 Years
(b) 4 Years
(c) 5 Years
(d) 10 Years
Answer:
(b) 4 Years

(v) Which one cannot be transacted through postal ballot?
(a) Appointment of auditor
(b) Election of a Director
(c) Buyback of shares by a company
(d) Change in place of registered office outside the local limits of any city, town or village
Answer:
(c) Buyback of shares by a company

(vi) The appointment of an independent director shall be approved by the …………….. .
(a) Board meeting
(b) General Meeting
(c) Registrar of Companies
(d) Central Government
Answer:
(b) General Meeting

(vii) The sweat equity shares shall be locked in for a period of …………………. years from the date of allotment.
(a) One
(b) Two
(c) Three
(d) Four
Answer:
(a) One

(viii) The following is the disadvantage of business ethics:
(a) Through increasing morale and trust business can increase their market share
(b) Publicity due to well and ethical performance
(c) Acceptance of products of the company by the public
(d) Diversity in achievements (June 2018, 1 x 10 = 10 marks)
Answer:
(b) Publicity due to well and ethical performance

Question 22.
(b) Match the statement in column I with the most appropriate statement in Column II:

Column I	Column II
1. Legal Representative of the contractor	(A) Welfare measures taken in a factory.
2. Where the seller makes a false representation and buyer relies on it.	(B) Certificate of incorporation
3. Creches	(C) Extract of the annual return of a company.
4. MGT – 9	(D) Exception to the Doctrine of Caveat Emptor.
5. Form No. INC – 11	(E) He who is not the Principal Employer.

(June 2018, 1 x 5 = 5 marks)
Answer:

Column I	Column II
1. Legal Representative of the contractor	(E) He who is not the Principal Employer.
2. Where the seller makes a false representation and buyer relies on it.	(D) Exception to the Doctrine of Caveat Emptor.
3. Creches	(A) Welfare measures taken in a factory.
4. MGT – 9	(C) Extract of the annual return of a company.
5. Form No. INC – 11	(B) Certificate of incorporation

Question 23.
(c) State whether the following statements are True or False (you may write only the Roman numeral and whether True or False without copying the statements into the answer books):
(i) Gratuitous bailment continues even after the death of either of the bailor or bailee.
Answer:
False

(ii) A holder is not having right to duplicate of lost bill before it is overdue.
Answer:
False

(iii) Fine may be recovered from the employed person by installments
Answer:
False

(iv) Share certificate is a negotiable instrument.
Answer:
False

(v) The businessmen who do not follow business ethics will have short-term success, but they will fail in the long run. (June 2018, 1 x 5 = 5 marks)
Answer:
True.

Question 24.
(d) Fill in the blanks suitably (you may write only the Roman numeral and the content filling the blanks):
(i) The liability of surety arises only when the principal debtor fails to pay the debt to the ………………….. .
Answer:
Creditor

(ii) Goods to be manufactured or produced or acquired by the seller after making of the contract of sale is called ………………………… good.
Answer:
Future

(iii) If there is a dispute as to the amount of gratuity payable to the employee, the employer shall deposit the gratuity with the …………………….. .
Answer:
Controlling authority

(iv) The time limit for registration of charge is …………………… days from the date of creation of charge.
Answer:
30 days

(v) The ethical operation of a company is directly related to ………………….. in both short and long term. (June 2018, 1x 5 = 5 marks)
Answer:
Profitability.

Question 25.
Answer all the following questions:
Choose the correct answer from the given alternatives (you may write only the Roman numeral and the alphabet chosen for your answer):
(a) Multiple Choice Questions:
(i) A proposal may be revoked at any time before
(a) the communication of acceptance
(b) the payment of consideration
(c) signing the agreement.
(d) execution of the proposal
Answer:
(a) The communication of acceptance

(ii) Which of the following is not to be taken care while admitting a new partner?
(a) Computation of new profit-sharing ratio and sacrifice ratio
(b) Accounting treatment of goodwill
(c) Professional qualification of admitting partner
(d) Revaluation of assets and liabilities
Answer:
(c) Professional qualification of admitting partner

(iii) Where goods are delivered to the buyer and he refuses to accept them, the buyer is not bound to
(a) retain them with him
(b) look – after the goods
(c) return them to the seller
(d) store them in his godown
Answer:
(c) Return them to the seller

(iv) No child shall be allowed to work in a factory unless he has completed his
(a) 12th year
(b) 14th year
(c) 16th year
(d) 18th year
Answer:
(b) 14th year

(v) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than
(a) three years
(b) five years
(c) seven years
(d) ten years
Answer:
(b) Five years

(vi) The Employees’ State Insurance Corporation is
(a) Hindu Undivided Family –
(b) Local Authority
(c) Charitable Institution
(d) Body Corporate
Answer:
(d) Body Corporate

(vii) The annual return of an OPC shall be signed by the company secretary or where there is no company secretary, by the
(a) Senior executive of the company
(b) Auditor of the company
(c) Director of the company
(d) Advocate of the company
Answer:
(c) Director of the company

(viii) If there is any misstatement in the prospectus then it would attract the liability on
(a) The printer
(b) The issuer
(c) The publisher
(d) The proof-reader
Answer:
(b) The issuer

(ix) Every company limited by shares shall keep and maintain the Register of Members in Form No.
(a) MGT-1
(b) MGT-3
(c) MGT-7
(d) MGT-12
Answer:
(a) MGT-1

(x) Ethics are the set of moral principles that guide a person’s
(a) Behaviour
(b) Philosophy
(c) Religion
(d) Profession (Dec 2018, 1 x 10 = marks)
Answer:
(a) Behaviour

Question 26.
(b) Match and Pair:

Column I	Column II
(1) Wagering contract	(A) Voting through electronics means
(2) Coercion	(B) War, animal rights and capital punishment
(3) Consensus ad-idem’	(C) Committing any act forbidden by the Indian Penal Code
(4) Section 108 of Companies Act, 2013	(D) Identity of minds
(5) Applied ethics	(E) Promise to pay ₹ 1,000 if it rains today

(Dec 2018, 1 x 5 = 5 marks)
Answer:

Column I	Column II
(1) Wagering contract	(E) Promise to pay ₹ 1,000 if it rains today
(2) Coercion	(C) Committing any act forbidden
(3) by the Indian Penal Code Consensus ad-idem	(D) Identity of minds
(4) Section 108 of Companies Act,	(A) Voting through Electronics 2013 means
(5) Applied ethics	(B) War, animal rights and capital punishment

Question 27.
(c) State whether the following statements are True or False
(i) Goods to be manufactured or produced or acquired by the seller after making of the contract of sale are called future goods.
Answer:
True

(ii) The first endorsement of an instrument can be made by the Banker.
Answer:
False

(iii) Payment of Gratuity Act, 1972 applies to every shop and establishment employing seven or more persons.
Answer:
False

(iv) In case of e-voting, notice shall be sent as attachment in Word file.
Answer:
False

(v) Ethics is a requirement for human life. (Dec 2018, 1 x 5 = 5 marks)
Answer:
True

Question 28.
(d) Fill in the blanks:
(i) The dishonor of the instrument may be due to Non-acceptance and ………………….. .
Answer:
Non-payment

(ii) The term of the office of the representative members of Medical Benefit Council shall be ………………….. years from the date on which the appointment is notified.
Answer:
Four

(iii) The company shall have the ………………….. to specify the lock-in-period for the shares issued in pursuant of exercise such option.
Answer:
Freedom

(iv) A director may resign from his office by giving a notice in writing to the ………………….. .
Answer:
Company

(v) The Seven Principles of Public Life were set out by ………………………….. for the first time in the year 1995. (Dec 2018, 1 x 5 = 5 marks)
Answer:
Lord Nolan

Question 29.
(c) Answer all the following questions:
(a) Choose the correct answer from the given alternatives (you may write only the Roman numeral and the alphabet chosen for your answer):
(i) Anu threatens to kidnap Binu’s daughter if she does not sell her house worth ₹ 90 Lakh to her for ₹ 20 Lakh. This Contract is void due to –
(a) inadequacy of Consideration.
(b) absence of Free Consent.
(c) incompetence of Parties.
(d) None of the above.
Answer:
(b) absence of Free Consent.

(ii) The Latin Maxim “Nemo Dat Quod non-Habet” means
(a) no man can pass a better title than he has.
(b) let the Buyer beware.
(c) no consideration – No contract.
(d) ignorance of the law is no excuse.
Answer:
(a) no man can pass a better title than he has.

(iii) As per the RBI Act, which of the following Negotiable Instruments can be payable to the bearer on demand?
(a) Cheque
(b) Hundi
(c) Bank Draft
(d) Promissory Note.
Answer:
(a) Cheque

(iv) When a partnership firm is continued even after the expiry of fixed term, it is called
(a) Partnership at Will
(b) Perpetual Partnership
(c) Fixed Partnership
(d) Particular Partnership
Answer:
(a) Partnership at Will

(v) No female child shall be allowed to work in any factory except between ………………… .
(a) 8 AM to 7 PM
(b) 6 PM to 6 AM
(c) 6 AM to 7 AM
(d) 10 PM to 5 AM
Answer:
(a) 8 AM to 7 PM

(vi) In the case of a private company mention the number of members personally present to form the quorum of a meeting of the company.
(a) One member
(b) Two members
(c) Three members
(d) Four members
Answer:
(b) Two members

(vii) Which of the following is not a valid medium of sending notice to all shareholders?
(a) By registered post or speed post
(b) Through public advertisement
(c) Through registered email-id
(d) Through courier service
Answer:
(b) Through public advertisement

(viii) If any default is made in filing refund of money, the company and every officer, who is in default shall be liable to a penalty maximum up to
(a) ₹ 50,000
(b) ₹ 75000
(c) ₹ 1,00,000
(d) ₹ 1,25,000
Answer:
(c) ₹ 1,00,000

(ix) Value chain as a strategic framework for analysis of competitive advantage was promoted by
(a) Peter Drucker
(b) F. W. Taylor
(c) Michael Porter
(d) Tom Peters (June 2019, 1 x 9 = 9 marks)
Answer:
(c) Michael Porter

Question 30.
(b) Match and Pair:

Column I	Column II
1. Occupier	A. purchases goods from S, he has no intention of paying for it.
2. Section 92 of the Companies Act, 2013	B. Annual Return.
3. Metaethics	C. Person having ultimate control
4. Fraud	D. Control of at least 20 percent of total share capital
5. Significant influence	E. Nature of moral judgment.

(June 2019, 1 x 5 = 5 marks)
Answer:

Column I	Column II
1. Occupier	(C) Person having ultimate control
2. Section 92 of the Companies Act, 2013	(b) Annual Return
3. Metaethics	(e) Nature of moral judgement
4. Fraud	(a) Purchases goods from S, he has no intention of paying for it.
5. Significant influence	(d) Control of at least 20 percent of total share capital

Question 31.
(c) State whether the following statements are True or False:-
(i) An agreement which is impossible is void.
Answer:
True

(ii) In case of expulsion of a partner, the provisions of retired partners will be applicable to such expelled partner.
Answer:
True

(iii) Sickness benefit is paid up to a maximum day of 60 days in a year.
Answer:
False

(iv) A director in the whole time employment of the Company is called Whole full-time director.
Answer:
True

(v) Contribution to pension scheme is recoverable when employee crosses 58 years of age. (June 2019, 1 x 5 = 5 marks)
Answer:
False.

Question 32.
(d) Fill in the blanks:
(i) When the consent is caused by ……………………….., the agreement is voidable at the option of the party whose consent was so caused.
Answer:
under influence

(ii) All payments of wages shall be made on a …………………. day.
Answer:
working

(iii) Whenever a company makes any allotment of securities, ¡t shall file a return of allotment with the Registrar within ……………………. days of allotment.
Answer:
30

(iv) The application for the purpose of Alteration of Articles ¡s to be filed in Form No. …………………….. .
Answer:
INC – 27

(v) Business ethics must safeguard different rights of the …………………… . (June 2019, 1 x5=5 marks)
Answer:
consumers.

Question 33.
Answer all the following questions:
(a) Choose the correct answer from the given alternatives (you may write only the Roman numeral and the alphabet chosen for your answer):
(i) A person is said to be of sound mind for the purposes of making a contract if, at the time when he makes it, he is capable of
(a) listening to it
(b) hearing it
(c) understanding it
(d) interpreting it
Answer:
(c) understanding it

(ii) Ankit agrees to pay Bina ₹ 1,500 if it rains today, otherwise Bina pays Ankit 2,000. This is a ………………………………….. .
(a) Gambling
(b) Wagering Agreement
(c) Valid agreement
(d) Speculation
Answer:
(b) Wagering Agreement

(iii) Writing of a person’s name on the face or back of an instrument or on a slip of paper attached to it is known as
(a) Endorsement
(b) Transfer
(c) Negotiation
(d) Transmission
Answer:
(a) Endorsement

(iv) Anusua and Shrita formed a partnership to undertake a construction of a shopping complex in New Delhi. This partnership is called
(a) Partnership at will
(b) Particular partnership
(c) Unlimited partnership
(d) Partnership with undefined mission
Answer:
(b) Particular partnership

(v) Every employee shall be entitled to receive bonus from his employer in
(a) a financial year
(b) an accounting year
(c) a calendar year
(d) a manufacturing year
Answer:
(b) an accounting year

(vi) The annual return of an OPC shall be signed by
(a) the company secretary
(b) the director
(c) the chief accountant
(d) the auditor
Answer:
(a) the company secretary

(vii) The minimum age limit for appointment of managing director and the whole time director is
(a) 18 years
(b) 21 years
(c) 25 years
(d) 30 years
Answer:
(b) 21 years

(viii) A company cannot remove a director-appointed
(a) at the annual general meeting
(b) at the extraordinary general meeting
(c) by the promoter
(d) by the tribunal
Answer:
(d) by the tribunal

(ix) Moral management requires ethical
(a) producer
(b) leadership
(c) market
(d) customer (Dec 2019, 1 x 9=9 marks)
Answer:
(b) leadership

Question 34.
(b) Match and Pair:

Column I	Column II
1. Right of lien	(a) Industrial Establishment
2. Certificate of Incorporation	(b) Minimum rates of wages have been fixed
3. Lord Nolan	(c) Keep the goods in his possession
4. Plantation	(d) Seven principles of public life
5. Cost of living index number	(e) Form No. INC-11

(Dec 2019, 5 marks)
Answer:

Column I	Column II
1. Right of lien	(c) Keep the goods in his possession
2. Certificate of Incorporation	(e) Form No. INC – 11
3. Lord Nolan	(d) Seven principles of public life
4. Plantation	(a) Industrial Establishment
5. Cost of living index number	(b) Minimum rates of wages have been fixed

Question 35.
(c) State whether the following statements are True or False:
(i) A promise in return for promise means Cross promises.
Answer:
False

(ii) Section 65 provides that me Central Government shall appoint, one or more Inspectors to investigate the affairs of a LLP.
Answer:
False

(iii) The information Memorandum shall be deemed to be a Red herring prospectus.
Answer:
False

(iv) A holder of depository receipts may become a member of the company.
Answer:
True

(v) Value chain as a strategic framework for analysis of competitive advantage was promoted by Peter Drucker. (Dec 2019, 5 marks)
Answer:
False

Question 36.
(d) Fill in the blanks:
(i) Section 92 of the Companies Act provides that every company shall prepare an Annual. Return in Form No …………………. .
Answer:
MGT-7

(ii) No fine shall be imposed on any employed person who is under the age of ……………….. .
Answer:
15 years

(iii) The EST Act, 1948 is the first major legislation on …………………. security for the employees in India.
Answer:
Social

(iv) A company whose principal business is the acquisition of shares, debentures or other securities is termed as …………………… company.
Answer:
Investment

(v) ………………… is the principles and standards that determine acceptable conduct in business organizations. (Dec 2019, 5 marks)
Answer:
Business Ethics

Question 37.
The phrases ‘business ethics and corporate ethics’ are often used to describe the application of ethical values to
(1) Business activities
(2) Make businessmen spiritual
(3) Nation building
(4) Democratize corporate (Dec 2021, 1 mark)
Answer:
(1) Business activities

Question 38.
An individual shall give his consent to become a designated partner in
(1) Form-3
(2) Form- 10
(3) Form-4
(4) Form- 9 (Dec 2021, 1 mark)
Answer:
(4) Form – 9

Question 39.
The annual return of an OPC shall be signed by the company secretary or where there is no company secretary, by the
(1) Auditor of the company
(2) Advocate of the company
(3) Director of the company
(4) Senior executive of the company (Dec 2021, 1 mark)
Answer:
(3) Director of the company

Question 40.
Value chain as a strategic framework for analysis of competitive advantage was promoted by
(1) Tom Harrison
(2) Peter Drucker.
(3) Michael Porter
(4) F. W. Taylor (Dec 2021,1 mark)
Answer:
(3) Michael Porter

Question 41.
In case of a sale by auction, the sale may be notified to be subject to a
(1) Recovery price
(2) Cost price
(3) Market price
(4) Reserved price (Dec 2021, 1 mark)
Answer:
(4) Reserved price

Question 42.
In which one of the following cases an agreement without consideration is void
(1) Gift actually made
(2) Saie of property
(3) Creation of agency
(4) Charitable subscription (Dec 2021, 1 mark)
Answer:
(2) Sale of property

Question 43.
In case of a private company, mention the number of members personally present to form the quorum of a meeting of the company.
(1) Two members,
(2) Four members
(3) One member
(4) Three members (Dec 2021, 1 mark)
Answer:
(1) Two members

Question 44.
The registered office shall be opened within ………………… from the date of incorporation of the company.
(1) 15days
(2) 60 days
(3) 90 days
(4) 30 days (Dec 2021, 1 mark)
Answer:
Answer:
(4) 30 days

Question 45.
Every occupier shall ensure the health, safety and welfare of all workers
(1) While employer desires so
(2) Till lifetime
(3) Till they are employed with the factory
(4) While they are at work in the factory (Dec 2021, 1 mark)
Answer:
(4) While they are at work in the factory

Question 46.
A new partner may be admitted in a partnership firm either for the increase of capital of the firm or to strengthen the
(1) Production of the firm
(2) Management of the firm
(3) Profit share of the firm
(4) Manpower of the firm (Dec 2021, 1 mark)
Answer:
(2) Management of the firm.

Question 47.
Every employee should be entitled to receive bonus from his employer in an accounting year ¡t he has worked for not less than
(1) Twenty working days
(2) Thirty working days
(3) Ten working days
(4) Forty working days (Dec 2021, 1 mark)
Answer:
(2) Thirty working days

Question 48.
An instrument of the proxy shall be deposited with the registered office of the company before ………………….. hours of the conduct of the meeting.
(1)21 hours
(2) 60 hours
(3) 7 hours
(4) 48 hours (Dec 2021, 1 mark)
Answer:
(4) 48 hours

Question 49.
A general meeting may be called after giving a shorter notice if consent is given by not less than …………………….. of the members entitled to vote at such meeting.
(1) 95%
(2) 45%
(3) 55%
(4) 65% (Dec 2021, 1 mark)
Answer:
(1) 95%

Question 50.
Presentation for acceptance of the bill may not be excused in the following cases
(1) Where the drawee cannot be found with reasonable efforts
(2) Where the drawee is insolvent
(3) Where the drawee is a fictitious person
(4) Where the drawee is in a special economic zone (SEZ) (Dec 2021, 1 mark)
Answer:
(4) Where the drawee is in a special economic zone (SEZ)

Question 51.
The office of a director shall become vacant In case he absents himself from all the meetings of the Board of Directors held during a period of ………………….. with or without seeking leave of absence of the Board.
(1) 6 months
(2) 3 months
(3) 9 months
(4) 12 months (Dec 2021, 1 mark)
Answer:
(4) 12 months

Question 52.
Meaning of the Latin word indorsum’ is
(1) Under the law
(2) Inside the box
(3) Upon the back
(4) With the bearer (Dec 2021, 1 mark)
Answer:
(3) Upon the back

Question 53.
Which of the following is not a valid method of voting in a meeting of a company?
(1) Voting through electronic means
(2) Voting by showing hands
(3) Voting by-poll
(4) Voting by creating sounds  (Dec 2021, 1 mark)
Answer:
(4) Voting by creating sounds

Question 54.
Permanent disablement benefit is paid at the rate of wages.
(1) 90%
(2) 79%
(3) 120%
(4) 100%
Answer: (Dec 2021, 1 mark)
(1) 90%

Question 55.
The particulars of the issue of preference shareholders shall be noted in the ………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Register of members,

Question 56.
Where a person provides labour or service to another for remuneration which is less than the minimum wage, such labour is called Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Forced labour

Question 57.
The seven principles of public life were set out by …………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Lord Nolan

Question 58.
Annual return under the Payment of Bonus Act shall be filed by every employer on or before …………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
1st February in each year.

Question 59.
The dishonor of the instrument may be due to ……………….. and ………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Non-payment and non-acceptance

Question 60.
The seller of the goods is deemed to be …………………………. when the whole of the price has not been paid. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Unpaid seller

Question 61.
Occupier of every factory shall provide and maintain suitable room or rooms for the use of the children under the age of six years of women workers where the number of such women workers exceed. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
30

Question 62.
A nominal partner can be of two types – Partner by estoppels and Partner by …………………. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Holding out

Question 63.
When the drawee accepts the bills subject to qualification is known as ……………….. Which word(s) according to you most appropriately fill(s) the above blank? (2021 – Dec 1 mark)
Answer:
2021 – Qualified acceptance

Question 64.
A LLP formed, incorporated, or registered outside India which establishes a place of business within India is called ……………………. Which word(s) according to you most appropriately fill(s) the above blank?
(Dec 2021, 1 mark)
Answer:
Foreign LLP

Question 65.
A proper foundation of ethics requires a standard of ………………… to which all goals and actions can be compared to. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Value

Question 66.
Section 92 of the Companies Act provides that every company shall prepare an Annual Return in Form No ……………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
MGT-7

Question 67.
A shareholder holding shares of nominal value not more than 20,000 is called ………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer: .
Small shareholder

Question 68.
A representation when wrongly made either innocently or unintentionally is a ………………… Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Mis – representation

Question 69.
A company whose principal business is the acquisition of shares, debentures or other securities is called ………………… company. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Investment

Question 70.
The term of office of a member of the standing committee under the ESI Act shall be ……………. years from the date of election notification. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
Two

Question 71.
No prospectus shall be valid ¡titis issued more than …………….. days after the date on which a copy thereof is delivered to the Registrar. Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
90

Question 72.
The Regional Director shall communicate the confirmation of shifting of registered office within ………………….. of receipt of the application Which word(s) according to you most appropriately fill(s) the above blank? (Dec 2021, 1 mark)
Answer:
30 days

Question 73.
What should be the maximum time gap between two annual general meetings of a company? (Dec 2021, 1 mark)
Answer:
Not more than 15 months.

Business Ethics and Emotional Intelligence – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Business Ethics and Emotional Intelligence – CMA Inter Law and Ethics Study Material

Short Notes

Question 1.
Write a qualitative note on ‘ethics philosophies’. (Dec 2012, 5 marks)
Answer:
The following are some of the ethics philosophies:
1. Deontological ethical theory
The word ‘deontological’ is derived from the Greek word “Deon” meaning ‘duty’ or ‘obligation’. Deontological theories focus on certain fundamental duties that we have as human being, such as not committing murder or theft. The duties stress that rightness of an act is derived from some feature of the action itself, with reference to its consequences.

The duties upheld by deontological theory may be classified under three headings:

• Duties to God, including honoring him and praying to him.
• Duties to Oneself includes preserving ones life and sharing happiness.
• Duties to others, including family duties, social duties and political duties.

Teleology (Greek : telos: end, purpose) Is the philosophical study of design and purpose. It states that everything that exists in the universe has a particular purpose. A teleological school of thought is one that holds all things to be designed for or directed toward a final result, that there is an inherent purpose or final cause for all that exists.

3. Utilitarianism
The idea that the moral worth of an action is solely determined by its contribution to overall utility, that is, its contribution to happiness or pleasure as summed among all persons. It can be described by the phrase “the greatest good for the greatest number”. For example, one may be tempted to steal from a rich person to give to a starving family.

4. Relativism
This states that everything related to ethics is relative in nature and should be seen with that frame of reference. Something good to somebody may be very bad for somebody else. Killing an enemy on border is good for the nation but it is very bad for the family of the enemy. The idea that some elements or aspects of experience or culture are relative to i.e., dependent on, other elements or aspects. The term often refers to truth relativism, which is the doctrine that there are no absolute truths, i.e., that truth is always relative to some particular frame of reference, such as a language or a culture.

5. Justice
The concept of rare rightness in action or attitude is closely linked to fairness. A conception (means idea, notion or beginning) of justice is one of the key features of society.

Question 2.
Write short note on the following:
Seven principles of Public Life (June 2017, 5 marks)
Answer:
Seven Principles of Public Life
The Seven Principles of Public Life were set out by Lord Nolan for the first time in the year 1995. These principles of public life will apply to anyone who works as a public office holder, including elected and appointed to public office either locally or nationally. These principles apply to civil service, local.

government, the police, the Courts and probation of services, non-departmental public bodies, health, education, social are care services. These principles also apply to other sectors that delivers public services.

The British Government appointed a committee called as Committee on Standards in Public Life to advise the Prime Minister on ethical standards of public life. The Committee was established in October 1994.

The term of reference to the committee is:
to examine current concerns about standards of conduct of all holders of public office, including arrangements relating to financial and commercial activities; and

to make recommendations as to any changes in present arrangements which might be required to ensure the highest standards of propriety in public life.

The Committee submitted its first report in the year 1995 containing the seven principles of public life. The said principles have been amended over year. The seven principles of public life as amended up to and as on 2015 are as follows:

Selflessness – Holders of public office should act solely in terms of the public interest.

Integrity – Holders of public office must avoid placing themselves under any obligation to people or organizations that might try inappropriately to influence them in their work. They should not act or make decisions in order to gain financial or other material benefits for themselves, their family, or their friends. They must declare and resolve any interests and relationships.

Objectivity – Holders of public office must act and make decisions impartially, fairly, and on merit, using the best evidence and without discrimination or bias.

Accountability – Holders of public office are accountable to the public for their decisions and actions and must submit themselves to the scrutiny necessary to ensure this.

Openness – Holders of public office should act and make decisions in an open and transparent manner. Information should not be withheld from the public unless there are clear and lawful reasons for so doing.

Honesty – Holders of public office should be truthful
Leadership – Holders of public office should exhibit these principles in their own behavior. They should actively promote and robustly support the principles and be willing to challenge poor behavior wherever it occurs.

Question 3.
Write short note on the following term:
Business Ethics (Dec 2017, 5 marks)
Answer:
Meaning
Business ethics deals with morality in the business. It is a system of moral principles and values applied to business activities. This means the business activities should be conducted according to ethics or moral standards.

Definition
Business ethics is an art or science of maintaining harmonious relationships with society, its various groups and institutions as well as reorganizing for right or wrong of business conduct.

Features of business ethics

• Code of conduct;
• Provide protection to social groups;
• Provide basic framework;
• Need willing acceptance;
• Education and guidance;
• Not against for-profit making.

Principles

• Avoid exploitation of consumers;
• Avoid unfair trade practices;
• Fair treatment to employees.

Importance

• Improving consumer confidence
• Business become conscious of social responsibilities;
• Create good image of business;
• Goodwill;
• Profitability;
• Survival of heated competition
• Safety from legal perspectives

Question 4.
Write short note on out of the following term:
Consumer movement and Ethics. (June 2018, 5 marks)
Answer:
Consumer movement
Business ethics is gaining importance because of the growth of the consumer movement. Gone are the days when the consumer can be taken for ride by the unscrupulous business by their false propaganda and false claims, unfair trade practices. Today, the consumers are aware of their rights and well informed as well as well organized. Now they are more organized and hence cannot be cheated easily.

They take actions against those businessmen who indulge in bad business practices. They boycott poor quality, harmful, high priced and counterfeit goods. Therefore, the only way to survive in business is to be honest and fair. Consumer forums and consumer associations are more active and vocal now.

Question 5.
Write short notes on:
Improving ethical behaviour in business (Dec 2018, 5 marks)
Answer:
Improving ethical behaviour in business
Understanding how people make ethical choices and what prompts a person to act unethically may reverse the current trend toward unethical behaviour in business.

Ethical decisions in an organization are influenced by three key factors:
individual moral standards, the influence of managers and co-workers, and the opportunity to engage in misconduct.
It is difficult for employees to determine what conduct is acceptable within a company if the firm does not have ethics policies and standards.

And without such policies and standards, employees may base decisions on how their peers and superiors behave. Professional codes of ethics are formalized rules and standards that describe what a company expects of its employees.

Codes of ethics, policies on ethics, and ethics training programs advance ethical behavior because they prescribe which activities are acceptable and which are not, and they limit the opportunity for misconduct by providing punishments for violations of the rules and standards.

The enforcement of such codes and policies through rewards and punishments increases the acceptance of ethical standards by employees.

Question 6.
Write short flotes on:
importance of ethics (June 2019, 5 marks)
Answer: .
Importance of Ethics:
Ethics is a requírernent for human life. It is our means of deciding a course of action. Without it, our actions would be random and aimless.

There would be no way to work towards a goal because there would be no way to pick between a limitless number of goals.

Even with an ethical standard, we may be unable to pursue our goals with the possibility of success.

To the degree which a rational ethical standard is taken, we are able to correctly organize our goals and actions to accomplish our most important values.

Any flaw in our ethics will reduce our ability to be successful in our endeavors.

A proper foundation of ethics requires a standard of value to which all goals and actions can be compared to.

This standard is our own lives and the happiness which makes them liveable. This is our ultimate standard of value, the goal in which an ethical man must always aim.

It is arrived at by an examination of man’s nature, and recognizing his peculiar needs. A system of ethics must further consist of not only emergency situations but the day-to-day choices we make constantly.

It must include our relations to others, and recognize their importance not only to our physical survival, but to our well-being and happiness, It must recognize that our lives are an end in themselves, and that sacrifice is not only not necessary, but destructive.

Question 7.
Write short note on the following term:
Advantages of Business Ethics (Dec 2019, 5 marks)
Answer:
Advantages of Business Ethics:

• Business ethics deals with morality in the business. It is a system of moral principles and values applied to business activities.
• This means the business activities should be conducted according to ethics or moral standard.
• Business ethics is an art or science of maintaining harmonious relationships with society, its various groups and institutions as well as reorganizing for right or wrong of business conduct.

The following are the advantages for following the principles of business ethics:

• It offers a company a competitive advantage;
• Goodwill of the firm hikes depending on its responds towards its ethical issues;
• Productivity through rigid, firm, and sincere workers as well as other business chain members;
• Through increasing morale and trust business can increase their market share;
• Publicity due to well and ethical performance;

Question 8.
Write Short Notes on Types of Ethics (Dec 2021, 3 marks)
Answer:
Type of ethics
Ethics may be divided into three types as follows:

1. Metaethics: Meta-ethics deals with the nature of moral judgment. It looks at the origins and meanings of ethical principles.
2. Normative ethics: Normative ethics is concerned with the content of moral judgments and the criteria for what is right or wrong.
3. Applied ethics: Applied ethics looks at controversial topics like wàr, animal rights and capital punishment.

Question 9.
Write short note on the following terms:
Improving ethical behaviour in business (Dec 2022, 5 marks)

Distinguish Between

Question 10.
Answer the question:
(i) What is the difference between morals and ethics? (Dec 2016, 7 marks)
Answer:
First of all analysis of the key terms ‘ethics’ and ‘morals’ is to be done. The linguistic use of the terms, they seems as if they are in the plural form, just as ‘economies’ or ‘polities’, but we treat them as singular. Generally, ethics and morals are used as synonyms. There is nothing wrong in such a usage, for, after all, the meanings of all words depend on their common usage.

However, in formal study, we need to understand the meaning of the terms in a qualified way so as to make our subject of study precise and well-defined.

Meaning:
The terms ‘ethics’ and ‘morals are etymological, that is, from their very roots or terms, different. The word moral(s) is derived from the Latin root moralis, which implies custom. In other words, it refers to a behavior that is accepted or rejected due to an accepted social custom. The word ethics stems from the Greek word ethic, which is attributed to a social environment, referred to as ethos or social milieu. This latter meaning embraces much more than mere custom. It refers to everything that is part and parcel of society and not just what is allowed or forbidden. Morality is more concerned with the norms, values, and beliefs embedded in social processes which define what is right or wrong for an individual or community.

Another point of difference between the two refers to their usage in ordinary language. For instance, a lawyer defending an alleged rapist would accuse ‘the victim as ‘morally fallen’ and not as ‘ethically fallen’. On the other hand, a committee that is formed to probe the behavior of the members of Parliament would be called ‘ethics committee’ not ‘moral committee’. The meaning of the word is in its usage. Thus, both these terms have their unique characteristics and applications.

Usage:
However, the terms are intrinsically not different. Both of them refer to the same reality of human actions, which may be characterized as morally or ethically positive or negative as the case may be. It may be true that the terms (ethics and morals) sound different but they refer to the same social reality wherein a certain body of accepted norms forms a code of conduct in society. The actions of the members are described as ‘moral’ or ‘ethical’ depending on the linguistic nuances of the meaning in a particular case as well as on the conventional use of the terms. it is in the use of the words in a given context, that the meaning becomes clear.

In academic usage, however, moral behavior refers to a concrete behavior such as showing respect to elders. Ethics, on the other hand, is used to mean a discipline or a systematic study of moral behavior such as justice.

People’s behavior in a society can be morally characterized in their day-to-day actions. It is in the classroom that we analyse the ethical significance of these actions.

These terms are generally interchanged with one and the same meaning, that is, to determine whether some human action is right or wrong. They deal with the application of a socially accepted code of conduct. This conduct may be termed as either moral conduct or ethical conduct.

Descriptive Questions

Question 11.
(a) “The integrity pact (IP) is a tool aimed at preventing corruption in public contracting.” Discuss.
(Dec 2012, 6 marks)
(b) Discuss briefly the following: .
(iv) Ethics in compliance. (Dec 2012, 3 marks)
Answer:
(a) Developed by Transparency International (TI), the Integrity Pact (IP) is a tool aimed at preventing corruption in public contracting. It consists of a process that includes an agreement between a government or a government department and all bidders for a public contract.

It contains rights and obligations to the effect that neither side will; pay, offer, demand or accept bribes, collude with competitors to obtain the contract; or engage in such abuses while carrying out the contract. The IP also introduces a monitoring system that provides for independent oversight and accountability.

(b) Ethics in compliance:
Compliance is about obeying and adhering rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught and punished rather than a desire to be abiding by the law.

An ethical climate in an organization ensures that compliance with law is supported by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them.

Question 12.
You are the Company Secretary of Innovative Products Ltd. The Board of Directors desires to know the advantages of business ethics. Draft a note for consideration of the Board of Directors. (Dec 2012, 5 marks)
Answer:
Advantages of Business Ethics:
Adherence (means loyalty, faithfulness, observance) to a Code of Conduct offers the following advantages:

1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that a company files with, or submits to the commission and in other public communications made by the company;
3. Compliance with applicable governmental laws, rules, and regulations;
4. The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code, and;
5. Accountability for adherence to the code.

Question 13.
(a) Bhagavad Gita teaches that “without being attached to the fruits of activities, one should act as a matter of duty, by working without attachment one attains the supreme.” In the light of this statement, discuss various ethics philosophies (June 2013, 6 marks)
Answer:

Ethics Philosophies	Bhagavad Gita teaches the following: “That, without being attached to the fruits of activities, one should act as a matter of duty, by working without attachment one attains the Supreme. This flows from the concept Karma. The concept of Karma is close to the notion of deontological ethics.
Deontological Ethics	Emphasizes on the relationship between duty and the morality of human actions. Deontology (Greek deon, “duty”, and logos, “science”) is, therefore, science of duty. In deontological ethics an action is considered morally good because of some characteristic of the action itself, not because the consequence of the action is good. When we fail to follow our duty, we are behaving immorally.

The other ethical philosophies include:

Teleological Ethics	(Derived from the Greek word ‘telas’ meaning end, purpose) is an ethical theory that holds that the ends or consequences of an act determine whether an act is good or evil. Rightness of actions is determined solely by the good consequences. It is also known as consequential ethics.
Enlightened Egoism	(From Latin ego, “la), in philosophy, an ethical theory holding that the good is based on the pursuit of self-interest. This model takes into account harms, benefits and rights for a person’s own welfare. Under this model an action is morally correct if it increases benefits forth individual in a way that does not intentionally hurt others, and if these benefits are believed to counterbalance any unintentinal harms that ensue.
Utilitarianism	Is an ethic of welfare. It is the idea that the moral worth of an action is solely determined by its contribution to overall utility, that is, its contribution to happiness or pleasure as summed among all persons. It can be described by the phrase “the greatest good for the greatest number”.
Relativism	Holds that there are no absolute truths in ethics and that what is morally right or wrong varies from person to person or from society to society. The term often refers to truth relativism, which is the doctrine that there are no absolute truths, i.e., that truth is always relative to some particular frame of reference, such as a language or a culture.
Virtue Ethics	Theory is a branch of moral philosophy that emphasizes character, rather than rules or consequences, as the key element of ethical thinking.
Justice	Is the concept of moral rightness in action or attitude; it is closely linked to fairness. A conception of justice is one or the key features of society.

Question 14.
“Good business ethics promotes good business” – Explain. (Dec 2013, 4 marks)
Answer:
In general the ethics is concerned with doing the right thing. The ethics covers the understanding and analysis of right and wrong, good and bad or evil.

There is a prowing realization all over the world that ethics is vitally important for the survival and growth of any business and for the progress of any society.

Ethics leads to an efficient economy; ethics alone, not government or laws, can protect society; ethics is good in itself; ethics and profits go together in the long-run.

An ethically responsible company is one which has developed a culture of caring for people and for the environment; a culture which flows downwards from the top managers and leaders.

Adopting ethical behaviour in an organization not only increases and enhances its goodwill but also leads to positive consequences in the long run. Business ethics protects the interest of all stakeholders.

Businessman who follows business ethics improves his self-image, gets self-satisfaction and motivates others also to follow the same principles.

So in the era of global economy, for a successful business one has to follow sound ethical practices. Ethics are important not only in business but in all aspects of life because it is an essential part of the foundation on which civilized society is built.

A business or society that lacks ethical principles is bound to fail sooner or later. An organization that has a strong ethical program in place will certainly help in reducing the burden on the employees while deciding on some alternatives, Ethics helps employees in developing a rationale behind the actions that they undertake ¡n the efficient performance of their duties.

It will certainly help in reducing unnecessary tensions and unavoidable thoughts that an individual gets surrounded with when he is faced such kind of problems. This helps him in concentrating more on his work and less on the indecisive thoughts that corrupt his mind.

Question 15.
“Ethics and morals are one and the same” – Comment. (Dec 2013, 3 marks)
Answer:
The word ethics is derived from the Greek word ‘ethics’ meaning character is essence of behaviour while the word Moral is derived from Latin ‘mos’ which means customs.

These two words are fundamentally different and provide two very different standards for defining what is right and what is wrong.

Character is a personal attribute while custom relates to a group of people. People have character while societies have customs. Moral refers to a behaviour that is accepted or rejected due to an accepted social custom. The word ethics embraces much more than mere custom.

It refers to everything that is part and parcel of society and not just what is allowed or forbidden.

Morality is more concerned with the norms, values, and beliefs embedded in social processes which define what is right or wrong for an individual or community.

Another point of difference between the two refers to their usage in ordinary language. For instance, a lawyer defending an alleged rapist would accuse the victim as ‘morally fallen’ and not as ‘ethically fallen’.

On the other hand, a committee that is formed to probe the behaviour of the members of Parliament would be called ‘ethics committee’, not moral committee.

The meaning of the world is in its usage.
Thus, both these terms have their unique characteristics and applications.
However, both the terms refer to human actions, which may be characterized as morally or ethically positive or negative as the case may be.

It may be true that the terms (ethics and morals) sound different but they refer to the same social reality wherein a certain body of accepted norms forms a code of conduct in society.

The actions of the members are described as “moral” or “ethical” depending on the context in which the term is used.

Question 16.
“Business Ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed”. Explain. (June 2014, 4 marks)
Answer:
Business Ethics also called Corporate Ethics is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment.

It applies to all aspects of business conduct and is relevant to the conduct of individuals and the entire organisations.

Business ethics takes into account the social principles of the situations in which business takes place. No matter how hard one tries, it is impossible to separate life from business. For a businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not impossible to conduct strictly honest business.

What is true is that honesty is incompatible with amassing of large fortune’. The business world is an important part of society, as it is concerned with the livelihoods of people.

Business activity too is subjected to the code of conduct without any exception. People expect businessmen to possess the same rationality as any other citizen. Therefore, there is no separate business ethics for businessmen, as ethics applies to all the activities of people. Consequently, we have to keep business within the bounds of ethics.

Question 17.
Explain the interface between Ethics and Laws. (June 2014, 3 marks)
Answer:
Ethics and Law: The Interface Law is application of ethics into social and personal Life. All laws are subordinates to ethical values but all ethics may not be covered by law. Law has a mandatory outside force behind it while ethics has moral force inside the person.

Law is objective while ethics ¡s subjective. What is ethical for one person may not be ethical for some other person where as law has to be same for all the persons.

Perhaps the best way of visualizing ethics and law is in terms of two intersecting domains as depicted in the following figure:
Thus, in one sense, business ethics can be said to begin where law ends. Business Ethics is primarily concerned with those issues not completely covered by law, or where there is no definite consensus on whether something is right or wrong. Hence, it is often remarked, that business ethics is about the ‘grey areas of’ business where values are in conflict.

Question 18.
(i) “Ethics are desirable for every business.” Comment. (Dec 2014, 5 marks)
(ii) Explain the concept of value-free ethics. (Dec 2014, 3 marks)
Answer:
(i) Need for Business Ethics:
Business ethics is currently a very prominent business topic and the debates and dilemmas surrounding business ethics have attracted enormous amount of attention from different quarters of organizations and society. Hence, it has emerged as an increasingly important area of study. Some of the major reasons why a good understanding of business ethics is important can be stated as follows:

Stop business malpractices	Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, false claims or representations about their products, etc. These business malpractices are harmful to the consumers. Business ethics help to stop these business malpractices.
Improve customers’ confidence:	Business ethics are needed to improve the customers’ confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.
Survival of Business	ethics are mandatory for the survival of business. The businessman who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman. He will also tell others not to buy from that businessman.
Safeguarding Consumer rights	sovereignty cannot be either ruled out or consumers’ denied. Business can survive so long it enjoys the patronage of consumers. The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many businessmen do not respect and protect these rights. Business ethics are a must to safeguard these rights of the consumers.
Protecting employees and shareholders:	Business ethics are required to protect the interests of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices.

(ii) Value-free Ethics:
It would seem that business is an ethically neutral or value-free activity. In other words, the only value business is concerned with is the monetary value.
It is not in the interest of business to mix ethical values. An ancient Arabic wisdom states, ‘Live together like brothers and do business like strangers.’
Businesses should be kept free from other social relationships and obligations.

• The only successful relationship that exits in business is that of a vendor and a customer.
• It is also said that ‘for the merchant, even honesty is a financial speculation.’
• Indeed, for a businessman, every factor in the business is measured in terms of money.
• The volatility that we see in the stock market is a clear example of the speculative nature of business, which is directly proportional to the prevailing attitude of the people.

Concept of Value-free Ethics:
Nowadays, we are familiar with ‘sugar-free’ soft drinks, ‘caffeine-free’ coffee, and ‘alcohol-free’ beer. The concept of ‘value-free’ business ethics appears to be quite appealing to businessmen. It is as though it may be pursued devoid of all rules within a social vacuum.

The concept of value-free ethics found application in economics in a rather ironic fashion. Ludwig von Mises known as the father of the Austrian School of Economics, proposed the pure theory of economics, stating that economic concepts are a priori, that is, they are not dependent on experience but are purely virtual concepts.

The concept of choice, for instance, is a pure concept. It is immaterial whether one chooses water or wine, but the concept in itself is free of such particular elements.

Hence choice is value-free (wertfrei). Applied to ethics, it would mean that we should be able to study the principles of this discipline, such as goodness, truth, justice, honour, etc. in their pure form.

Question 19.
Explain’ Business ethics as professional ethics. (Dec 2014, 4 marks)
Answer:

• Just as a society functions on the social codes of conduct and a country is governed by its constitution, a business is run on corporate codes.
• In other words, there is a professional code of conduct for any business.
• These codes keep evolving as other things around evolve and develop.
• Therefore, not only should business be defined within the confines of ethics, but it should be practiced strictly under its own professional code of conduct.
• This distinction helps to orient the general principles of ethics and business to a particular activity.
• The principles, however, do not change.

Ethical behaviour is particularly important to professions and to business:
It matters to the professions because the complexity of what they do means that there has to be trust by the user in what they do, or they have no purpose.

It matters to business because investors will not back a company that will not report fairly and customers, increasingly, will not buy from a business that is not acting in the wider interests of society. Deciding what is the right thing to do can be challenging.

We all face numerous personal, social, and organizational pressures which influence our decisions and actions. Sometimes it is easy to assume that compliance with legislation, regulations and policies and procedures equates to doing the right thing. By its nature, a compliance approach to decision-making cannot cover all types of situations and eventualities.

Even when a specific circumstance is addressed by a rule, compliance is often with the letter of the rule, not its spirit. What is needed is a principles-based approach to decision-making, which encourages deliberation, judgment, and responsibility.

The character of a true professional remains undivided, whether at work or at home. Our roles may change from time to time and from place to place but the integrity of our character should be maintained.

Business ethics, thus, professionally adheres to a code of conduct that is in accordance with the normative principles
Further, it may be concretely stated that professionals bear the following marked characteristics:

• competency of educational qualification,
• professional skills, and
• compensation (salary/ remuneration, etc.).

Question 20.
Answer the questions:
(a) (i) ‘The ethics of business is the ethics of responsibility. The businessman must promise that he will not harm knowingly’. Explain. (June 2015, 4 marks)
(b) (i) Explain Ethics as a principle. (June 2015, 4 marks)
(c) (i) What are the seven principles of Public life? Explain. (June 2015, 4 marks)
Answer:
(a) (i) Over a period of time, business has developed a code of conduct that creates greatest good and least harm to its pillars of support viz. customers, employees, shareholders and community. Apparently, there is a contradiction between ethics and motive of profit. It is now well accepted a fact that ethical behavior creates a positive reputation that expands the opportunities for profit. A business is not restricted to its various assets viz. Building, Machine, and Working Capital only but is having a vision and a role, present or prospective to play in the society. To achieve such goal it needs to make a number of sacrifices and take responsibilities such as:

• Creation of awareness within the organization how its products and services are accepted to the consumer, the industry, and the society at large.
• Sacrifice a part of profit to satisfy legal or other commitments for corporate social responsibility.
• An organizational culture most likely to encourage high ethical standards of risk tolerance, control, and conflict tolerance.
• Spend on research and other innovations for protecting environmental needs to carry out business /industrial operations.

(b) (i) Ethics as a Principle:
We have established that social evolution has developed definite principles of civic behaviour, which have attained the status of principles. By principle, we understand that something proceeds and depends on it for its cause. For instance, when one kicks a football, force is the principle that propels it into motion and the ball remains in motion till the force lasts.

In other words, the physical world functions strictly according to the laws of physics.
It is expected that people also submit their behavior, both in thoughts and in actions, to these principles.
An action is valid as long as it reflects the principle, just as the speed of the moving ball depends on the force it receives.

(c) (i) The Seven Principles of Public Life.

Selflessness	Holders of public office should take decisions solely in tells of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends.
Integrity	Holders of public office should not place themselves under any financial ór other obligation to outside individuals or organizations that might influence them in the performance or their official duties.
Objectivity	In carrying out public business including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.
Accountability	Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.
Openness	Holders of public office should be as open as possible about all the decisions and actiot that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.
Honesty	Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
Leadership	Holders of public office should promote and support these principles by sound leadership and prove to be an example in whatever they perform.

Question 21.
Answer the questions:
(a) (i) ‘The terms ethics and morals are etymologically different’. Explain. (Dec 2015, 3 marks)
(b) (i) State the evolution of ethics. (Dec 2015, 3 marks)
(c) (i) ‘Fairness and honesty are the pillars of success in business’. Comment. (Dec 2015,4 marks)
Answer:
(a) (i) Meaning:

• The terms ‘ethics’ and ‘morals’ are etymologically, that is, from their very roots or terms, different.
• The word moral(s) is derived from the Latin root moralis, which implies custom.
• In other words, it refers to a behaviour that is accepted or rejected due to an accepted social custom.
• The word ethics stems from the Greek word ethikos, which attributes to a social environment, referred to as ethos or social milieu.
• This latter meaning embraces much more than mere custom.

It refers to everything that is part and parcel of society and not just what is allowed or forbidden.
Morality is more concerned with the norms, values, and beliefs embedded in social processes which define what is right or wrong for an individual or community.

Another point of difference between the two refers to their usage in ordinary language. For instance, a lawyer defending an alleged rapist would accuse the victim as ‘morality fallen’ and not as ‘ethically fallen’.

On the other hand, a committee that is formed to probe the behavior of the members of Parliament would be called ‘ethics committee’, not a ‘moral committee’.

The meaning of the word is in its usage.
Thus, both these terms have their unique characteristics and applications.

(b) (i) Social conduct has evolved along with the evolution of society.

• When your elders tell you ‘Do not cheat’, they are referring to a social code of conduct. Social conduct has developed in society over hundreds of years.
• The codes of conduct have been passed down from generation to generation, and there is a pattern to the evolution of such codes.
• Acceptable behaviour is promoted and elevated as a social value, and unacceptable behaviour is rejected and condemned.
• In ancient India, there was no moral problem with the custom of sati-immolating the wife on the funeral pyre or the deceased husband.
• But society has evolved humanely and has condemned the act as unacceptable and morally reprehensible.

The laws of a country are based on the customs or moral codes of its society. Penalties are prescribed for bad actions, actions that contradict the established laws.

The laws are a measure against those people who cross the limits of the code of social conduct, and ensure that good citizens are protected from the negative consequences of the law-breakers.

(c) (i) The success of the business depends very much on fairness and honesty in the business. Fairness and honesty are at the heart of the business ethics and relate to the general values of decision-makers. At a minimum, business professionals and persons are expected to follow all applicable laws and regulation.

even then, they are expected not to harm customers, employees, clients or competitors knowingly through deception, or misrepresentation. coercion or discrimination. One aspect of fairness and honesty is related to disclosure of potential harm caused by product use.

Another aspect of fairness relates to competition. Although numerous laws have been passed to foster competition and make monopolistic practices illegal, companies sometimes gain control over markets by using questionable practices that harm competition.

Rivals of Microsoft, for example, accused the software giants of using unfair and monopolistic practices to maintain market dominance with its Internet Explorer browser. These aforementioned examples show that fairness and honesty pay in the long run; they secure the stability of the business and overall reputation in the business world. Therefore, we may say that fairness and honesty are the pillars of success in the business.

Question 22.
Answer the question:
What is ‘Business Ethics’? (June 2016, 7 marks)
Answer:
Business Ethics:
According to Andrew Crane,” Business Ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.” Raymond C. Baumhart contends – “The ethics of business is the ethics of responsibility. The businessman must promise that he will not harm knowingly”.

Thus, Business Ethics (also called Corporate Ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and the entire organizations.

Business ethics concerns itself with adhering to the social principles of the situations in which business takes place. The analysis of this definition leads us to the following discussion.

Thus, Business Ethics (also called Corporate Ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and the entire organizations.

It deals with morality in business environment, It involves moral judgment based on understanding of the society. It extends beyond the legal questions and involves moral judgment based on understanding of the society. It extends beyond the legal questions and involves goodness and badness of an Act.

1. Business ethics refers to the application of everyday moral or ethical norms to business. It requires an awareness of how the products and services of an organizations and the action of its employees, can affect its stakeholders and society as a whole, either positively or negatively.

2. Ethics in business organization relates to a corporate culture of values, leadership programs and enforcement.

3. It is that set of principles or reasons which governs the conduct of business at the individual or collective level by the application of ethical reasoning to specific business situations and activities.

Question 23.
Answer the question:
Explain in brief the measures to ensure ethics in the workplace. (Dec 2016, 8 marks)
Answer: .
An ethical company may develop certain basic principles which will guide its employees in dealing with ethical issues at the workplace. 4 set of such principles is given below:
1. Codes of ethics and conduct
A code of ethics specifies the company’s rules regarding ethical behavior in the workplace. For e.g., company’s code may prohibit employees from accepting gifts from suppliers and clients. Code becomes more effective when the top management actively supports and applies it.

2. Establish open communication
Most ethical issues in business are ambiguous and uncertain. Therefore, there is need to create work environment in which employees feel free to discuss ethical dilemmas. Management should explain the purpose and contents of ethical policy. Training is required to sensitize employees to potential ethical issues. Necessary resources and support need to be provided to help employees to resolve ethical dilemmas.

3. Appoint an ombudsman
The ombudsman serves as a point of reference. Employees can go to him and discuss ethical issues in confidence.

4. Leadership by example
Ethical behavior is best taught by example. A father who insults his parents cannot expect respect from his children. Top management should themselves follow ethical practices and also create an impression that unethical behavior will not be tolerated.

5. Integrate ethics management with other management practices
When developing the values statement during strategic planning, ethical values should be preferred in the workplace. When developing personnel policies, reflect on what ethical value, you’d like to be most prominent in the organization’s culture and then design policies to produce these behaviours.

6. Group decision making
If ethical issues are decided in groups, diverse interests and perspectives can be considered. The decision process becomes more acceptable.

7. Suggestion system
A suggestion box may be installed so that employees may report suspended unethical activities in an anonymous manner. This will encourage employees to report ethical violations.

8. Grievance procedure
An appropriate grievance redressal system may be created. This will help to resolve disagreements between employees and their supervisors on ethical issues.

9. Regularly update policies and procedure
Policies and procedures concerning ethics at the workplace need to be reviewed and updated on regular basis.

Question 24.
What are the standards of ethical conduct for practitioners fixed by the ICAI? (June 2017, 10 marks)
Answer:
ICAI has promulgated the following standards of ethical conduct for practitioners:
maintain at all times independence of thought and action; not to express an opinion on cost/financial reports or statements without first assessing her or his relationship with her or his client to determine whether such Member might expect her or his opinion to be considered independent, objective, and unbiased by one who has knowledge of all the facts; and

when preparing cost / financial reports or statements or expressing an opinion on cost I financial reports or statements, disclose all material facts known to such member in order not to make such cost / financial reports or statements misleading, acquire sufficient information to warrant an expression of opinion and report all material misstatements or departures from generally accepted accounting principles.

not to disclose or use any confidential information concerning the affairs of such Member’s employer or client unless acting in the course of his or her duties or except when such information is required to be disclosed in the course of any defense of himself or herself or any associate or employee in any lawsuit or other legal proceeding or against alleged professional misconduct by order of lawful authority or any committee of the Society in the proper exercise of their duties but only to the extent necessary for such purpose;

inform his or her employer or client of any business connections or interests of which such Member’s employer or client would reasonably expect to be informed;

not, in the course of exercising his or her duties on behalf of such Member’s employer or client, hold, receive, bargain for or acquire any fee, remuneration or benefit without such employer’s or client’s knowledge and consent; and

take all reasonable steps, in arranging any engagement as a consultant, to establish a clear understanding of the scope and objectives of the work before it is commenced and will furnish the client with an estimate of cost, preferably before the engagement is commenced, but in any event as soon as possible thereafter.

conduct himself or herself toward other Members with courtesy and good faith;
not to accept any engagement to review the work of another member for the same employer except with the knowledge of that member, or except where the connection of that member with the work has been terminated unless the member reviews the work of others as a normal part of his or her responsibilities;

not to attempt to gain an advantage over other members by paying or accepting a commission ri securing management accounting work; not to act maliciously or in any other way which may adversely reflect on the public or professional reputation or business of another member;

at all times maintain the standards of competence expressed by the Institute from time to time; undertake only such work as he or she is competent to perform by virtue of his or her training and experience and will, where it would be in the best interests of an employer or client, engage, or advise the employer or client to engage, other specialists;

Question 25.
Why business ethics is more important and immensely needed in the present business environment? Discuss. (Dec 2017, 10 marks)
Answer:
Importance of. Ethics

• Public expects business to exhibit high levels of ethical performance and social responsibility;
• Encouraging business firms and their employees to behave ethically is to prevent harm to society;
• Promoting ethical behavior is to protect businesses from abuse by unethical employees or unethical competitors;
• High ethical performance also protects the individuals who work in business.

Need for business ethics
The following points discuss the need and importance of business ethics to stop business malpractice;

• to improve customers’ confidence;
• for the survival of business;
• to safeguard consumers’ rights;
• to protect employees and shareholders;
• to develop good relations;
• to create good image;
• for smooth functioning;
• consumer movement;
• consumer satisfaction;
• importance of labour;
• healthy competition.

Question 26.
What are the areas in business ethics? Write a note of the same. (June 2018, 10 marks)
Answer:
Areas in business ethics:

• Corporate Social Responsibility;
• Fiduciary responsibility to stakeholders;
• Industrial espionage.
• Ethical behavior and corporate social responsibility can bring significant benefits to a business.

For example, they may:

• attract customers to the firm’s products, which means boosting sales and profits
• make employees want to stay with the business, reduces labor turnover and therefore increases productivity.
• attract more employees wanting to work for the business, reduce recruitment costs, and enable the company to get the most talented employees.
• attract investors and keep the company’s share price high, thereby protecting the business from takeover.

Knowing that the company, they deal with, has stated their morals and made a promise to work in an ethical and responsible manner allows investors peace of mind that their money is being used in a way that arranges with their own moral standing. When working for a company with strong business ethics, employees are comfortable in the knowledge that they are not by their own action allowing unethical practices to continue. Customers are at ease buying products or services from a company they know to source their materials and labor in an ethical and responsible way.

A company which sets out to work within its own ethical guidelines is also less at risk of being fined for poor behavior, and less likely to find themselves in breach of one of a large number of laws concerning required behaviour.

Reputation is one of a company’s most important assets, and one of ho most difficult to rebuild should not be lost. Maintaining the promises it is made is crucial to maintaining that reputation. Businesses not following any kind of ethical code or carrying out their social responsibility leads to wider consequences. Unethical behavior may damage a firm’s reputation and make it less appealing to stakeholders. This means that profits could fall as a result.

The natural world can be affected by a lack of business ethics. For example, a business which does not show care for where it disposes its waste products or fails to take a long-term view when buying up land for development is damaging the world in which every human being lives, and damaging the future prospects of all companies.

Question 27.
Discuss the nature and relevance of Ethics to the Business. (Dec 2018, 10 marks)
Answer:
Ethics – Nature and relevance to the business Several factors play a role in the success of a company that is beyond the scope of financial statements alone. Organizational culture, management philosophy, and ethics in business each have an impact on how well a business performs in the long term.

No matter the size, industry or level or profitability of an organization, business ethics are one of the most important aspects of long-term success

The management team sets the tone for how the entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals but also to the organization as a whole.

Building on a foundation of ethical behaviour helps create long-lasting positive effects for a company, including the ability to attract and retain highly talented individuals and building and maintaining a positive reputation within the community.

Running a business in an ethical manner from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.

When management is leading an organization in an ethical manner, employees follow in those footsteps.

Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale.

When employees complete work in a way that is based on honesty and integrity, the whole organization benefits.

Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond.

As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term.

The reputation of a business from the surrounding community, other businesses and individual investors is paramount in determining whether a company is a worthwhile investment.

If a company’s reputation is less than perfect based on the perception that it does not operate ethically, investors are less inclined to buy stock or otherwise support its operations.

With consistent ethical behaviour comes increasingly positive public image. and there are few other considerations as important to potential investors and current shareholders.

To retain a positive image, businesses must be committed to operating on an ethical foundation as ¡t relates to treatment of employees, respect to the surrounding environment and fair market practices in terms of price and consumer treatment.

Question 28.
‘Ethics is the first line of defense against corruption, while law enforcement is remedial and reactive. However, both fail to achieve the desired aim in the Indian set-up.” Do you agree? Give reasons in support of your answer. (June 2019, 10 marks)
Answer:
It is, absolutely correct to say that ethics is the first line of defense against corruption. What prevents corruption in. the first place ¡s ethics. The enforcement of law is a reaction to the occurrence of the corruption.

While the law can only lay down the do’s and don’ts and the consequences of doing or not doing something.

The compliance to law ¡n letter and spirit can be achieved only through ethical practices being followed. An act may be perfectly legal ‘but totally unethical. Therefore, the statement law enforcement is remedial and reactive is also true.

However, ethics ¡s not absolute and ¡s open to the influence of time, place, and situation. Certain unethical practice on account of the fact that widely prevalent is apparently justified.

The following are some of the factors that have contributed to the prevalence of corruption in India:

• Cultural ethos: Putting a premium on materialism, profiteering, power play, and casual attitude for ethical value …. Myopic concern overriding long-term considerations and values.
• Institutional failures: Procedural formalities in-built obstacles, bureaucratic red-tapism, etc.
• Poor enforcement of law: delay injustice.
• Erosion of values in politicians, entrepreneurs political lobbying etc.

Question 29.
What is Value Chain? What are the new themes and challenges that managers face currently? (Dec 2019, 9 marks)
Answer:
Value chain is a visualization of complete business as a sequence of activities in which usefulness is added to the products or services produced and sold by an organization. Management accountants provide decision support for managers in each activity of value chain.

The design of management accounting system has to take into consideration the decision needs of the managers. Also it has to take into consideration the new themes and challenges that managers face currently.

• Customer focus: The challenge for managers it invest sufficient resources to enhance customer satisfaction. But every action of the organization has to result enhanced profitability or maintained profitability for the organization.
• Key Success Factors: These are nonfinancial factors which have an effect on the economic viability of the organization. Cost, quality, time, and innovation are important key success factors.
• Continuous Improvement: Continuous improvement or kaizen is a popular theme. Innovation related to this area in costing is kaizen costing.
• Value Chain and Supply Chain Analysis: Value chain as a strategic framework for analysis of competitive advantage was promoted by Michael Porter.

Question 30.
Discuss the importance of ethics. (Dec 2021, 6 marks)
Answer:
Importance of ethics.

• Ethics is a requirement for human life.
• It is our means of deciding a course of action.
• Without it, our actions would be random and aimless.
• There would be no way to work towards a goal because there would be no way to pick between a limitless number of goals.
• Even with an ethical standard, we may be unable to pursue our goals with the possibility of success.

no the degree which a rational ethical standard is taken, we are able to correctly organize our goals and actions to accomplish our most important values.

Any flaw in our ethics will reduce our ability to be successful in our endeavors.

A proper foundation of ethics requires a standard of value to which all goals and actions can be compared to.

This standard is our own lives, and the happiness which makes them livable. This is our ultimate standard of value, the goal in which an ethical man must always aim. It is arrived at by an examination of man’s nature, and recognizing his peculiar needs.

A system of ethics must further consist ot not only emergency situations but the day-to-day choices we make constantly.

It must include our relations to others, and recognize their importance not only to our physical survival but to our wellbeing and happiness.

It must recognize that our lives are an end in themselves, and that sacrifice is not only necessary but destructive.

Question 31.
What are the areas in business ethics? Write a note of the same. (Dec 2022, 10 marks)
Answer:

Repeatedly Asked Questions
Question	Frequency
1. Seven principles of public life 15 – June, 17 – June	2 Times
2. What are the areas in business ethics? Write a note of the same. 21 – Dec, 22 – Dec	2 Times
3. Improving ethical behaviour in business 18 – Dec, 22 – Dec	2 Times

Business Ethics And Emotional Intelligence CMA Inter Law, and Ethics Notes

1. Genesis of Ethics

• The question of what is right and what is wrong gave birth to ethical and unethical codes.
• The word “ethics” is derived from the Greek word “ethos” (character), which means “way of living” and from the Latin word “mores” (customs).
• Ethics ¡s a branch of philosophy that is concerned with human conduct.
• It studies what is morally right or wrong, just or unjust.
• It defines what is good for the individual and for the society.
• Ethics refers to well-based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.
• It is related to issues of propriety, rightness, and wrongness.
• What is wrong is unethical and what is right is ethical.
• If it is ethical, it is right, proper fair, and just.
• It is also defined as the science of the highest good.
• Mackenzie defines ethics as, “the study of what is right or good in human conduct or “the science of the ideal involved in human life”.

Applied ethics is the practice of ethics that aims to guide the moral judgement governing the decisions we make in all areas of our lives.
Values are our standards of right and wrong.

2. Background to Ethics
Ethics is the area of philosophy concerned with the evaluation of human conduct.

3. Major branches of ethics

• Metaethics
• Political ethics
• Normative ethics
• Virtue ethics
• Practical ethics
• Rule-based ethics.

(a) Meta-Ethics concerned with meaning of philosophical language, thus focus is on the grounds used to justify moral judgments rather than on making moral judgments.

(b) Political Ethics Consists of:

• examination of good society,
• the origins,
• forms of political power i.e. Government.

(c) Normative Ethics:

• It is a branch of philosophy.
• concerned with developing theories that determine which human actions are right or wrong.
• It is evaluative and constructive.
• It is not descriptive.
• e.g. – deontological ethics, utilitarian ethics, virtue ethics etc.

(d) Virtue Ethics:

• Viewed as a separate branch.
• It is certainly normative
• It is concerned with possessing moral traits and living a good life.

(e) Rule-based Ethics:
It seeks to evaluate moral considerations.
Rules are divided into 2 parts:

1. Consequentialism (or teleology) ⇒ under this it is claimed that action should be judged according to their consequences.
2. Deontology under this it is assumed that rightness or wrongness is a judgment not dependent on consequences but on the intrinsic goodness of action itself.

(f) Practical(or applied) Ethics:

• Applies ethical principles and theories to practical disciplines.
• Its purpose is to give guidance on a specific issue.
• e.g. – medical ethics, business ethics, environment ethics etc.

4. History of Business Ethics
Business Ethics has existed as an academic field since 1970s. Social responsibility has been described as being pyramid with four types of responsibilities:

• Philanthropic (top-level)
• Ethical
• Legal
• Economic (bottom level)

Business ethics is different from social ethics in following three ways:

1. Business ethics provide ethical framework for evaluating business.
2. It allows critical analysis of business and development of new and different methods.
3. It fuses personal and social responsibility together.
4. Thus, business ethics is broader than social ethics and is more systematic and constructive.

5. Business Ethics
It refers to application of ethics in business.

It facilitates and promotes:

• good to society,
• improves profitability,
• fosters business relations and
• employee productivity.
• Generally it means, coming to know what is right or wrong in the workplace and doing what’s right.
• Unethical practices are creating problems to businessmen and business units.
• Business ethics are developed by the passage of time and custom.
• If a custom is adopted and accepted by businessman and public, that custom will become an ethic.
• It is applicable to every type of business.
• It means the behaviour of a businessman while conducting a business, by observing moralîty in his business activities.
  According to Wheeler,
• “Business Ethics is an art and science for maintaining harmonious relationship with society, its various groups and institutions as well as recognizing the moral responsibility for the rigtness and wrongness of business conduct.

According to Rogene A. Buchholz,

• “Business Ethics refers to right or wrong behaviour in business decisions.
• Business Ethics or Ethical Standards are the principles, practices, and philosophies that guide the business people.
• It can be said to begin where the law ends.
• It is primarily concerned with those issues that are not covered by law, or where there is no definite consensus on whether something is right or wrong.

6. Importance of Business Ethics

• Good business ethics promote good business.
• It helps to understand why power and influence of business in society is increasing, what are is implications and how this issues is to be addressed.

It provides a major contribution to our societies like:

• producing the products
• providing services
• providing employment
• paying taxes, etc.
• It helps to create mutual trust and confidence in relationships by helping us understand various causes and consequences of business malpractices.
• It provides means to appreciate and understand the shareholder’s demand more clearly through which they are able to meet ethical expectations more effectively.
• It helps to improve ethical decision-making by providing managers with appropriate knowledge and tools.
• It helps the business to prosper by following good ethical standards.
• It provides us with the ability to assess the benefits and problems associated with different ways of managing ethics.
• Good ethical standards helps the business to face challenges.

7. Characteristics of Business Ethics

• They are the principles, which govern and guide business people to perform business functions and in that sense, it is a discipline.
• It is both a science and an art.
• It continuously test the rules and moral standards.
• It is dynamic in nature.
• It is based on theological principles like human welfare, good behaviour etc.
• It is based on reality and social customs prevailing in business environment.
• It studies activities, decisions and behaviour that are related to human beings.
• It has a universal application because business exists all over the world.
• Many ethical principles develop personal dignity.
• It keeps harmony between different roles of businessmen and every citizen, customer, owner, and investors.

8. Principles of Business Ethics

• Various principles are developed by Canif, J.S. Nul, Herbert Spencer, Plato, Thomas Garret, Woodrad, Wilson etc.
• Not to do any evil: Doing evil to oneself or to another, either as a means or an end, is unethical. Co-operation with others: Business should help others only if, other deserves help.
• Equivalent price: As per Wilson,
• People are entitled to get goods equivalent to value of money one pays”.
• Human dignity: Man should not be treated as a factor of production. Human dignity should be maintained.

Sacredness of means and ends: Means and techniques adopted to serve the business ends must be sacred and pure. Thus, good end should not be attained with wrong means even if beneficial to society.

Principle of proportionality: One should make a proper judgment before doing anything so that others do not suffer from any loss or risk of evil.

Publicity: As per W. Wilson,

• “Anything that is being done or to be done should be brought to the knowledge of everyone”. This way no unethical act can be done.
• Universal value: Business should be conducted on the basis of universal values.
• Non co-operation in evils: Business should not cooperate with anyone in any evil acts.

Nonviolence: If businessman hurts the interest or rights of the society or exploits its consumers by overlooking their interests, it is equivalent to violence and unethical act.

9. Elements of Business Ethics Key elements:

• Formal code of conduct
• Ethics committee
• Ethical communication
• An ethic office with ethical officers
• Ethics Training Programme
• A disciplinary system
• Establishing an ombudsperson
• Monitoring.

10. Ethics vs Morals
Gene rally, ethics and morals are used as synonyms. There is nothing wrong in such a usage, for after all, the meaning of all words depends on their common usage. However, in formal study, we need to understand the meaning of the terms in a qualified way so as to make our subject of study precise and well-defined.

11. Value-free Ethics
It would seem that business ¡s an ethically neutral or value-free activity. In other words, the only value business ¡s concerned with is the monetary value. It is not ¡n the interest of business to mix ethical values. An ancient Arabic wisdom states, ‘Live together like brothers and do business like strangers.’

Business should be kept free from other social relationships and obligations. The only successful relationship that exists in business is that of a vendor and a customer.

It is also said that ‘for the merchant, even honesty is a financial speculation.’ Indeed, for a businessman every factor in the business is measured in terms of money. The volatility that we see in the stock market is a clear example of the speculative nature of business, which is directly proportional to the prevailing attitude of the people.

12. Concept of Value-free Ethics
The concept of ‘value-free’ business ethics appears to be quite appealing to businessmen. It as though it may be pursued devoid of all rules within a social vacuum. The concept of value-free ethics found application in economics in a rather ironical fashion. Ludwig von Mises, known as the father of the Austrian School of Economics, proposed the pure theory of economics, stating that economic concepts are apriori, that is, they are not dependent on experience but are purely virtual concepts. The concept of choice, for instance, is a pure concept.

It is immaterial whether one chooses water or wine, but the concept in itself is free of such particular elements. Hence, choice is value-free (wertfrei). Applied to ethics, it would mean that we should be able to study the principles of this discipline, such as goodness, truth, justice, honour, etc. in their pure form.

13. Ethics as a Principle
We have established that social evolution has developed dot mite principles of civic behaviour, which have attained the status of principles. By principle, we understand that something proceeds and depends on it for its cause. For instance, when one kicks a football, force is the principle that propels it into motion and the ball remains ¡n motion till the force lasts. In other words, the physical world functions strictly according to the laws of physics. It is expected that people also submit their behavior both in thoughts and in actions, to these principles.

14. Business Ethics as Professional Code
Business ethics is not a pure science but a professional practice, and society expects businessmen to abide by the principles of a civil society, just as it expects professionals from other areas such as medicine, bureaucracy, politics, and sports to do so. Thus, instead of a value-free business ethics, we have a value-loaded or value-based business practice.

15. The Seven Principles of Public Life

• Selflessness: Holders of public office should make decisions solely in terms of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends.
• Integrity: Holders of public office should not place themselves under any financial or other obligation to outside individuals or organizations that might influence them in the performance or their official duties.
• Objective: In carrying out public business including making public appointments, awarding contracts, or recommending individuals to rewards and benefits, holders of public office should make choices on merit.
• accountability: Holders of public office are accountable for the decisions and actions to the public and must submit themselves whatever scrutiny is appropriate to their office.
• Openness: Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wide public interest clearly demands.
• Honesty: Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve an conflicts arising in a way that protects the public interest.
• Leadership: Holders of public office should promote and support these principles by sound leadership and prove to be an example in whatever they perform.

16. The Relationship between Ethics and Law
Ethics and Law – The Interface: Law is essentially an institutionalization or codification of ethics into specific social rules, regulations, and prescriptions. Perhaps the best way of visualizing ethics and law is in terms of two intersecting drmàins as depicted Thus, in one sense, business ethics can be said to begin where law ends. Business ethics is primarily concerned with those issues not completely covered by law, or where there is no definite consensus on whether something is right or wrong. Hence, it is often remarked, that business ethics is about the “grey areas of business where values are in conflict.

17. Ethics in Business
“Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed”
(i) Business for Profit: It would seem that business ethics does not come within the confines of ethics. As Adam Smith (1779), the father of modern economics says: ‘People of the same trade seldom come together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ People find mechanisms to generate the highest possible returns when conducting business.

(ii) Business and Ethics: No matter how hard one tries, it is impossible to separate life from business. For a businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not impossible to conduct strictly honest business. What is true is that honesty is incompatible with amassing of large fortune.’ The business world is an important part of society, as it is concerned with the livelihoods of people.

(iii) Character of Business: ‘There are two fools in every market: one asks too little, one asks too much,’ so says a Russian proverb. Is there a concept called balanced profit? The business in a society reflects its character Transparency International, in its corruption perception index, gives Finland, Denmark, and New Zealand the first place with 9.4 points. India is way down at 72, with just 3.5 points on a scale of 10.

We may gloat over, our cultural heritage and religious and ethical glories of the past, but we stand exposed before the world as a corrupt society.

Professional Ethics: The aforementioned discussion may be understood through the following distinctions: ethics and business ethics. We have studied the distinction between normative and practical ethics and have established that business ethics comes under practical ethics and is applied to a particular activity. Just as a society functions on the social codes of conduct and a country is governed by its constitution, a business is run on corporate codes. In other words, there is a professional code of conduct for any business.

18. Need for Business Ethics
1. Stop business malpractices: Sorne unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, false claims or representations about their products etc.

2. Improve customers’ confidence: Business ethics are needed to improve the customers’ confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.

3. Survival of business: Business ethics are mandatory for the survival of business. The businessmen who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman.

4. Safeguarding consumers’ rights: Consumer sovereignty cannot be either ruled out or denied. Business can survive so long it enjoys the patronage of consumer. The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc.

5. Protecting employees and shareholders: Business ethics are required to protect the interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices.

6. Develop good relations: Business ethics are important to develop good and friendly relations between business and society. This will result in a regular supply of good quality goods and services at low prices to the society. It will also result in profits for the businesses thereby resulting in growth of economy.

7. Creates good image: Business ethics create a good image for the business and businessmen. If the businessmen follow all ethical rules, then they will be fully accepted and not criticised by the society.

8. Smooth functioning: If the business follows all the business ethics, then the employees, shareholders, consumers, dealers, and suppliers will all be happy. So they will give full cooperation to the business.

9. Consumer movement: Business ethics are gaining importance because of the growth of the consumer movement. Gone are the days when the consumer can be taken for ride by the unscrupulous business by their false propaganda and false claims, unfair trade practices.

10. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective of business is consumer
satisfaction.

11. Importance of labour: Labour, i.e. employees or workers play a very crucial role in the success of a business. Therefore, business must use business ethics while dealing with the employees. The business must give them proper wages and salaries and provide them with better working conditions.

12. Healthy Competition: The business must use business ethics while dealing with the competitors. They must have healthy competition with the competitors. Healthy competition brings about efficiency, breaks compliancy, and leads to optimal utilization of scarce resources, hence is always welcome.

CMA Inter Financial Accounting Study Material Important Questions, CMA Inter Financial Accounting Notes Pdf, CMA Inter Financial Accounting Syllabus Previous Year Question Papers MCQ Pdf, Financial Accounting CMA Inter Pdf, CMA Inter Financial Accounting Book Pdf.

Financial Accounting CMA Inter Study Material – CMA Intermediate Financial Accounting Notes

CMA Inter Financial Accounting Study Material Notes Pdf

1. Accounting Fundamentals
2. Bills of Exchange, Consignment, Joint Venture
3. Preparation of Final Accounts of Commercial Organisations, Not-for-Profit Organisations and Incomplete Records
   • Preparation of Financial Statements of Commercial Organisations
   • Preparation of Financial Statements of Not-for-Profit Organisations
   • Preparation of Financial Statements from Incomplete Records
4. Partnership Accounting
5. Lease Accounting
6. Branch (including Foreign Branch) and Departmental Accounts
   • Branch Accounting
   • Departmental Accounting
7. Insurance Claim for Loss of Stock and Loss of Profit
8. Hire Purchase and Installment Sale Transactions
9. Accounting Standards
10. CMA Inter Financial Accounting MCQs

CMA Inter Financial Accounting Syllabus

Financial Accounting CMA Inter Syllabus

Total: 100 Marks

Module Description	Weight
Section A: Accounting Fundamentals	15%
1. Accounting Fundamentals	15%
Section B: Accounting for Special Transactions	10%
2. Bills of Exchange, Consignment, Joint Venture	10%
Section C: Preparation of Financial Statements	20%
3. Preparation of Final Accounts of Commercial Organisations, Not-for-Profit Organisations and Incomplete Records	20%
Section D: Partnership Accounting	20%
4. Partnership Accounting	20%
Section E: Lease, Branch and Departmental Accounts etc.	15%
5. Lease Accounting	15%
6. Branch (including Foreign Branch) and Departmental Accounts
7. Insurance Claim for Loss of Stock and Loss of Profit
8. Hire Purchase and Installment Sale Transactions
Section F: Accounting Standards	20%
9. Accounting Standards	20%

Section A: Accounting Fundamentals

1. Accounting Fundamentals
Four Frameworks of Accounting (Conceptual, Legal, Institutional, and Regulatory), Accounting Principles, Concepts and Conventions, Capital and Revenue Transactions – Capital and Revenue Expenditures, Capital and Revenue Receipts
Accounting Cycle – Charts ofAccounts and Codification Structure, Analysis of Transaction – Accounting Equation, Double Entry System, Books of Original Entry, Subsidiary Books and Finalisation of Accounts, Journal (Day Books and Journal Proper – Opening Entries, Transfer Entries, Closing Entries, Adjustment entries, Rectification entries), Ledger, Cash Book, Bank Book, Bank Reconciliation Statement, TriaI Balance (Preparation and Scrutiny), Adjustments and Rectifications, Depreciation and Amortisation, Adjustment Entries and Rectification of Errors, Accounting Treatment of Bad Debts and Provision for Doubtful Debts, Provision for Discount on Debtors and Provision for Discount on Creditors

Section B: Accounting for Special Transactions

2. BilIs of Exchange. Consignment, Joint Venture

Section C: Preparation of Financial Statements

3. Preparation of Final Accounts of Commercial Organisations. Not-for-profit organizations and from Incomplete Records
Preparation of Financial Statements of Commercial Organisations (other than Corporate Form of Organisation) – Income Statement, Balance Sheet; Preparation of Financial Statements of Not-for-Profit Organisation – Preparation of Receipts and Payments Account, Preparation of Income and Expenditure Account, Preparation of Balance Sheet; Preparation of Financial Statements from Incomplete Records

Section D: Partnership Accounting

4. Partnership Accounting
Admission of Partner, Retirement of Partner, Death of Partner, Treatment of Joint Life Policy, Dissolution of Partnership Firms including Piecemeal Distribution, Amalgamation of Partnership Firms, Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company, Accounting of Limited Liability Partnership

Section E: Lease. Branch and Departmental Accounts Etc

5. Lease Accounting
6. Branch (including Foreign Branch) and Departmental Accounts
7. Insurance Claim for Loss of Stock and Loss of Profit
8. Hire Purchase and Installment Sale Transactions

Section F: Accounting Standards

9. Accounting Standards
Introduction to Accounting Standards – GAAP, AS, Convergence to Ind AS – Applicability and Scope; Specified Accounting Standards with Comparative Provisions under Ind AS; Disclosure of Accounting Policies (AS 1); Property Plant and Equipment (AS 10); The Effects of Changes in Foreign Exchange Rate (AS 11); Accounting for Government Grants (AS 12); Borrowing Costs (AS 16); Accounting for Taxes on Income (AS 22).

CMA Inter Financial Accounting Chapter Wise Weightage

Companies Act, 2013 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Companies Act, 2013 – CMA Inter Law and Ethics Study Material

Company Types, Promotion, Formation, And Related Procedures – CMA Inter Law and Ethics Study Material

Question 1.
Write short note on the following:
Revocation of licence (June 2017, 5 marks)
Answer:
Revocation of Licence
Section 8(6) provides that the Central Government, by order, revoke the licence granted to the company registered under this section:
if the company contravenes any of the requirements of this section; or
any of the conditions subject to which a license is issued; or
the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company.

The Central Government shall direct the company to convert its status and change its name to add the words ‘limited’ or ‘private limited’ to its name. No such order will not be passed without giving opportunity to the company of being heard.

A copy of such order shall be given to the Registrar. The Registrar shall, without prejudice to any action taken, on application, in the prescribed form register the company accordingly.

Question 2.
Write short flotes on out of the following terms:
Alteration of Share Capital (June 2018, 5 marks)
Answer:
Alteration of Share Capital:
A Limited Company having a Share Capital may, if so authorised by its articles, alter its memorandum by passing an ordinary resolution in its general meeting to:

• increase its authorised share capital by such amount as it thinks expedient;
• consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;
• convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination.
• sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.
• cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

All the above alterations do not require the confirmation by the Tribunal except that alteration relating to consolidation and division which results in changes in the voting percentage of shareholders shall not take effect unless it is approved by the Tribunal on an application made in the prescribed manner.

These alterations are, however, required to be notified and a copy of the resolution should be filed with the Registrar within 30 days of the passing of the resolution along with an altered memorandum. [Section 64(1)]

The Registrar shall record the notice and make any alteration which may be necessary in the company’s memorandum or articles or both.

The cancellation of shares under section 61(1) of the Act shall not be deemed to be a reduction of share capital. Section 64 (1) provides that a notice is required to be given to the Registrar for alteration for share capital.

Question 3.
Write short notes on:
Small Companies (Dec 2018, 5 marks)
Answer:
Section 2(85) of the Companies Act, 2013 defines ‘small company’ as a company, other than a public company —

• paid-up share capital of which does not exceed ₹ 4 crore or such higher amount as may be prescribed which shall not be more than ₹ 10 crore; and
• turnover which is as per its last profit and loss account does not exceed ₹ 40 crores or such higher amount as may be prescribed which shall not be more than ₹ 100 crores.

This definition shall not apply to the following, companies –

• A holding company or subsidiary company
• A company registered under Section 8; or
• A company or a body corporate governed by any special Act.

Question 4.
Write short notes on:
Red herring prospectus (June 2019, 5 marks)
Answer:
Red herring prospectus:
The Explanation to Section 32 defines the term ‘red herring prospectus’ as a prospectus which does not include complete particulars of the quantum or price of the securities included therein Section 32 provides that a company proposing to make an otter of securities may issue a red herring prospectus prior to the issue of a prospectus. The same shall be filed with the Registrar at least three day prior to the opening of the subscription list and the offer. It shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.

At the time of closing of the offer, the prospectus stating the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other detail as are not included in the red herring prospectus shall be filed with the Registrar and the SEBI.

Question 5.
Write Short Notes on Revocation of license under Section 8(6) of Companies Act. (Dec 2021, 3 marks)
Answer:
Revocation of License (Section 8(6) of Companies Act, 2013):
Provides that the Central Government may, by order, revoke the license granted to the company registered under this section –

• If the company contravenes any of the requirements of this section; or
• Any of the conditions subject to which a license is issued; or
• The affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest.

The Central Government shall direct the company to convert its status and change its name to add the words “Limited” or “Private Limited” to its name. No such order will not be passed without giving opportunity to the company of being heard. A copy of such order shall be given to the Registrar. The Registrar shall, without prejudice to any action taken, on application, in the prescribed form, register the company accordingly.

Question 6.
Write short note on the following terms:
Trust Deed as per Companies Act, 2013 (Dec 2022, 5 marks)

Descriptive Questions

Question 7.
A chemical manufacturing company distributed twenty lakhs to scientific institutions for furtherance of scientific education and research. Referring to the provisions of The Companies Act, 2013, decide whether the said distribution of money was ‘ultra vires’ the company. (Dec 2013, 2 marks)
Answer:
The doctrine of Ultra Vires:
Ultra means beyond and Vires mean powers. Ultra Vires means beyond powers. Any action of the company is Ultra Vires it such action is not authorised in the MOA.

The MOA defines and confines the powers of the company and company can operate only within the scope of the authority given to it by its MQA and Company’s Act, 2013.

Any action beyond the scope of MOA or Company’s Act, 2013 is Ultra Vires of the company.

It is also clear that the company can not ratify such action or make such action valid, even if every member assents to it.

Whatever was ultra vires the company will remain ultra vires. Any action which is ultra vires but intra vires to the company can be ratified by the company. If any act is ultra vires to the directors the body of shareholders can ratify it.

The term ultra vires means beyond powers. Here, in the given case, a chemical manufacturing company distributed ₹ 20 lakhs to scientific institutions for furtherance (means continuance, persistence, maintenance) of scientific education and research. It is not ultra vires since it is conductive to the continued growth of the company as chemical manufacturers.

Similar view was found in the case of Evans v. Brunner Mond & Company, (1921) Ch 359. Here, a company was incorporated for carrying on business of manufacturing chemicals. The objects clause in the memorandum of the company authorized the company to do gall such business and things as may be incidental or conductive to the attainment of the above objects or any of them by a resolution the directors were authorized to distribute £1,00,000 out of surplus reserve account to such universities in U.K.

as they might select for the furtherance of scientific research and education. The resolution was challenged on the ground that it was beyond the objects clause of the memorandum and therefore it was ultra vires the power of the company.

The directors proved that the company had great difficulty in finding trained men and the purpose of the resolution was to encourage scientific training of more men to enable the company to recruit staff and continue its progress.

The Tribunal held that the expenditure authorized by the resolution was necessary for the continued progress of the company as chemical manufacturers and thus the resolution was incidental or conductive to the attainment of the main object of the company and consequently it was not ultra vires.

“Acts incidental or ancillary” are those acts, which have a reasonable proximate connection with the objects stated in the objects clause of the memorandum.

Question 8.
Explain provisions of the Companies Act, 2013 regarding documents containing offers of securities for sale to be deemed prospectus. (Dec 2014, 5 marks)
Answer:
Document Containing offer of Securities br Sale to be Deemed Prospectus:
Section 25(1) of Companies Act, 2013 states that when a company allows or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public:
(a) any document by which the offer for sale to the public is made shall, for all purposes be deemed to be a prospectus issued by the company; and

(b) all enactments and rules of law as to the contents of prospectus and as to liability in respect of misstatements, in and omissions from, prospectus, or otherwise relating to prospectus, shall apply with the modifications specified in sub-sections (3) and (4) and shall have effect accordingly, as if the securities had been offered to the public for – subscription and as if persons accepting the offer in respect of any securities were subscribers for those securities, but without prejudice to the liability, if any, of the persons by whom the offer is made in respect of misstatements contained in the document or otherwise in respect thereof.

Section 25(2) states that unless the contrary is proved, it shall be evidence that an allotment of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the public if it is shown: that an offer of the securities or of any of them for sale to the public was made within six months after the allotment or agreement to allot: or that at the date when the offer was made, the whole consideration to be received by the company in respect of the securities had not been received by it.

As per Section 25(3); Section 26 as applied by this section shall have effect as if:

(i) It required a prospectus to state in addition to the matters required by that section to be stated in a prospectus

• the net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and
• the time and place at which the contract where under the said securities have been or are to be allotted may be inspected;

(ii) the persons making the offer were persons named in a prospectus as directors of a company.

Question 9.
Answer the question:
A company wants to buy back its own shares in the current financial year. State the defaults which make the company ineligible to buy back its own shares as outlined in the Companies Act, 2013. (June 2015, 4 marks)
Answer:
Prohibition for Buy-Back in Certain Circumstances [Section 70]
1. No company shall directly or indirectly purchase its own shares or other specified securities:

• through any subsidiary company including its own subsidiary companies;
• through any investment company or group of investment companies; or
• if a default is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.

Provided that the buy-back is not prohibited if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

2. No company shall, directly or indirectly, purchase its own shares or other specified securities in case such company has not complied with the provisions of Sections 92, 123, 127, and 129.

Question 10.
Answer the questions:
(a) (i) Can a non-profit organization be registered as a company under the Companies Act, 2013? If so, what procedure does it have to adopt? (June 2016, 7 marks)
(ii) ABC Limited decides to buy back its own shares. Advise the Company’s Board of Directors about the sources of which the company can buy back its own shares. (June 2016, 4 marks)
(b) (ii) Define the term ‘Small Company’ as contained in the Companies Act, 2013. (June 2016, 5 marks)
Answer:
(a) (i) Registration of a non-profit organization as a company:
1. Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company:

• has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• intends to apply its profits, if any, or other income in promoting its objects; and
• intends to prohibit the payment of any dividend to its members, the Central Government may, by license issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.

2. The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.

3. A firm may be a member of the company registered under this section.

4. A company registered under this section shall not alter the provisions of its memorandum or articles except vith the previous approval of the Central Government. A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.

5. Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.

6. The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and there upon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly.

Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.
Provided further that a copy of every such order shall be given to the Registrar.

7. Where a licence is revoked under sub-section (6), the Central Government may, by order, this satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section.

Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.

8. Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties, and obligations as may be specified in the order.

9. If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and lnsolvericÿ Fund formed under Section 269.

10. A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

(ii) Sources:
According to Section 68(1) of the Companie Act, 2013, a company may purchase its own shares or other specified securities (hereinafter referred to as “buy-back”) out of:

• its free reserves; or
• the securities premium account; or
• the proceeds of any shares or other specified securities.

However, no buy-back of any kind of shares or other specified securities can be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
Thus, the company must have at the time of buy-back, sufficient balance in any one or more of these accounts to accommodate the total value of the buy-back.

(b)
(ii) “Small company” means a company, other than a public company:

• paid-up share capital of which does not exceed 4 crore rupees or such higher amount as may be prescribed which shall not be more than 10 crore rupees; or
• turnover of which as per its last profit and loss account does not exceed 40 crore rupees or such higher amount as may be prescribed which shall not be more than 100 crore rupees.

Question 11.
Answer the questions:
(a) (iii) Explain Red Herring Prospectus under the Companies Act, 2013. (Dec 2016, 5 marks)
(b) (ii) State the procedure for shifting of a registered office of the company from one state to another state under the provisions of the Companies Act, 2013. (Dec 2016, 5 marks)
Answer:
(a) (iii) Red Herring Prospectus [Section 32 of the Companies Act, 2013]:
1. A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.

2. A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer.

3. A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.

4. Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.

(b)
(ii) Procedure for shifting the registered office from one state to another state (Section 13, of the Companies Act, 2013):
In order to shift the registered office from one state to another the following procedure will have to be followed:

• Hold a Board Meeting for the purpose of calling a general meeting of the members of the company in which the shifting of the registered office from one state to another will have to be approved;
• The general meeting of the members will have to pass a special resolution approving the change of address of the registered office from one state to another as required by Section 13 (1) of the Companies Act, 2013.
• Make an application to the Central Government in INC no.23 form and manner as may be prescribed, for getting its approval under Section 13 (4) of the Companies Act, 2013.
• Under Section 13(7) of the Companies Act, 2013, where an alteration of the Memorandum results in the transfer of the registered office of the company from one state to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the registrar of each of the states, within such time and in such manner as may be prescribed, and the registrars shall register the same. The registrar of the state where the registered office is being shifted to shall issue a fresh certificate of incorporation indicating the alteration.
• The change in name will be effective only after the issue of the fresh certificate of incorporation by the Registrar of the state where the registered office is being shifted to.

Question 12.
(a) What are the conditions stipulated in the Companies Act, 2013 in formation of One Person Company? (June 2017, 5 marks)
(b) Discuss the procedure of alteration of memorandum of association as per the Companies Act, 2013. (June 2017, 10 marks)
Answer:
(a) Conditions.
The following are the conditions in formation of a OPC:
No person shall be eligible to incorporate more than a OPC or become nominee in more than such company;

Where a natural person, being a member of OPC in accordance with this rule becomes a member in another such company by virtue of his being a nominee in that OPC, such person shall meet the eligibility criteria within a period of 182 days;

No minor shall become member or nominee 0r OPC or can hold share with beneficial interest;

Such company cannot be incorporated or converted into Section 8 company;
Such company cannot carry out Non Banking Financial investment activities including investment activities in securities of anybody corporate;

No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of OPC, except threshold limit of paid-up share capital is increased beyond ₹ 50 lakh or its average annual turnover during the relevant period exceeds ₹ 2 crore rupees.

(b) Procedure of alteration of memorandum:
Section 13 of the Companies Act, 2013 provides the provisions that deal with the alteration of the memorandum. The provision says that:
1. Alteration by special resolution: Company may alter the provisions of its memorandum with the approval of the members by a special resolution.

2. Name Change of the company: Any change in the name of a company shall be effected only with the approval of Central Government in writing. However, no such approval shall be necessary where the change in the name of the company is only the deletion therefrom, or addition thereto, of the word “Private”, on the conversion of any one class of companies to another class. The change of name shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.

3. Entry in register of companies: On any change in the name of a company, the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.

4. Change in the registered office: The alteration of the memorandum relating to the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government on an application in such form and manner as may be prescribed.

5. Disposal of the application of change of place of the registered office: The Central Government shall dispose of the application of change of place of there registered office within a period of sixty days Before passing of order, Central Government may satisfy itself that:
The alteration has the consent of the creditors, debenture holders, and other persons concerned with the company, or
the sufficient provision has been made by the company either for the due discharge of all its debts and obligations, or
adequate security has been provided for such discharge.

6. Filing with Registrar: A company shall, in relation to any alteration of its memorandum, file with the Registrar:
the special resolution passed by the company under sub-section (1);
the approval of the Central Government under sub-section (2),
if the alteration involves any change in the name of the company.

7. Filing of the certified copy of the order with the registrar of the states: Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of each of the States within such time and in such manner as may be prescribed, who shall register the same.

8. Issue of fresh certificate of incorporation: The Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration.

Amendment made by Companies (Amendment) Act, 2017 in Section 12 of the Principal Act,-
In subsection (1), for the words ‘on and from the fifteenth day of its incorporation”, the words “within thirty days of its incorporation” shall be substituted; In sub-section (4), for the words ‘within fifteen days’, the words ‘within thirty days’ shall be substituted.

9. Change in the object of the company: A company, which has raised money from public through prospectus and still has any unutilized amount out of the honey so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution through postal ballot is passed by the company.

and:
The details, in respect to of such resolution, shall also be published ¡n the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and shall also be placed on the website of the company, if any, indicating therein the justification for such change;

The dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board.

10. Registrar to certify the registration on the alteration of the objects: The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution.

11. AlteratIon to be registered: No alteration made under this section shall have any effect until it has been registered in accordance with the provisions of this section.

12. Only members have a right to participate in the divisible profits of the company: Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, intending to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

Question 13.
Discuss the procedure for conducting a poll in a meeting of a company. (Dec 2017, 9 marks)
Elucidate the circumstances in which a company cannot buy back its own shares as per the provisions of the Companies Act, 2013. (Dec 2017, 6 marks)
Answer:
Section 108 (5) provides that where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as he deems necessary, to scrutinize the poll process and votes given on the poll to report thereon to him. Section 108(6) provides that the Chairman of the meeting shall have power to regulate the manner in which the poll shall be taken.

Rule 21 provides that Chairman of a meeting shall, in the poll process, ensure that-
The Scrutinizers are provided with the Register of Members, specimen signatures of the Members, Attendance Register, and Register of proxies;
The Scrutinizers are provided with all documents received by the company;
The Scrutinizers shall arrange for polling papers and distribute them to the members and proxies present at the meeting;

In case of joint shareholders, the polling paper shall be given to the first named holder or in his absence to the joint holder attending the meeting as appearing in the chronological order in the folio

The polling shall be in Form No. MGT.12; .
The Scrutinizers shall keep a record of the polling papers received in response to poll by initializing it;

The Scrutinizers shall lock and seal and empty polling box in the presence of members and proxies;
The Scrutinizers shall open the polling box in the presence of two persons as witnesses after the voting process is over;

In case of ambiguity about the validity of a proxy, the Scrutinizer shall decide the validity in consultation with the Chairman;
The Scrutinizers shall ensure that it a member who has appointed in a proxy, has voted in person, the proxy’s vote shall be disregarded;

The Scrutinizers shall count the votes cast on poll and prepare a report thereon addressed to Chairman;
The Scrutinizer shall submit the report to the Chairman who shall counter-sign the same;
The Chairman shall declare the result of voting on poll. The result may either be announced by him or a person authorized by him in writing.

The Scrutinizers shall submit a report to the Chairman of the meeting in Form No. MGT-13. The report shall be signed by the scrutinizer(s) and the same shall be submitted by them to the Chairman within 7 days from the date of the poll is taken.

(b) Section 70 provides that no company shall directly or indirectly purchase its own shares or other specified securities-

• Through any subsidiary company including its own subsidiary companies;
• Through any investment company or group of investment companies; or

If a default is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividends to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company. The buyback is not prohibited if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

Question 14.
Discuss the procedure for conversion of private company into One personal company. (June 2018, 7 marks)
Answer:
Conversion of Private Company Into a OPC:
Rule 7 provides the procedure for conversion of private company into OPC. Rule 7(1) provides that a private company other than Section 8 company, having paid up share capital of ₹ 50 lakh or less and average annual turnover during the relevant period is ₹ 2 crores or less may convert itself into OPC by passing a special resolution in the general meeting.

Before passing such resolution the company shall obtain ‘No Objection Certificate’ in writing from the members and creditors. The OPC shall file copy of the resolution with the Registrar of Companies within 30 days from the date of passing such resolution in Form No. MGT-14.

The company shall file an application in Form No. INC-6 for its conversion into OPC along with fees. The following documents are to be attached:

the directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid-up share capital of the company is ₹ 50 lakhs or less or average annual turnover is less than ₹ 2 crores, as the case may be;

• the list of members and creditors;
• the latest Audited Financial Statement;
• the copy of No objection letter of secured creditors.
• On being satisfied and complied with the requirements the Registrar shall issue the certificate.

Question 15.
What are the procedures of sending notice through electronic mode under the Companies Act, 2013? ( June 2018, 8 marks)
Answer:
Company may give notice through electronic mode. For the purpose of this rule, the expression “electronic mode” shall mean any communication sent by a company through its authorized and secured computer programme which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.

(2) A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link or Uniform Resource Locator for accessing such notice.

(3)

• The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company or as provided by the depository: Provided that the company shall provide an advance opportunity at least once in a financial year, to the member to register his e-mail address and changes therein and such request may be made by only those members who have not got their email ID recorded or to update a fresh email Id and not from the members whose e-mail ids are already registered.
• The subject line in e-mail shall state the name of the company, notice of the type of meeting, place and the date on which the meeting is scheduled.
• If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in the Portable Document Format or in a non-editable format together with a ‘link or instructions’ for recipient for downloading relevant version of the software.
• When notice or notifications of availability of notice are sent by e-mail, the company should ensure that it uses a system which produces confirmation of the total number of recipients’ e-mail id and a record of each recipient to whom the notice has been sent and copy of such record and any notices of any failed transmissions and subsequent re-sending shall be retained by or on behalf of the company as “proof of sending”.
• The company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be held responsible for a failure in transmission beyond its control.
• If a member entitled to receive notice fails to provide or update relevant e-mail address to the company, or to the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.
• The company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third party agency providing bulk e-mail facility.
• The notice made available on the electronic link or Uniform Resource Locator has to be readable, and the recipient should be able to obtain and retain copies and the company shall give the complete Uniform Resource Locator or address of the website and full details of how to access the document or information.
• The notice of the general meeting of the company shall be simultaneously placed on the website of the company if any and on the website as may be notified by the Central Government.

Question 16.
(a) What are the features of companies registered under section 8 of the Companies Act, 2013? (Dec 2018, 7 marks)
(b) Discuss the provisions of the Companies Act, 2013 regarding issue of bonus shares. (Dec 2018, 8 marks)
Answer:
(a) According to Section 8 of Companies Act 2013, Provides that these companies intend to promote art, commerce, sports, safety, science, research, healthcare, social welfare, religion, protection of the environment, etc.

The following are the features of companies registered under Section 8 of the Companies Act, 2013;

1. has its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object
2. intends to apply its profit, if any, or other income in promoting its objects; and
3. intends to prohibit the payment of any dividend to its members
4. the company registered under this Section shall enjoy all the privileges and be subject to all the obligations of the limited company
5. a firm may be a member of the company registered under this section
6. a company registered under this Section shall not alter the provisions of its memorandum and articles except with the previous approval of the Central Government
7. a company registered under this section may convert itself into a company of any other kind only after complying with such conditions as may be prescribed.

(b) According to Section 63 of the Companies Act, 2013 states for the issue of bonus shares. Section 63(1) states that a company issues fully paid-up bonus shares to its members out of its

• free reserves;
• the securities premium account; or
• the capital redemption reserve account
• No bonus shares shall be made by capitalizing reserves created by revaluation of assets. Section 63(2) provides that not company shall capitalize its profits or reserves for the purpose of issuing fully paid up shares unless –
• it is authorized by its articles
• it has, on the recommendation of the Board, been authorized in the general meeting of the company
• it has no defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it
• it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity, and bonus the partly paid-up shares, it any outstanding on the date of allotment are made fully paid up
• it complies with such conditions as may be prescribed

Section 63(3) provides that the bonus shares shall not be issued in lieu of dividends.
Rule 14 states that the company which once announced the decision of the Board recommending a Bonus issue shall not subsequently withdraw the same.

Question 17.
(a) What is meant by Lifting of Corporate Veil? In which circumstances the corporate veil can be lifted by court? (June 2019, 8 marks)
(b) State the procedure for shifting of a registered office of the company from one state to another state under the provisions of the Companies Act, 2013. (7 marks)
Answer:
(a) The separate personality or a company is a statutory privilege and it must be used for legitimate business purposes only.
Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.

The Court will break through the corporate shell and apply the principle/doctrine of what is called as “lifting of or piercing the corporate veil.

The Court will look behind the corporate entity and take action as though no entity separate from the members existed and make the members or the controlling persons liable for debts and obligations of the company.

In the following circumstances, different courts found it necessary to lift the corporate veil and punish the actual persons who did wrong or unlawful acts under the name of the company:
1. Protection of Revenue: The Court may ignore the Separate Legal Entity status of a Company, where it is used for tax invasion or circumventing tax obligations.

2. Determination of enemy character of the Company: Company being an artificial person cannot be enemy or friend. But during war, it may become necessary to lift the corporate veil and see the persons behind ¡t to determine whether they are friends or enemy.

This is due to the reason that though a company enjoys Separate Legal Entity but its affairs are run by individuals.

3. Prevention of fraud: Where a Company is used for committing frauds or improper conduct, the Court may lift the corporate veil and look at the realities of the situation.

4. Protection of public policy: The Court shall lift the Corporate Veil without any hesitation to protect the public policy and prevent transactions opposed to public policy.

5. Company mere sham or cloak: Where the Company is a mere sham and was really a ploy used for committing illegalities and to defraud people, the Court shall lift the Corporate Veil.

6. Where a Company acts as an agent of Its shareholders: If there is an arrangement between the shareholders and a Company to the effect that the Company will act as agent of shareholders for the purpose of carrying on the business, the business is essentially of that of the shareholders and will have unlimited liability.

7. Avoidance of Welfare Legislation: Where a Company tries to avoid its legal obligations, the corporate veil shall be lifted to look at the real picture.

8. To punish for contempt of Court: Company being an artificial person cannot disobey the orders of the Court. Therefore, the persons at fault should be identified.

(b) A company is required to adopt the following procedures to shift its registered office from one state to another;

1. The company shall pass special resolution.
2. Alteration in memorandum must be made for any of the “specified purposes’’ given u/s 16.
3. An application for alteration shall be made by the company to Central Governments (13) (7) of Companies Act, 2013. Also, notice shall be served on ROC who shall have a right to state his objections and suggestions.
4. As per Rule 30 of the Companies (Incorporation) Rules, 2014, the application for seeking approval for alteration of the memorandum with regard to the change of place of the registered office from one State to another shall be filed with the Central Government in Form INC – 23 and shall be accompanied by the following documents:

• a copy of the memorandum and articles of association;
• a copy of the notice convening the general meeting along with relevant Explanatory Statement;
• a copy of the special resolution sanctioning the alteration by the members of the company;
• a copy of the minutes of the general meeting at which the resolution authorizing such alteration was passed, giving details of the number of votes cast in favour or against the resolution;
• an affidavit verifying the application;
• the list of creditors and debenture holders entitled to object to the application;
• an affidavit verifying the list of creditors;
• the document relating to payment of application fee;
• a copy of board resolution or Power of Attorney or the executed Vakalatnama, as the case may be.

5. CG may dispense with the consent of a creditor in appropriate cases. Moreover, CG may confirm the alteration in terms as it thinks fit.
6. Company is required to file with registrar of each state: order of CG; and
A copy of a memorandum, as altered, within 3 months plus 3 months (maximum) extended by CG.
7. The Registrar of the new state shall register the charge and give a certificate of registration of office.

Question 18.
Sweat equity shares are issued to directors or employees at a discount or for consideration other than cash. Discuss under the provisions of the Companies Act, 2013. (Dec 2019, 8 marks)
Answer:
According to Section 2(88) defines the expression ‘sweat equity shares’ as such equity shares as are issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their, know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

For this purpose the term ‘employee’ means

• a permanent employee of the company who has been working in India or outside India; or.
• a director of the company, whether a whole-time director or not; or
• an employee or a director as defined above of a subsidiary, in India or outside India, or of holding company of the company.

Section 54 provides that a company may issue sweat equity shares of a class of shares already issued if the following conditions are fulfilled:

1. the issue is authorized by a special resolution passed by the company;
2. the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;
3. where the equity shares of the company are listed on a recognized stock exchange, the sweat equity shares are issued in accordance with the regulations made by SEBI in this behalf. If they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.

Note:
Rule 8(1) provides that a company other than a listed company shall not issue sweat equity shares to its directors or employees at a discount or for consideration other than cash, for their providing know-how or making available rights in the nature of intellectual property rights or value additions unless the issue is authorized by a special resolution passed by the company in general meeting.

Question 19.
What are the benefits of One Person Company? (Dec 2021, 6 marks)
Answer:
Benefits of One One-Person Company
1. The meaning of One Person Company is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans and access to market, limited liability, and legal protection available to companies.

2. Prior to the new Companies Act, 2013 coming into effect, at least two shareholders were required to start a company. ut now the concept of One Person Company would provide tremendous opportunities for small businessmen and traders, including those working in areas like handloom, handicrafts, and pottery.

Prior they were working as artisans and weavers on their own, so they did not have a legal entity of a company. But now the OPC would help them do business as an enterprise and give them an opportunity to start their own ventures with a formal business structure.

3. Further, the amount of compliance by a one-person company, is much lesser in terms of filing returns, balance sheets, audit etc. Also, rather than the middlemen usurping profits, the one-person company will have direct access to the market and the wholesale retailers.

Question 20.
What is the procedure for issue of renewed share certificate under Companies Act, 2013? (Dec 2021, 6 marks)
Answer:
Issue of renewed share certificate
As per Rule 6 states that the certificate of any share(s) shall not be issued either in exchange for those which are sub-divided or consolidated or in replacement of those which are defaced, mutilated, torn or old, decrepit, worn out or where the pages on the reverse for recording transfers have been duly utilized unless the certificate in lieu of which it is issued is surrendered to the company. The company may charge such fees as the Board thinks fit, not exceeding 50/ per certificate issued on splitting or consolidation of share certificate(s) or in replacement of share certificate(s) that are defaced, mutilated, tom or old, decrepit or worn out.

In such cases it shall be stated on the face of the share that it is “Issued in lieu of Share Certificate No. Subdivided/replaced/on consolidation” and also that no fee shall be payable pursuant to scheme of arrangement sanctioned by the High Court or Central Government.

A company may replace all the existing certificates by new certificates upon subdivision or consolidation of shares or merger or demerger or any reconstitution without requiring old certificates to be surrendered. The details of such nature are to be entered in the Register maintained for this purpose.

Question 21.
(a) Discuss the relevant provisions of the Companies Act, 2013 relating to issue of bonus shares. (Dec 2022, 9 marks)
(b) What action may be taken by the Central Government on revocation of licence of Section 8 of the Companies Act, 2013? (Dec 2022, 6 marks)

Practical Questions

Question 22.
A Company was incorporated on 6 October 2013. The certificate of incorporation of the company was issued by the Registrar on 25th October 2013. The company on 10th October 2013 entered into a contract, which created its contractual liability. The company denies from the said liability on the ground that company is not bound by the contract entered into prior to issuing of certificate of incorporation. Decide, under the provisions of The Companies Act, 2013, whether the company can be exempted from the said contractual liability. (2013 – Dec,3 marks)
Answer:
Upon the registration of the documents as required under the Companies Act, 2013 for incorporation of a company, and on payment of the necessary fees, the Registrar of Companies issues a certificate that company is incorporated (u/s 34) Section 35 provides that a certificate of incorporation issued by the Registrar is conclusive as to all administrative acts relating to the incorporation and as to the date of incorporation.

The date of incorporation is the birth certificate of a company. The date of issue of birth certificate cannot affect the date of birth of company. The facts as given in the problem are similar to those in case of Jubilee Cotton Mills Vs. Lewis (1924) A.C. 1958 where it was held that an allotment of shares made on the date after incorporation could not be

declared void on the ground that it was made before the company was incorporated when the certificate of incorporation was issued at a later date.

Applying the above principles the contention of the company in this case cannot be tenable (means acceptable). It is immaterial that the certificate of incorporation was issued at a later date.

Since the company came into existence on the date of incorporation stated on the certificate, it is quite legal for the company to enter into contracts.

To conclude the contracts entered into by the company before the issue of certificate of incorporation shall be binding upon the company. The date of issue of certificate is immaterial.

Question 23.
The MOA of a Company was signed by two adult members and by a guardian of the other five minor members, the guardian signing separately for each minor member. The Registrar registered the company and issued under his hand a certificate of incorporation. The plaintiff contended that (a) conditions of registration were not duly complied with, (b) that there were no seven subscribers to the MOA. Will the Tribunal uphold his contention? (June 2014, 3 marks)
Answer:
No. Once the ROC issues the certificate of incorporation, it is the conclusive evidence that all the formalities as required by law regarding the incorporation of company have been complied with.

The certificate of incorporation is conclusive for all purposes. According to the Section 35 of the Companies Act, 2013, a certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereof and no arguments whatsoever can be heard against the incorporation after the issue of certificate of incorporation.

Question 24.
Answer the questions:
(a) The management of Ambika Properties Ltd., has decided to take up the business of chemical processing activity because of the downward trend in real estate business. There is no provision in the object clause of the Memorandum of Association to enable the company to carry on such business. State with reasons whether its object clause can be amended. State briefly the procedure to be adopted for change in the object clause in the light of Companies Act, 2013. (Dec 2015, 5 marks)
(c) Manish, a textiles dealer, supplied certain bales of cloth to the company which is duly incorporated has obtained a certificate of incorporation. However, the company went into liquidation before it could obtain certificate to commence business. Can Manish claim the price of bales of cloth in liquidation proceedings? (Dec 2015, 2 marks)
Answer:
(a) (i) According to Section 13(8) of the Companies Act, 2013, a company, which has raised money from public through prospectus and still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution is passed by the company and-
(i) The prescribed details in respect of such resolution are published in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and are also placed on the website of the company, if any, indicating herein the justification for such change;

(ii) The dissenting shareholders shall be given a opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board. The Registrar shall register the alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution. It may be noted that no alteration with respect to objects shall have any effect until it has been registered as aforesaid [Sec.13(10)].

(c) (i) No, as all contracts, after incorporation but before obtaining certificate to commence business are provisional and not binding on the company titi such certificate is obtained.

[Note: The answer ¡s given as per Section 149(4) of Companies Act, 1956, which is replaced by Section 11 of Companies Act, 2013. As per Companies (Amended) Act, 2015 Section 11 stands omitted]

Question 25.
XYZ Ltd. issued Notice for holding of its Annual General Meeting on 30th September 2019. The notice was posted to the members on 7th September 2019. Some members of the company allege that the company had not complied with the provisions of the Companies Act.
Referring to the provisions of the Act decide.
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall short of the statutory requirement?
(iii) Can the delay in giving notice be condoned? (Dec 2019, 7 marks)
Answer:
Under Section 101(1) of the Companies Act, 2013, Annual General Meeting (AGM) of a company may be called by giving not less than dear twenty-one days notice either in writing or through electronic mode in such manner as may be prescribed.

Also, it is to be noted that clear 21 days notice mean that date of which notice is served and the date of meeting are excluded for sending the notice.

Further, Rule 35(6) of the Company (incorporation Rules,2014, provides that in case of delivery by post, such service shall be deemed to have been effected – in the case of the notice of meeting, at the expiration of forty-eight hours after the letter containing the same is posted. Therefore, in the given
question:

• A 21-day clear notice must be given. In the given problem, only 20 days notice is served (after excluding 48 hours from the time of its posting and day of sending, and date of meeting). Hence, the meeting was not validly called.
• As explained in (i) above, notice falls short by 1 day.
• The Companies Act, 2013 does not provide anything specific regarding the condonation of delay in giving of notice. Therefore, the delay in giving the notice calling the meeting cannot be condoned.

Repeatedly Asked Questions
Question	Frequency
1. State the procedure for shifting of a registered office of the company from one state to another state under the provisions of the Companies Act, 2013. 16 – Dec, 19 – June	2 Times
2. Red herring prospectus 16 – Dec, 19- June	2 Times
3. Discuss the relevant provisions of the Companies Act, 2013 relating to issue of bonus shares. 18 – Dec, 22 – Dec	2 Times
4. What action may be taken by the Central Government on revocation of licence of Section 8 of the Companies Act, 2013? 21 – Dec,22 – Dec	2 Times

Directors And Other Concepts – CMA Inter Law and Ethics Study Material

Short Notes

Question 1.
Write short note of the following term:
Director Identification Number (DIN) (Dec 2017, 5 marks)
Answer:
Every individual, who is to be appointed as director of a company shall make an application electronically in Form No. DIR-3 to the Central Government for allotment of DIN along with the prescribed fees.

The applicant can download the said from the website of Ministry of Corporate Affairs (‘MCA’ for short) duly filled in all respects along with photograph and signed digitally.

The form shall be verified by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice.

On application, the system shall generate an application number. The Central Government shall process the application and decide the approval or rejection and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other mode within 30 days from the receipt of such application.

If any defect is found in the application the Central Government shall give intimation of such defect or incompletion to the applicant by placing it on its website and by email to the applicant to rectify such defects within 15 days from the date of intimation.

If the same has not been rectified the Government shall reject the application directing to file a fresh application.
In case of rejection or invalidation of application, the fee so paid with the application shall neither be refunded nor adjusted with any other application.

• The DIN allotted to a director before the commencement of this Act shall be deemed to be the DIN allotted under the present Act.
• The DIN allotted shall be valid up to the lifetime of the Director.
• The said number shall not be allotted to any other person. Similarly, a person shall be allotted only one DIN.
• The director, on allotment of DIN, is to intimate the company in Form No. DIR-3B within 30 days from the intimation, given to him.

Amendment made by Companies (Amendment) Act, 2017 Proviso to Section 153-
“Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

Section 159 provides that if any individual or director of a company, contravenes any of the provisions of Section 152 (dealing with the appointment of directors), Section 155 (dealing with prohibition to obtain more than one DIN), and Section 156 (Director to intimate DIN), such individual or director shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues.

Penalty if company does not Inform DIN to RoC within 15 days As per Companies (Amendment) Act, 2019 Section 157(1) of Companies Act, 2013 imposes obligation on every company to inform DIN to RoC within 15 days of receipt of information from the director.

If any company fails to furnish the Director Identification Number under section 157(1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees, and every Officer of the company who is in default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees section 157(2) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Penalty violation of provisions by director relating to DIN If any individual or director of a company makes any default in complying with any of the provisions of sections 152, 155, and 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues – section 159 of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Amendment made by Companies (Amendment) Act, 2017 Proviso to Section 153-
“Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

Question 2.
Write short note on the following term:
Director Identification Number (Dec 2019, 5 marks)
Answer:
Every individual, who is to be appointed as director of a company shall make an application electronically in Form No. DIR-3 to the Central Government for allotment of DIN along with the prescribed fees.

The applicant can download the said from the website of Ministry of Corporate Affairs (‘MCA’ for short) duly filled in all respects along with photograph and signed digitally.

The form shall be verified by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice.

On application, the system shall generate an application number. The Central Government shall process the application and decide the approval or rejection and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other mode within 30 days from the receipt of such application.

If any defect is found in the application the Central Government shall give intimation of such defect or incompletion to the applicant by placing it on its website and by email to the applicant to rectify such defects within 15 days from the date of intimation.

• If the same has not been rectified the Government shall reject the application directing to file a fresh application.
• In case of rejection or invalidation of application, the fee so paid with the application shall neither be refunded nor adjusted with any other application.
• The DIN allotted to a director before the commencement of this Act shall be deemed to be the DIN allotted under the present Act.
• The DIN allotted shall be valid up to the lifetime of the Director.
• The said number shall not be allotted to any other person. Similarly, a person shall be allotted only one DIN.
• The director, on allotment of DIN, is to intimate the company in Form No. DIR-3B within 30 days from the intimation, given to him.

Amendment made by Companies (Amendment) Act, 2017 Proviso to Section 153- “Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

Section 159 provides that if any individual or director of a company, contravenes any of the provisions of Section 152 (dealing with the appointment of directors), Section 155 (dealing with prohibition to obtain more than one DIN), and Section 156 (Director to intimate DIN), such individual or director shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues.

Penalty if company does not Inform DIN to RoC within 15 days As per Companies (Amendment) Act, 2019 Section 157(1) of Companies Act, 2013 imposes obligation on every company to intimate DIN to RoC within 15 days of receipt of information from the director.

If any company fails to furnish the Director Identification Number under section 157(1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees, and every Officer of the company who is in default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees section 157(2) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Penalty violation of provisions by director relating to DIN If any individual or director of a company makes any default in complying with any of the provisions of sections 152, 155, and 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues – section 159 of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Amendment made by Companies (Amendment) Act, 2017 Proviso to Section 153- “Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

Descriptive Questions

Question 3.
(a) (i) A company was formed and commenced business but directors were not appointed. In such case who will act as director? (Dec 2013, 2 marks)
(ii) Board acts on the advice given by a person in his professional capacity, whether he shall be treated as director. (Dec 2013, 1 mark)
(b) What are the conditions to be complied with to keep the minutes in the loose-leaf binders? (Dec 2013, 3 marks)
(c) “Audit committee is only luxury to the company”. Do you agree? (Dec 2013, 2 marks)
Answer:
(a) (i) Director: The designation as director does not mean that he indeed is a director. A person who has control over direction, conduct or management of the business of the company is a director. Company’s Act, 2013 provides that only individuals can be director hence a firm, company, association of persons, body of individuals or company can not function as director of a company.

Appointment of first directors: (Section 152 of Companies Act, 2013)

1. Normally AQA contains the names of first directors.
2. If AQA does not contain first directors then those who sign the MOA shall decide the names of first directors.
3. If first directors are not decided in this manner, the subscribers (signatories) to MOA will be deemed as first directors of the company.

(ii) As per Section 35 of, Indian Companies Act, 2013 such person shall not be deemed to be directors.

(b) Minutes may be kept In the loose leaf binders:
The modern practice is to type out or obtain computerized printing of the minutes in loose leaves and then keep them in a binder. The Department of Company Affairs vide File No. 8/16(1)/61 PR have prescribed that, in certain cases, minutes may be kept in loose-leaf binder provided the following conditions are fulfilled:

• The pages are serially numbered;
• The loose leaves are bound up at reasonable intervals, say not exceeding six months;
• There should be proper locking device to ensure security and proper control to prevent irregular removal of the loose leaves.

(c) Audit committee serves as a communication link among various departments and has to interact with management, internal auditor, statutory auditor, and the public.

Audit Committee provides an independent and impartial reassurance to the board through its oversight, supervisory, and monitoring role.

The chief role of audit committee is to ensure that the reporting and disclosure made ¡n the financial statements of the company are correct, accurate, and proper.

The Audit Committee has a responsibility to ensure that the company’s financials do not contain any misrepresentation or misleading information.

There has been many failures on the field of corporate governance and this has given birth to the necessity of audit committee in corporate governance arid the Audit Committee has become increasingly relevant in enhancing confidence in the integrity of an organization’s processes and procedures relating to internal control and financial reporting.

The Audit Committee has become one of the main pillars of corporate governance in checking and forestalling corporate misconduct.

The effectiveness of the Audit Committee determines to a large extent the integrity of a company’s financial statements.

So, it can be said that the given statement is not true. Audit committee is not a luxury to the company and it is an essential element of good corporate governance.

Question 4.
Describe the provisions for disclosure of interest by directors u/s 184 of the Companies Act, 2013. (Dec 2013, 3 marks)
Answer:
The Act provides for the disclosure by directors relating his concern or interest in any company or companies or body corporate (including shareholding interest), firms or other association of individuals by giving a notice in writing in form MBP 1 (Rule 9(1)) at the first meeting of board after being appointed as director and at first meeting of board of every financial year, in addition to this, any change required to be disclosed in next board meeting.

Every director is required to discuss the nature of his concern or interest at the meeting of board in which the contract or arrangement is discussed and he has not to participate in such meeting.

The abovementioned interest may be direct or indirect and relating to some contract or arrangement or proposed contract or arrangement entered into or to be entered into with a body corporate in which such director or such director in association with other director holds more than two percent shareholding or is a promoter, mánager, Chief Executive Officer of that body corporate or with a firm or other entity in which such director is a partner, owner or member as the case may be.

It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice. (Rule 9(2))

If a director is not concerned or interested at the time of contract but, subsequently becomes concerned or interested is required to disclose his interest or concern at the first meeting of the board.

All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. (Rule 9(3)).

If a contract or arrangement entered into by the company without disclosure of interest by director or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

The contravention of the provisions leads to punishment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees or both.

Any contract or arrangement entered into or to be entered into between two companies, where any director of any company holds more than two percent of the paid-up capital in other company, the provisions of this section shall not apply.

Note:
Amendment made by Companies (Amendment) Act, 2020:
In Section 184 of the Principal Act, in sub-section (4), for the words “punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees, or with both”, the words “liable to a penalty of one lakh rupees” shall be substituted.

Question 5.
(a) In a public company the total number of Directors are 9 and 2 offices of the Directors have fallen vacant. Referring to the relevant provisions of the Companies Act, 2013:
(i) What would be the quorum for the Board Meeting?
(ii) Can the articles of a company fix the quorum (higher or lower) for the Board Meeting? (June 2014, 2 marks)
Answer:
Where the total number of Directors is 9 and 2 offices of the Directors have fallen vacant, the number of Directors remaining is 7. Therefore, quorum is to be calculated with reference to 7.
(i) As per Section 174 of Companies Act, 2013, quorum shall be 1/3rd of total strength of the directors and any fraction shall be rounded off to next full figure. In the given case 1/3rd is 2.33. Therefore, where the total strength is 7, the quorum shall be 3.
(ii) The articles of the company may fix a quorum higher than 1/3rd of total strength but not lower than that. If it is fixed on lower side, it will be void.

Question 6.
Answer the question:
(c) (iii) What is the time limit within which the Board has to appoint an Independent director and at which meeting the Independent director is appointed under the Companies Act, 2013? (June 2015, 2 marks)
Answer:
Section 149(5) of the Companies Act, 2013 inter alla provides that companies existing on before the commencement of this Act, which are falling within the ambit of Section 149(4), shall have to appoint Independent Directors within one year from the commencement of Companies Act, 2013 or rules made in this behalf, as may be applicable.

Further, as per Section 152(2) read with Schedule IV of the Companies Act, 2013, inter alla provides that, the appointment of the Independent Director shall be approved by the Company in its meeting of shareholders.

Question 7.
Answer the question:
(i) How many Independent Directors have to be appointed in a company under the Companies Act, 2013? (Dec 2016, 5 marks)
Answer:
Number of Independent Directors:
The following class or classes of companies shall have at least two directors as independent directors:

• the Public Companies having paid up share capital of ten crore rupees or more; or
• the Public Companies having turnover of one hundred crore rupees or more; or
• the Public Companies which have, in aggregate, outstanding loans, debentures, and deposits, exceeding fifty crore rupees.

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it.

Provided further that any intermittent vacancy of an independent director shall be filled up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later.

Provided also that where a company ceases to fulfill any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

Provided that a company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the time being in force shall comply with the requirements specified in such law.

Question 8.
(a) Describe the Procedure for the resignation of Director. (June 2017, 9 marks)
(b) Describe the term ‘independent director’ as per the Companies Act, 2013. (June 2017, 6 marks)
Answer
(a) Resignation of a Director
Section 168 provides the procedure for the resignation of a director as detailed below:
A director may resign from his office by giving a notice in writing to the company;
He shall within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with the reasons for the resignation, in Form No. DIR – 11 along with the fee;

• A foreign director may authorize in writing a practicing Chartered Accountant or Cost Accountant or Company Secretary in practice or any other resident director of the company to sign the Form No.
• DIR – 11 and file the same on his behalf intimating the reasons for the resignation;
• The Board shall on receipt of such notice take notice of the same;
• The company shall intimate the Registrar in Form No. DIR- 12 within one month from the date of receipt of such notice;

The said information is to be posted on the website of the company;
The fact of the resignation shall be laid in the report of directors immediately following the general meeting by the company;
The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later;

The director who has resigned shall be liable even after his resignation for the offenses which occurred during his tenure;

Where all directors of a company resign from their offices the promoter or, in his absence, the Central Government shall appoint the required number of directors, who shall hold the office till the directors are appointed by the company in general meeting.

(b) ‘Independent director’ is defined under Section 149(6) of the Companies Act as a director other than a managing director or a whole-time director or a nominee director:

• who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
• he shall not a promoter of the company or its holding, subsidiary, or associate company;
• he shall not relate to the promoters or directors in the company, its holding, subsidiary, or associate company;
• he shall not have any pecuniary relationship with the company or their promoters or directors during the two immediately preceding financial years or during the current financial year;
• his relatives shall not have any pecuniary relationship with the company or their promoters of directors amounting to 2% or more of its gross turnover or total income ₹ 50 lakhs or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial years;
• he or his relatives:
• holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary, or associate company, in any of the three financial years immediately preceding the financial year;

Is or has been an employee or proprietor or partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of:

• a firm of auditors or company secretaries in practice or cost auditors of the company; or
• any legal or a consulting firm that has or had any transaction with the company, amounting to 10% or more of the gross turnover of such firm.

holds together with his relatives 2% or more of the total voting power of the company; or is a Chief Executive or Director of any nonprofit organization that receives 25% or more of its receipts from the company, any of its promoters, directors, or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company; who possess such other qualifications as may be prescribed.

Question 9.
(a) What are the different duties of a director In a company as per the Companies Act, 2013? (8 marks)
(b) Enumerate the provisions relating to Restrictions on powers of Board. (Dec 2017, 7 marks)
Answer:
(a) Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below:

• A director of a company shall act in accordance with the articles of the company
• A director of a company shall act In good faith in order to promote the objectives of the company for the benefit of its members as a whole and In the best interests of the company, its employees, the shareholders, the community, and for the protection of environment;

A director of a company shall exercise his duties with due and reasonable care, skill, and diligence and shall exercise independent judgment;

• A director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company;
• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates, and if such director is found guilty of making
• any undue gain, he shall be liable to pay an amount equal to that gain to the company;

A director of a company shall not assign his office and any assignment so made shall be void;
If a director of the company contravenes the provisions of Section 166 such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

(b) The board can exercise the following powers only with the consent of the company by special resolution, namely –

• to sell, lease, or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
• to invest otherwise in trust securities the amount of compensation received by t as a result of any merger or amalgamation;
• to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business;
• to remit, or give time for the repayment of, any debt due from a director.

The special resolution relating to borrowing money exceeding paid-up capital and tree reserves specify the total amount up to which the money may be borrowed by Board.

The title of buyer or the person who takes on lease any property, investment or undertaking on good faith cannot be affected and also in case if such sale or lease covered in the ordinary business of such company.

The resolution may also stipulate the conditions of such sale and lease, but this doesn’t authorise the company to rèduce its capital except the provisions contained in this Act.

The debt incurred by the company exceeding the paid-up capital and free reserves is not valid and effectual unless the lender proves that the loan was advanced on good faith and also having no knowledge of limit imposed had been exceeded.

Question 10.
Discuss the provisions of the Companies Act, 2013 regarding disqualifications for appointment of director. (June 2018, 10 marks)
Answer:
Section 164 of the Companies Act, 2013 details the disqualification of a person for the appointment as a Director. A person shall not be eligible for appointment as a Director of a company, if –

• he is of unsound mind and stands so declared by a competent court;
• he is an undischarged insolvent;
• he has applied to be adjudicated as an insolvent and his application is pending;
• he has been convicted by a Court of any offence, whether involving moral turpitude or otherwise, and sentenced to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the Sentence;

Provided that
it a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company;

• an order disqualifying him for appointment as a director has been passed by the Tribunal and the Order is in force;
• he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others and six months have elapsed from the last day fixed for the payment of the call;
• he has been convicted of the offence dealing with related party transactions under Section 188 at any time during the last preceding five years; or
• he has not complied with sub-Section (3) of Section 152;
• he has not complied with the provision of Section 165(1). (As per Amendment Companies Act, 2019).

A private company may by its articles provide for any disqualifications for appointment as a director in addition to the above disqualifications.

The disqualifications in (d), (e) and (f) shall not take effect:

• for 30 days from the date of conviction or order of disqualification;
• where an appeal or petition is preferred within 30 days against the conviction resulting in sentence or order, until
• expiry of 7 days from the date on which such appeal or petition is disposed of;

where any further appeal or petition is preferred against order or sentence within 7 days until such further appeal of petition is disposed of.

Note: Inserted a clause in section 164: Disqualifications from appointment of directors:
A new clause (i) after clause (h) in section 164(1) inserted, whereby a person shall be subject to disqualification if he accepts directorships exceeding the maximum number of directorships provided in Section 168.

Question 11.
“Directors are agents of the company.”- Discuss. (June 2018, 5 marks)
Answer:
The company can act only through Directors, and so the relationship between the company and the Director is that of Principal and Agent.

A contract entered into by a person as a Director of a company will be binding on the Company. However, Directors are note Agents of Members of the company.

Directors have personal Iiablflty. They would be personally liable under the following circumstances:
Director acts in his own name, Director enters into an agreement! contract which does not state clearly as to whether the Director signing in his personal capacity or in his representative capacity as an Agent of the Company.

Rights of the Company:
Contract executed by the Director in excess of his authority is binding on the Company. However, the Company may claim damages from the Director for breach of implied warranty of authority. When Directors act properly on behalf of the Company, they do not incur personal liability; they do not exceed their powers.

Question 12.
(a) Discuss the powers of the Board of Directors of a company as per the Companies Act, 2013. (Dec 2018, 10 marks)
(b) Enumerate the provisions of the Companies Act, 2013 relating to women directors in a company. (Dec 2018, 5 marks)
Answer:
(a) According to Section 179 of the Companies Act, 2013 provides that the powers of the board; all powers to do such acts and things for which the company is authorised is vested with board of directors.

But the board can act or do the things for which powers are vested with them and not with general meetings.

The following Section 179(3) read with Rule 8 of Companies (Management & Administration) Rules, 2014 powers of the Board of Directors shall be exercised only by means of resolutions passed at meetings of the Board, namely:

1. to make calls on shareholders in respect of money unpaid on their shares
2. to authorise buy-back of securities under Section 68
3. to issue securities, including debentures, whether in or outside India
4. to borrow monies
5. to invest the funds of the company
6. to grant loans or give guarantee or provide security in respect of loans
7. to approve financial statement and the Board’s report
8. to diversify the business of the company
9. to approve amalgamation, merger or reconstruction
10. to take over a company or acquire a controlling or substantial stake in another company
11. to make political contributions
12. to appoint or remove key managerial personnel (KMP)
13. to appoint internal auditors and secretarial auditor

Important: The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, the principal officer of the branch office, the powers specified in (4) to (6) above on such conditions as it may specify.

The banking company is not covered under the purview of this section.
The company may impose restrictions and conditions on the powers of the Board.
Although, unless specifically restricted under the Act or Article of Association, Board has all the powers to manage the affairs of the company

(b) Second proviso to Section 149(1) of the Companies Act, 2013 read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following classes of companies shall appoint at least one woman director

• every listed company;
• every other public company having
• paid-up share capital ₹ 100 crores or more; or
• turnover of ₹ 300 crores or more.

For this purpose, the paid capital or turnover as on the last date of latest audited financial statements shall be taken into account.

A company incorporated under the Companies Act shall comply with such appointment of woman director within a period of six months from the date of its incorporation.

Any intermittent vacancy of a woman director shall be filed up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

Question 13.
(a) Describe the procedure for the resignation of Director under the Companies Act, 2013. (June 2019, 10 marks)
(b) Discuss the rules of appointment of directors elected by small shareholders in a company. (June 2019, 5 marks)
Answer:
(a) Resignation of Director:
Section 168 of the Companies Act 2013, provides the procedure for the resignation of a director as detailed below:

• A director may resign from his office by giving a notice in writing to the company
• He may within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with the reasons for the resignation, in Form No. DIR – 11 along with the fee
• A foreign director may authorize in writing a practicing Chartered Accountant or Cost Accountant in practice or Company Secretary in practice or any other resident director of the company to sign the Form No. DIR – 11 and file the same on his behalf intimating the reasons for the resignation
• The Board shall on receipt of such notice take notice of the same;
• The company shall intimate the Registrar in Form No. DIR-12 within one month from the date of receipt of such notice
• The said information is to be posted on the website of the company;
• The fact of the resignation shall be included in the report of directors laid, in immediately following general meeting by the company
• The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later
• The director who has resigned shall be liable even after his resignation for the offenses which occurred during his tenure.

Where all directors of a company resign from their offices the promoter or, in his absence, the Central Government shall appoint the required number of directors, who shall hold the office till the directors are appointed by the company in general meeting.

Note: Amendment made by Companies Amendment Act, 2017 in Section 168(1):
Provided that a [director may also forward] a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.

(b) Process of appointment of director elected by small shareholders:
‘Small shareholder’ means a shareholder holding shares of nominal value of not more than ₹ 20,000 or such other sum as may be prescribed. A listed company may have one director elected by small shareholders.

Rules 7 requires that a listed company, may upon notice of not less than 1000 small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by small shareholders.

Such director shall not be liable to retire by rotation. The tenure shall not exceed a period of three consecutive years and on the expiry of the tenure such director shall not be eligible for reappointment. A disqualified person for the appointment of director shall not be eligible for such appointment. No person shall hold the position of small shareholder’s director in more, than two companies at the same time. A small shareholders’ director shall not, for a period of 3 years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity either directly or indirectly.

Question 14.
(a) What are the different duties of a director in a company as per the Companies Act, 2013? (Dec 2019, 7 marks)
(b) What are the disqualifications of a person for the appointment as a director under the Companies Act, 2013? (Dec 2019, 8 marks)
Answer:
(a) Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below:

• A director of a company shall act in accordance with the articles of the company
• A director of a company shall act In good faith in order to promote the objects of the company for the benefit of its members as a whole and In the best interests of the company, its employees, the shareholders, the community, and for the protection of environment;
• A director of a company shall exercise his duties with due and reasonable care, skill, and diligence and shall exercise independent judgment;
• A director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company;
• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company;
• A director of a company shall not assign his office and any assignment so made shall be void;
• If a director of the company contravenes the provisions of Section 166 such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

(b) The board can exercise the following powers only with the consent of the company by special resolution, namely –

• to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
• to invest otherwise in trust securities the amount of compensation received by t as a result of any merger or amalgamation;
• to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business;
• to remit, or give time for the repayment of, any debt due from a director.
• The special resolution relating to borrowing money exceeding paid-up capital and tree reserves specifies the total amount up to which the money may be borrowed by Board.

The title of buyer or the person who takes on lease any property, investment, or undertaking on good faith cannot be affected and also in case if such sale or lease covered in the ordinary business of such company.

The resolution may also stipulate the conditions of such sale and lease, but this doesn’t authorise the company to rèduce its capital except the provisions contained in this Act.

The debt incurred by the company exceeding the paid-up capital and free reserves is not valid and effectual unless the lender proves that the loan was advanced on good faith and also having no knowledge of limit imposed had been exceeded.

(b) Section 164 of the Companies Act, 2013 details the disqualification of a person for the appointment as a Director. A person shall not be eligible for appointment as a Director of a company, if –

• he is of unsound mind and stands so declared by a competent court;
• he is an undischarged insolvent;
• he has applied to be adjudicated as an insolvent and his application is pending;
• he has been convicted by a Court of any offence, whether involving moral turpitude or otherwise, and sentenced to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the Sentence;

Provided that
it a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company;

• an order disqualifying him for appointment as a director has been passed by the Tribunal and the Order is in force;
• he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others and six months have elapsed from the last day fixed for the payment of the call;
• he has been convicted of the offence dealing with related party transactions under Section 188 at any time during the last preceding five years; or
• he has not complied with sub-Section (3) of Section 152;
• he has not complied with the provision of Section 165(1). (As per Amendment Companies Act, 2019).

A private company may by its articles provide for any disqualifications for appointment as a director in addition to the above disqualifications.

The disqualifications in (d), (e) and (f) shall not take effect:

• for 30 days from the date of conviction or order of disqualification;
• where an appeal or petition is preferred within 30 days against the conviction resulting in sentence or order, until expiry of 7 days from the date on which such appeal or petition is disposed of;
• where any further appeal or petition is preferred against order or sentence within 7 days until such further appeal of petition is disposed of.

Note: Inserted a clause in section 164: Disqualifications from appointment of directors:
A new clause (i) after clause (h) in section 164(1) inserted, whereby a person shall be subject to disqualification if he accepts directorships exceeding the maximum number of directorships provided in Section 168.

Question 15.
What are the different duties of a director of a company under the Companies Act, 2013? (Dec 2021, 6 marks)
Answer:
(a) Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below:

• A director of a company shall act in accordance with the articles of the company;
• A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community, and for the protection of environment;

A director of a company shall exercise his duties with due arid reasonable care, skill and diligence and shall exercise independent judgment;

A director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company;

A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates, and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company;

A director of a company shall not assign his office and any assignment so made shall be void;
It a director of the company contravenes the provisions of Section 166 such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

(b) The board can exercise the following powers only with the consent of the company by special resolution, namely –

• to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
• to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
• to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and tree reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business;
  
• to remit, or give time for the repayment of, any debt due from a director.

The special resolution relating to borrowing money exceeding paid-up capital and free reserves specify the total amount up to which the money may be borrowed by Board. The title of buyer or the person who takes on le e any property, investment or undertaking on good faith cannot be affected and also in case if such sale or lease covered in the ordinary business of such company.

The resolution may also stipulate the conditions of such sale and lease, but this doesn’t authorise the company to ròduce its capital except the provisions contained in this Act. The debt incurred by the company exceeding the paid-up capital and free reserves is not valid and effectual unless the lender proves that the loan was advanced on good faith and also having no knowledge of limit imposed had been exceeded.

Question 16.
(a) Can a director be removed? If so give the procedure in detail as per Companies Act, 2013. (Dec 2022, 10 marks)
(b) Discuss the prohibitions and restrictions regarding political contributions made by a company under the Companies Act, 2013. (Dec 2022, 5 marks)

Practical Questions

Question 17.
(a) Mr. Lalit, a Director of XY Limited proceeding on a long foreign tour, appointed Mr. Mohan as an alternate director to act for him during his absence. The articles of the company provide for appointment of alternate directors. Mr Lalit claims that he has a right to appoint alternate director. State whether Mr. Lalit is correct based on legal provision? ‘ (June 2014, 3 marks)
Answer:
Appointment of alternate director can be done by the BOD and not by any individual director. Mr. Lalit ¡s not correct based on legal provision. Section 161(2) of the Companies Act, 2013 provides that the Board of Directors of a company may, if authorized by its Articles or by resolution passed by the company in general meeting, appoint an alternate director to act for a director during his absence for a period of not less than 3 months from the State in which the meetings of the Board are ordinarily held. The alternate director can be appointed only by the Board of Directors and only in cases where the Board is authorized by Articles or by the company in general meeting.

Hence Mr. Lalit the director in question, is not competent to appoint alternate director and the appointment of Mr. Mohan as alternate director is not valid.

Question 18.
Answer the question:
Mr. Joseph is the director of a Public Limited Company. He has been removed by the company before the expiry of his term, by passing an ordinary resolution in general meeting. Is the company justified in its action? Is Mr. Joseph entitled to claim compensation for loss of his office? (June 2015, 3 marks)
Answer:

• Yes, the company is justified in this action;
• As per Section 169 of Companies Act, 2013, a company has the power to remove a director by ordinary resolution before the expire of his office.

Mr. Joseph is not entitled to claim any compensation for loss of his office. As per Section 202, a director is not entitled to any compensation for loss of office. In the present case Mr. Joseph is removed by passing an ordinary resolution, and such removal is valid being authorized under Section 169. There is no entitlement of a director to claim compensation for such removal in view of Section 202. Only a managing director, or a director holding office of manager, or a director in whole-time employment are entitled to compensation for loss of office [Section 202].

Question 19.
Answer the question:
Atul was appointed director of the company in its Annual General Meeting. He took over the office and started acting on behalf of the company as its director. Subsequently, it was found that the appointment of the director was not valid because in the meeting where he was appointed, certain members who had voted were not qualified to vote and certain members had voted twice by mistake.

There were also certain mistakes in the counting of votes. As such, the appointment of the director was held to be invalid. Would the acts of Atul, done by him as director, be vaIj1 and binding upon the company? (Dec 2015, 3 marks)
Answer:
According to Sec. 176 of Companies Act, 2013, all acts of the director are valid notwithstanding the fact that his appointment is afterwards discovered to be invalid, the reason of any defect in his appointment.

This is to protect outsiders as well as members dealing with the company. In this case, the defects in the appointment of the director were found out subsequent to his appointment. The director had no knowledge of the defects until he had started acting as a director. The validity of the acts of the director cannot be questioned just on the basis of irregularities subsequently discovered in the appointment of the director.

Question 20.
Answer the question:
AB Ltd. has advanced a loan of ₹ 2,00,000 to one of its directors in Contravention of the provision of Section 185 of the Companies Act, 2013. State the consequences of such contravention. (Dec 2016, 5 marks)
Answer: .
Loans to Directors (Section 185 of Companies Act, 2013):
Amendment made by Companies (Amendment) Act, 2017. Section 185 of the principal Act, the following section shall be substituted, namely:-
1. No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by,-

• any director of company, or of a company which is its holding company or any partner or relative of any such director; or
• any firm in which any such director or relative is a partner.

2. A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that-

• a special resolution is passed by the company in general meeting:
  Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient of the loan or guarantee or security and any other relevant fact; and
• the loans are utilized by the borrowing company for its principal business activities.

Explanation.-For the purposes of this sub-section, the expression ‘any person in whom any of the director of the company is interested’ means-

• any private company of which any such director is a director or member;
• any body corporate at a general meeting of which not less than twenty-five percent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
• any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

(3) Nothing contained in sub-sections (1) and (2) shall apply to
(a) the giving of any loan to a managing or whole-time director-

• as a part of the conditions of extended by the company to all its employees; or,
• pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan; or

(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

(d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:
Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for its principal business activities.

(4) If any loan is advanced ora guarantee or security is given or provided or utilised in contravention of the provisions of this section,

• the company shall be punishable with fine which shalÌ riot be less than five lakh rupees but which may extend to twenty-five lakh rupees.
• every officer of the company who is ¡n default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees; and
• the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend twenty-five lakh rupees, or with both.”

Repeatedly Asked Questions
Question	Frequency
1. Write short note of the following term: Director Identification Number (DIN) 17- Dec, 19- Dec,	2 Times
2. Descriptive the following: What are the different duties of a director in a company as per the Companies Act, 2013? 17 – Dec, 19 – Dec	2 Times
3. Descriptive the following: Discuss the provisions of the Companies Act, 2013 regarding disqualifications for appointment of director. 18 – June, 19 – Dec	2 Times

Company Types, Promotion, Formation, And Related Procedures CMA Inter Law, and Ethics Notes

1. Company
A company is an association of both natural and artificial persons incorporated under the existing law of a country. A company has a separate legal entity from the persons constituting it.

2. Characteristics of a Company
The main characteristics of a company are corporate personality, limited liability, perpetual succession, separate property, transferability of shares, common seal, capacity to sue and be sued, contractual rights, limitation of action, separate management, termination of existence, etc.

3. Compared to other types of business associations
As compared to other types of business associations, an incorporated company has the advantage of corporate personality, limited liability, perpetual succession, transferable shares, separate property, capacity to sue, flexibility and autonomy.

4. Disadvantages and inconveniences in incorporation
There are, however, certain disadvantages and inconveniences in incorporation. Some of these disadvantages are formalities and expenses, corporate disclosures, separation of control from ownership, greater social responsibility, greater tax burden in certain cases, and cumbersome winding-up procedure.

5. Doctrine of lifting of or piercing the corporate veil Separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only.
Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
The Tribunal will break through the corporate shell and apply the principle/doctrine of what is called as “lifting of or piercing the corporate veil”.

6. LLP
It is an alternative corporate business form that give the benefits of limited liability of a company and the flexibility of a partnership. LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. LLP is a separate legal entity and is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

7. Corporation
An organization formed under state law for the purpose of carrying on a business enterprise is such a manner as to make the enterprise distinct froms owners.

8. Illegal association
As per Section 464 of Companies Act, no association or partnership consisting of more than such number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force. The number of persons which may be prescribed under this section shall not exceed 100. Rule 10 of Companies (Miscellaneous) Rules, 2014 prescribes 50 persons in this regard.

9. Types of Company
From the point of view of incorporation, companies can be classified as chartered companies, statutory companies, and registered companies. Companies can be categorized as unlimited companies, companies limited by guarantee, and companies limited by shares.

Companies can also be classified as public companies, private companies, one-person companies, small companies, associations not for profit having license under Section 8 of the Act, Government Companies, Foreign Companies, Holding Companies, Subsidiary Companies, Associate Companies, Investment Companies, and Producer Companies.

10. Private Company
A private company has been defined under Section 2(68) of the Companies Act, 2013 as a company which has a minimum paid-up capital of ₹ 1,00,000 or such higher paid-up capital as prescribed and by its articles restricts the right to transfer its shares, limits the number of its members to two hundred and prohibits any invitation to the public to subscribe for any securities of the company.

Amendment Made by Companies (Amendment) Act, 2015 Provides that ¡n clause (68), the words “of one lakhs rupees or higher paid-up share capital” shall be omitted.

11. One-Person Company
One Person Company” means a company which has only one person as a member.

12. “Small Company”
“Small company” means a company, other than a public company, (i) paid-up share capital of which does not exceed ₹ 4 crores or such higher amount as may be prescribed which shall no be more than ₹ 10 crores, or

(ii) turnover of which as per its last profit and loss account does not exceed ₹ 40 crores or such higher amount as may be prescribed which shall not be more than ₹ 100 crores.

13. Public Company
A public company is a company which (a) is not a private company (b) has a minimum paid-up share capital of 5 Iakh or such higher paid-up capital, as may be prescribed.

Amendment Made by Companies (Amendment) Act, 2015:
Provides that in clause (68). the words “of ₹ 5 lakhs or higher paid share capital” shall be omitted.

14. Limited Company
A limited company is a company limited by shares or by guarantee. An unlimited company is a company not having any limit on the liability of its members.

15. Foreign Company
Foreign Company means any company or body corporate incorporated outside India which (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.

16. Investment Company
Investment Company means a company whose principal business is the acquisition of shares, debentures or other securities.

17. Association not for profit
Section 8(1) permits the registration, under a licence granted by the Central Government, of associations not for profit with limited liability without being required to use the word “Limited” or the words “Private Limited” after their names. The Central Government may grant such a license if:

it is intended to form a company for promoting commerce, art, science, sports, education, research, social welfare, religion, charity protection of environment or any such other object; and
the company prohibits payment of any dividend to its members but intends to apply its profits or other income in promotion of its objects.

18. Government Companies
A company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company whach is a subsidiary company of such a Government Company.

19. Holding Company
As per Section 2 (46), holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Amendment made by Companies (Amendment) Act, 2017:
Explanation to Section 2(46)-
“Explanation.- For the purposes of this clause, the expression company’ includes anybody corporate;”

20. Subsidiary Company
Section 2 (87) provides that subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company-

controls the composition of the Board of Directors; or
exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies.

21. Control
It shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

22. Dormant Companies
As per Section 455 (1) where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

23. Associate Company
As per Section 2(6), “Associate Company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

Amendment made by Companies (Amendment) Act, 2017:
Revised Explanation to Section 2(6)- ‘Explanation.
For the purpose of this clause- the expression “significant influence” means control of at least twenty percent, of total voting power, or control of or participation in business decisions under an agreement;
the expression “joint ventures means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.”

24. Position of OPC In India under the Companies Act, 2013
As per Section 2(62) of the Companies Act, 2013, “One Person Company” means a company which has only one person as a member. Section 3(1)(c) lays down that a company may be formed for any lawful purpose by one person, where the company to be formed is to be One -person company, that is to say, a private company. In other words, one person company is a kind of private company.

A One-person company shall have a minimum of one director. Therefore, a one-person company will be registered as a private company with one member and one director.

Promoters
25. Promoters are the persons who conceive the idea of forming a company and take the necessary steps to incorporate it by registration, provide it with share and loan capital, and acquire the business or property which it is to manage [Section 2(69)].

26. A promoter is neither an agent of nor a trustee for the company. But he occupies a fiduciary position in relation to the company.

27. Disclosure by promoters to the company should be through the medium of the Board of Directors.

28. A promoter has ho legal right to claim promotional expenses for his services unless there is a valid contract.

29. Liabilities of promoter

• Incorporation of company by furnishing false information.
• Civil Liability for misstatements in prospectus;
• Punishment for fraudulently inducing persons to invest money;
• Contravention of provisions relating to private placement;
• Failure to cooperate with Company Liquidator during winding up;
• Criminal Liability for misstatement in prospectus.

30. Rights of promoters

• Right to receive preliminary expenses;
• Right to recover proportionate amount from the Co-promoters.

31. Procedure for incorporation of a Company

• Application for Availability of Name of Company;
• Preparation of Memorandum and Articles of Association;
• Filling of Documents with Registrar of Companies;
• Declaration from the professional;
• Declaration from the subscribers to the Memorandum;
• Furnishing verification of Registered Office
• Filing of particulars of Subscribers
• Filing particulars of first directors along with their consent to act as directors
• Power of Attorney: Execution of power of attorney on a non-judicial stamp paper of a value prescribed in state stamp laws.
• Issue of Certificate of Incorporation by Register.

32. Steps to be taken by a promoter
The first few steps to be taken by a promoter in incorporating a company are to apply for availability of name of company, prepare the memorandum and articles of association, and get them vetted, printed, stamped, and signed. The promoter should then execute power of attorney and file additional documents as required under section 7. He should then file statutory declaration and pay the registration fees.

33. Civil as well as criminal liability
Civil as well as criminal liability may be imposed on a promoter for any misleading statement in the prospectus if loss or damage has been sustained by a person who has subscribed for any securities of the company on the faith of the prospectus.

34. Conclusive evidence
The certificate of incorporation is conclusive evidence that everything is in order as regards registration and that the company has come into existence from the earliest moment of the day of incorporation stated therein.

35. Memorandum of Association
The Memorandum of Association is a document which sets out the constitution of the company and is the foundation on which the structure of the company stands. It defines as well as confines the powers of the company. If the company enters into contract or engages in any trade or business which is beyond the powers conferred on it by the memorandum, such a contract or the act will be ultra vires the company and hence void.

However, the Companies Act, 2013 shall override the provisions in the memorandum of a company, if the latter contains anything contrary to the provisions in the Act.

36. Clauses
Memorandum of Association consists of:

• Name Clause
• Situation Clause
• Object Clause
• Liability Clause
• Capital Clause
• Subscription Clause

37. Articles
Articles means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act. It also includes the regulations contained in Tables F to J in Schedule I of the Act, in so far as they apply to the company.

38. Scope and powers of the company
The memorandum lays down the scope and powers of the company and the articles govern the ways which the objects of the company are to be carried out and can be framed and altered by the members.

39. Alter its articles of association
A company has a statutory right to Alter its articles of association. But the power to alter is subject to the provisions of the Act and to the conditions contained in the memorandum. Any alteration so made shall be as valid as if originally contained in the articles.

40. Registration of MOA/AOA
The memorandum and articles, when registered, bind the company and its members to the same extent as if they have been signed by the company and by each member to observe and be bound by all the provisions of the memorandum and of the articles.

41. Alteration of memorandum
1. Name Change:

• Pass Special Resolution
• Approval of Central Government
• To delete the word “private” approval from Central Government is not required in case of conversion of private company to public company.

2. Change in Registered Office:

• Change within local limits:
• Pass Board Resolution and Special Resolution Notice of change to registrar in INC 22 within 15 days of such change

Change of State:
Approval of Central Govt. In INC 23 the Approval should be registered with Registrar for Incorporation Certificate

Change in jurisdiction of Registrar:
Get confirmation by Regional Director Communication of confirmation by Regional Director to the company within 30 days.

3. Change In Liability:

• Needs Special Resolution to be passed.
• File the same with Registrar in form MGT 14.

4. Change In Capital:

• alteration of capital clause to be authorised by the Articles ot Association [Section 61]; Ordinary Resolution
• If by division or consolidation in capital the voting percentage gets affected then a confirmation from Tribunal is mandatory.
• Notify the alterations made and a copy of Resolutions passed shall be filed with Registrar within 30 days.
• Registrar shall record the notice and make alterations required.

42. Doctrine of constructive notice
As per doctrine of constructive notice, every person dealing with the company is deemed to have a “constructive notice” of the contents of its memorandum and articles. Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporation by the memorandum or other documents of constitution. Nevertheless, they are entitled to assume that the directors or other persons exercising authority on behalf of the company are doing so in accordance with the internal regulations as set out in the Memorandum & Articles of Association.

43. Doctrine of indoor management
While the doctrine of constructive notice seeks to protect the company against the outsiders, the doctrine of indoor management operates to protect the outsiders against the company. While persons contracting with a company are presumed to know the provisions of the contents of the memorandum and articles, they are entitled to assume that the provisions of the articles have been observed by the officers of the company. However, there are certain exceptions to doctrine of indoor management.

44. Doctrine of ultra vires
In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited by the doctrine of ultra vires (The word ‘ultra’ means beyond and the word ‘vires’ means powers).

45. Share capital
Share capital of a company can be classified as:

• nominal, authorized, or registered capital;
• issued and subscribed capital;
• called up and uncalled capital;

46. Share
A share is defined as a share in the share capital of a company, including stock except where a distinction between stock and shares is expressed or implied.

47. Two classes of shares
The Companies Act, 2013 permits a company limited by shares to issue two classes of shares, namely equity share capital and preference share capital.

48. Preference share
A preference share or preference share capital is that part of share capital which carries a preferential right with respect to both dividends and capital.

49. Types of preference shares
Preference shares may be of various types, namely participating and non-participating, cumulative and non-cumulative shares, and redeemable and irredeemable preference shares.

50. Equity share capital
Equity share capital means all share capital which is not preference share capital

51. Sweat equity snares
Means equity shares issued by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

• Issue of sweat equity shares to be authorized by special resolution at a general meeting.
• The special resolution authorizing sweat equity shares is not valid if the allotment is made after 12 months of passing
• the resolution. i.e. the validity of special resolution is 12 months.
• The price of sweat equity shares is to be determined by a registered valuer.
• The company shall maintain a Register of Sweat Equity Shares in Form No. SH3 Issue of sweat equity shares to employees and directors at a discount under section 54 is outside the scope of Section 53.

52. Rights issue

• Rights issue is an issue of capital to be offered to the existing shareholders of the company through a letter of offer.
• Listed companies to inform concerned stock exchanges
• Company to give notice to equity shareholder giving him 15-30 days to decide
• Company can issue shares to other than existing shareholders for cash or other than cash if a special resolution is obtained
• Price to be determined by the registered valuer’s report
• The provisions of Section 62 are applicable to all type of companies.

53. Bonus share
When a company is prosperous and accumulates large distributable profits, it converts these accumulated profits into capital and divides the capital among the existing members in proportion to their entitlements. Members do not have to pay any amount for such shares. A company may if its Articles provide, capitalize its profits by issuing fully-paid bonus shares

Authorized by articles

• Authorised on recommendation of the board in general meeting
• No default in payment of interest or principle in respect of debt securities and fixed deposits and in respect of payment to employees
• Partly paid-up shares to be made fully paid up on allotment
• Listed companies to follow SEBI regulations
• Once announced by the board about bonus issue no company shall withdraw the same.

54. Issue of shares at premium [Section 52]

• Share premium to be transferred to share premium account.
• Utilisation of share premium account should be as prescribed in Section 52.

55. Issueot shares at discount [Section 53]

• Issue of shares at discount is prohibited except by issue of sweat equity shares.
• Any share issued by the company at a discount shall be void.

56. Issue of shares with differential voting rights [Section 43(a) (ii)]

• Articles to authorise the issue
• Ordinary resolution to be passed and if shares are listed then approval through postal ballot.
• Not to exceed 26% of total post issue paid up equity capital including shares with differential voting rights at any point of time
• The company not to be penalised under specified legislature in last 3 years
• No default in filing financial statements in the last 3 years.
• No default in payment of dividend.

57. Issue/redemption of preference shares [Section 55]

• Issue to be authorised by special resolution
• Explanatory statement to be annexed to the notice of general meeting containing the relevant material facts
• No company shall issue irredeemable preference shares of redeemable preference shares with the redemption period beyond 20 years.
• Infrastructural companies may issue preference shares for a period exceeding 20 years but not exceeding 30 years

58. ESOP

• Pass special resolution
• Disclosures to be made in explanatory statement
• Free pricing in conformity with accounting policies
• Separate resolution to be obtained for granting options to employees of holding/subsidiaries
• Minimum 1-year period between grant of options and vesting of option Company is tree to set lock-in period
• Option granted shall not be transferable, pledged, hypothecated, mortgaged in any manner
• Disclosures to be made in board report
• Register to be maintained in form sh-6
• Listed companies to comply with SEBI guidelines

59. Preferential issue Rule 13 of the companies (share capital and debentures) rules, 2014

• Pass special resolution
• Listed company shall follow SEBI regulations
• Issue to be authorised by the articles
• Securities to he macle fully paid up on allotment
• Disclosures to be made in explanatory statement to be annexed to the notice of general meeting
• Allotment to get completed within 12 months if not completed a fresh resolution is required
• Price determination by the registered valuer’s report

60. Prospectus
Prospectus has been defined as any document described or issued as a prospectus and includes a red herring prospectus referred to in Section 32 or shelf prospectus referred to in Section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate. A company is an association of both natural and artificial persons incorporated under the existing law of a country. A company has a separate legal entity from the persons constituting it.

61. IngredIents of a prospectus
One of the ingredients of a prospectus is to make invitation to the public to subscribe for securities of a body corporate which is construed as including a reference to any section of the public, whether selected as members or debentureholders of the company or as clients of the person issuing the prospectus. However, there are exceptions to it.

62. Shelf prospectus
A shelf prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus (Section 31).

63. Red herring prospectus
Red herring prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities included therein.

64. Content of prospectus
Companies Act and SEBI guidelines provide for contents and disclosures required in a prospectus.

65. Abridged prospectus
Abridged prospectus is usually a shorter form of the Prospectus and possesses all the significant features of a Prospectus. This accompanies the application form of public issues.

66. Private placement
Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in Section 42.

Offer Letter to be in Form No. PAS-4

• The offer shall not be made to more than 200 persons excluding Q/Bs and the employees of the company in a financial year under the scheme of ESOS only the person addressed in the application can apply Prior passing a special resolution at general meeting.
• All monies payable on subscription shall not be paid by cash.
• If unable to allot within 60 days then repay the money in 15 days from the end of those 60 days and money shall be refunded with interest @12%p.a.
• Offer only to be made to those whose names are recorded by the company
• The record shall be kept in Form No. PAS-5
• A copy of record to be filed with registrar along with PAS-4 and with SEBI and the stock exchange within 30 days.

Amendment made by Companies (Amendment) Act, 2017:
The Private Placement process is simplified by doing away with separate offer letter details to be kept by company and reducing number of filings to Registrar.

In order to ensure that investor gets adequate information about the company which is making private placement, the disclosures made under Explanatory Statement referred to in Rule 1 3(2)(d) of Companies (Share Capital and Debenture) Rules, 2014, embodied in the Private Placement Application Form.

There would be ease in the private placement offer-related documentation to enable quick access to funds. Change in definition of private placement is proposed to cover all securities offer and invitations other than right.

There is condensed format of private placement offer letter and application form likely to be introduced The Companies would be allowed to make offer of multiple security instruments simultaneously. Restriction on utilization of subscription money before making actual allotment and additionally before filing the allotment return to the registrar. Since contract is concluding on allotment and return filing is just a post-conclusion compliance, there may be difficulty in compliance.

The penalty provisions for raising of capital are proposed to be rationalized by linking it to the amount involved in the issue (twice the amount involved or ₹ 2 crores whichever is lower). Period for filing return of return of allotment is proposed to be reduced to 15 days.

67. Buy-back of shares
The repurchase of shares by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply) or to eliminate any threats by shareholders who may be looking for a controlling stake.

68. Reduction of capital

• Reduction of capital means reduction of issued, subscribed or paid-up share capital of the company. Various modes of reduction have been laid down in the Companies Act.
• Reduction of share capital is governed by the provisions of Section 66 of the Companies Act, 2013.
• Reduction of share capital is required to be done by special resolution.
• Reduction of share capital is to be confirmed by the Tribunal.

69. Surrender of shares
Surrender of shares means surrender to the company on part of shareholder of shares voluntarily. It amount to reduction of capital.

70. Forfeiture of shares
A company may if authorized by its articles, forfeit shares for non-payment of calls and the same will not require confirmation of the Tribunal and amounts to reduction of capital.

71. Diminution of capital
Diminution of capital is the cancellation of the unsubscribed part of the issued capital. It can be effected by an ordinary resolution provided articles of the company authorize to do so. It does not need any confirmation of Tribunal.

72. Debenture
A debenture is a document given by a company under its seal as an evidence of a debt to the holder usually arisen out of a loan and most commonly secured by a charge.

Amendment made by Companies (Amendment) Act, 2017
In Section 2 in clause (30), the following proviso shall be inserted, namely: “Provided that-

• the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
• such other instrument, as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company, shall not be treated as debenture.

73. Kinds of debentures
Debentures may be of different kinds, viz, redeemable debentures, registered and bearer debentures, secured and unsecured or naked debentures, convertible debentures.

74. Debenture stock
A debenture stock is a borrowed capital consolidated into one mass for the sake of convenience.

75. Debenture Redemption Reserve
Section 71(4) of the Act required every company to create a debenture redemption reserve account to which adequate amount shall be credited out of its profits available for payment of dividend until such debentures are redeemed and shall utilize the same exclusively for redemption of a particular set or series of debentures only.

76. Appointment of Debenture Trustees
Section 71(5) read with Rule 18(2) of aforesaid rules, provide that a company before making issue of prospectus or an offer or inviting public or members to more than 500 persons, shall appoint one or more debenture trustees. The names of the debenture trustees shall be stated in letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders. Before the appointment of debenture trustee or trustees, a written
consent shall be obtained from such debenture trustee.

77. Duties of Debenture Trustees
Section 71(6) read with Rule 18(3) of aforesaid rules provide that a debenture trustee shall take steps to protect the interests of the debenture holders and redress their grievances.

It shall be the duty of every debenture trustee to:

• satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the issue of debentures or with the trust deed;
• satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders;
  call for periodical status or performance reports from the company;
• inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of the trust deed;
• ensure the implementation of the conditions regarding creation of security for the debentures, if any, and debenture redemption reserve;

78. Debenture trust deed
Debenture trust deed is a document created by the company, whereby debenture trustees are appointed to protect the interest of Debenture holders before they are offered for public subscription.

79. Company
Company may accept deposit from its members by passing a resolution in general meeting and subject to conditions as may be prescribed in the Rules including Credit rating, Deposit insurance, etc.

80. Eligible company
Eligible company public company may accept deposits, if it has a net worth of not less than ₹ 100 crore or a turnover of not less than ₹ 500 crore and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies and where applicable, with the Reserve Bank of India before making any invitation to the Public for acceptance of Deposits.

81. Deposit trustees
No company under sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement inviting secured deposits unless the company has appointed one or more deposit trustees for creating security for the deposits.

82. Deposit Insurance
Amendment made by Companies (Amendment)Act, 2017
A contract providing for deposit insurance at least thirty days before the issue of circular or advertisement. In Section 73of the principal Act, in sub- Section (2),- clause (d) shall be omitted;

83. Foreign Investment
Repatriation Capital flow from a foreign country to the country of origin. This usually refers to returning returns on a foreign investment in case of a corporation or transferring foreign earnings home in case of an individual.

84. Quantum of deposits

Type of company	Members	Public
Eligible Company	Upto 10% of aggregate of the paid-up share capital, free reserves, and Security Premium Account.	Upto 25% of aggregate of the paid-up share capital free reserves and Security Premium Account.
Company other than Eligible Company	Upto 35% of aggregate of the paid-up share, free reserves, and Security Premium Account.	Prohibited
Government Company	–	Upto 35% of aggregate of the paid-up share capital, free reserves, and Security Premium Account.

85. Procedure of acceptance of deposit
(a) Points of difference

Category of Company	Private Company	Public Company (other than eligible company)	Public company (eligible company under Section 76 of the Act)
Source of Deposits	From directors and members	From directors and members	From directors, members and general public
Condition for deposits to be taken from shareholders	It is allowed to be taken subject to the limit of 35% of the paid-up share capital, free reserves and Premium Security Account.	It is allowed to be taken subject to the limit of 35% of the paid-up share capital, free reserves and Premium Security Account.	It is allowed to be taken subject to the limit of 10% of the paid-up share capital, free reserves and Premium Security Account.
Conditions for deposits to be taken from Public	Prohibited	Prohibited	It is allowed to be taken subject to the limit of 25% of the paid-up share capital, free reserves and Premium Security Account.
Resolution	The company should pass a resolution in a general meeting	The company should pass a resolution in a general meeting	The company should pass a special resolution in a general meeting and file the same with the Registrar. However, ordinary resolution would be sufficient if the amount is within the limit specified under Section 180 of the Act.
Advertisement	Not necessary	Not necessary	Necessary
Circular	Circular shall be issued to its members by registered post with Acknowledgment due or by speed post or by electronic mode in Form DPT-1	Circular shall be issued to its members by registered post with Acknowledgment due or by speed post or by electronic mode in Form DPT-1	Circular shall be issued to its members by registered post with Acknowledgment due or by speed post or by electronic mode in Form DPT-1
Display of circular on the website	Optional	Optional	Mandatory, if any
Credit Rating	Required to be taken before the submission of the circular to the registrar	Required to be taken before submission of the circular to the registrar	Required to be taken

(b) Points of Similarity

Category of Company	Private Company	Public Company (other than eligible)	Public company (eligible company under Section company 76 of the Act)
Tenure of deposits	The deposit shall not be repayable on demand or upon receiving a notice within a period less than 6 months and more than 36 months.
Registration of circular	The circular signed by majority of directors or their agents duly authorised along with the statement shall be submitted to registrar 30 days before the date of such issue.
Validity of circular	6 (six) months from the end of the financial year in which it was issued or the date on which the AGM is held whichever is earlier.
Return of deposits	A return shall be filed on or before 30th June of every year with the Registrar in Form DPT-3 along with giving the status as on 31st March of that year duly audited by the auditor of the company.
Penal rate interest	A penal Rate of 18% p.a. shall be payable for the overdue period ¡n case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid.
Premature payment	In case of premature payment of deposits, 1% shall be reduced from the interest agreed to be paid.

Amendment Made by Companies (Amendment) Act, 2015
Punishment for Contraction at Section 73 or 76
Section 76A. Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under Section 73 or Section 76 or rules made there under or if a company falls fo repay the deposit or part thereof or any interest due thereon within the time specified under Section 73 or 76 or rules made thereunder or such further time as may be allowed by the Tribunal under Section 73:

the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than ₹ 1 crore but which may extend to ₹ 10 crores; and
every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with time which shall not be less than ₹ 25 lakhs but which may extend to ₹ 2 Crores, or with both.

Provided that if it is proved that the officer of the company who ¡s in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under Section 447.

List of Important Forms

Form No	Purpose of Form as per Companies Act, 2013	Important Section	Important Rule
DPT-1	Circular or Circular in the form of Advertisement inviting Deposits	73 (2)(a), (76)	4(1), 4(2)
DPT-2	Deposit Trust Deed	–	7(2)
DPT-3	Return of deposits	–	16
DPT-4	Statement regarding deposits existing on the commencement of the Act	–	20

86. Charge

• A charge is a security given for securing loans or debentures by way of a mortgage on the assets of the company. As mentioned earlier, the power of the company to borrow includes the power to give security also.
• A charge may be created either through the act of parties or by operation of law.
• A charge created by operation of law does not require registration.
• But a charge created by act of parties requires registration.
• The charge may be in perpetuity.
• A charge only gives a right to receive payment out of a particular property.
• A charge is good against subsequent transferees with notice.
• In case of charge, no personal liability is created. But where a charge is the result of a contract, there may be a personal remedy.
• There is no such transfer of interest in the case of a charge.

87. Two Kinds of Charges
There are two kinds of charges, fixed or specific charge and floating charge.

88. Fixed Charge
A charge is called fixed or specific when it is created to cover assets which are ascertained and definite or are capable of being ascertained and defined, at the time of creating the charge e.g., land, building, or plant and machinery. A fixed charge, therefore, is a security in terms of certain specific property, and the company gives up its right to dispose off that property until the charge is satisfied.

89. Floating Charge
A floating charge. as a type of security, is peculiar to companies as borrowers. A floating charge is not attached to any definite property but covers property of a fluctuating type e.g., stock-in-trade and is thus necessarily equitable. A floating charge is a charge on a class of assets present and future which in the ordinary course of business is changing from time to time and leaves the company free to deal with the property as it sees fit until the holders of charge take steps to enforce their security.

90. Crystallisation of Floating Charge
A floating charge attaches to the company’s property generally and remains dormant till it crystallizes or becomes fixed. The company has a right to carry on its business with the help of assets over which a floating charge has been created till the happening of some event which determines this right. A floating charge crystallises and the security becomes fixed in the following cases:

• when the company goes into liquidation;
• when the company ceases to carry on its business;
• when the creditors or the debenture holders take steps to enforce their security e.g. by appointing receiver to take possession of the property charged;
• on the happening of the event specified in the deed.

91. Mortgage
A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an agreement which may give rise to pecuniary liability.

• A mortgage is created by the act of the parties.
• A mortgage requires registration under the Transfer of Property Act, 1882.
• A mortgage is for a fixed term.
• A mortgage is a transfer of an interest in specific immovable property.
• A mortgage is good against subsequent transferees.
• A simple mortgage carries personal liability unless excluded by express contract.
• A mortgage is a transfer of an interest in a specific immovable property.

92. Registration of Charges- Section 77(1)
Any charge created

• (a) within or outside India,
• (b) on its property or assets or any of its undertakings,
• (c) whether tangible or otherwise, and situated in or outside India Shall be registered.

Particulars of charges that are being filed with Registrar of Companies is to be signed by the company creating the charge and the charge holder in Form No. CHG-1 (for other than Debentures) or Form CHG-9 (for debentures) as the case may be.
The Charge has to be registered within 30 days of its creation.

As per Companies (Amendment), Act, 2019
Time limit for tiling charge created on or after 2.11.2018 reduced
The charge should be filed within 30 days from its creation. In case of charges created on or after 2 11.2018, RoC can allow extension upto 30 days (total 60 days from date of creation of charge, on payment of prescribed additional fees. RoC can allow further extension of 60 days on after payment of such ad valorem fees as may be prescribed – first and second proviso to Section 77(1) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

There is no provision to grant further extension for registration of charges.
Section 87 of Companies Act, 2013 has been amended w.e.f. 2.11.2018 to provide that Central Government cannot order rectification of register of charges in such cases.

Provision in respect of charges created before 2.11.2018
Registrar can allow filing of particulars of such registration within 300 days of such creation, on payment of additional fee as prescribed.
He can grant further extension up to 6 months on payment of additional fees as may be prescribed – first and second proviso to Section 77(1) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Registrar can condone delay upto 300 days on being satisfied that company had sufficient cause for not filing particulars and instrument of charge within 30 days, on payment of additional tee – Rule 4 of Companies (Registration of Charges) Rules, 2014.

If the charge is not filed within 300 days of creation, further extension could be granted by Central Government under section 87 of Companies Act, 2013 – second proviso to Section 77(1) of Companies Act, 2013 as existing upto 2.11.2018 [powers delegated to Regional Director]. Now, such extension cannot be granted.

Punishment for not filing charges or giving false Information Amendment made by Companies (Amendment) Act, 2020
“(1) If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakh rupees and every otficer of the company who is in default shall be liable to a penalty of fifty thousand rupees.”

93. Satisfaction of Charges
According to Section 82 read with the rules the company shall give intimation to the Registrar of the payment or satisfaction in full of any charge within a period of thirty days from the date of such payment or satisfaction in Form No. CHG-4 along with the fee. The Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed.

94. Notice of Charge
According to Section 80, where any charge on any property or assets of a company or any of its undertakings is registered under Section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration. The section clarifies that if any person acquires a property, assets or undertaking for which a charge is already registered, it would be deemed that he has complete knowledge of charge from the date the charge is registered.

95. Consequences of Non-registration of Charge
According to Section 77 of the Companies Act, 2013, all types of charges created by a company are to be registered by the ROC, where they are non-compliant and are not filed with the Registrar of Companies for registration, it shall be void as against the liquidator and any other creditor of the company.

96. Particulars of Charges
The following particulars in respect of each charge are required to be filed with the Registrar:

• date and description of instrument creating charge;
• total amount secured by the charge;
• date of the resolution authorising the creation of the charge; (in case of issue of secured debentures only);
• general description of the property charged;
• list of the terms and conditions of the loan; and
• name and address of the charge holder.

97. Central Government can Order Rectification of Register of Charges Only When Delay was in Respect of Filing of Satisfaction of Charge or Mistake Made In Filing Charges
The Central Government can order rectification of register on any of the following grounds:
The Central Government on being satisfied that:
(a) the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter,
or
(b) the omission or misstatement of any particulars with respect to any such charge or modification or with respect to any memorandum of satisfaction or other entry macle in pursuance of section 82 or 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company, ¡t may, on the application of the company or any person interested and on such terms and conditions as the Central Government deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified Section 87 of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Central Government cannot order rectification of register of charges if there was delay in f iIin of the original charge itself, beyond the specified period or extended period as allowable under section 77 of
Companies Act, 2013.

Application for rectification can be made by company or any person interested. Thus, secured creditor (Bank or Fl) can make application if the charge or its modification was not filed in time, as the secured creditor is certainly interested in registration/modification of charge.

Powers to order rectification of register of charges have been delegated to Regional Director vide Notification F No. 1/6/2014 – CL.V dated 21.5.2014.

98. Annual general meeting
An annual general meeting is required to be held every year by every company whether public or private, limited by shares or by guarantee, with or without share capital or unlimited company.

• Annual general meeting should be held once every year.
• First annual general meeting of the company should be held within 9 months from the closing of the first financial year.
• Subsequent annual general meeting of the company should be held within 6 months from the closing of the financial year.
• The gap between two annual general meetings should not exceed 15 months.

99. Extra-Ordinary General Meeting
All general meetings other than annual general meeting are called extra-ordinary general meetings (EGM). According to SS-2 items of business other than ordinary business may be considered at an EGM or by means of a postal ballot, if thought fit by the Board. This means that all the transactions dealt upon in an EGM shall be special business.

• By the Board Suo motu
• By Board on requisition of members
• By requisitionists
• By Tribunal

100. Class meetings
Class meetings are those meetings which are held by holders of a particular class of shares e.g. preference shares.

101. Motion
A motion becomes a resolution only after the requisite majority of members have adopted it.

102. Methods voting
Various methods which may be adopted for taking votes on a motion properly placed before a meeting are by show of hands, by poll, by postal ballot and by electronic voting.

103. Kinds of resolutions
There are four kinds of resolutions under the Act

• Ordinary Resolution
• Special Resolution
• Resolution requiring special notice
• Board Resolution.

104. Notice of Meeting
A general meeting of a company may be called by giving not less than 21 clear days’ notice either in writing or through electronic mode. Notice through electronic mode shall be given in such manner as may be prescribed. In case of Section 8 company, 14 days’ clear notice is required instead of 21 days. Clear days’ means days exclusive of the day of the notice of service and of the day on which the meeting is held.

105. Contents of Notice

• Place of meeting
• Day of meeting
• Time of meeting
• Agenda
• Proxy clause with reasonable prominence

106. Notice through Electronic Mode Rule 18 of Companies (Management and Administration) Rules, 2014 A company may give notice through electronic mode. Electronic mode’ means any communication sent by a company through its authorized and secured computer programme:

• The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company.
• E-mail shall state the name of the company, notice of the type of meeting and the date on which meeting is scheduled.
• If notice is sent in the form of an attachment to e-mail, such attachment shall be in the Portable Document Format (PDF).
• There shall be no difference in the text of the physical version of the notice and electronic version except in respect of mode of dispatch of notice.
• If a member entitled to receive notice fails to provide or update relevant e-mail address to the company, company shall not be in default for not delivering notice via e-mail.
• Company may send e-mail through in-house facility or authorize any third party agency providing bulk e-mail facility.

107. Persons entitled to receive Notice
In terms of Section 101(3), notice of every meeting of the company must be given to:

• every member of the company, legal representative of any deceased member or the assignee of an insolvent member;
• the auditor or auditors of the company; and
• every director of the company.

A private company, which is not, a subsidiary of a public company may prescribe, by its Articles, persons to whom the notice should be given.

108. Quorum

• In case of public company, the quorum shall depend on number of members as on the date of meeting:
• If members not more than 1000- quorum shall be 5.
• If members more than 1000 but less than 5000- quorum shall be 15.
• If members more than 5000- quorum shall be 30
• In case of private company 2 members personally present shall be the quorum of the meeting.

109. Adjourned Meetings
Notice of an adjourned meeting- Where the meeting stands adjourned to the same day in the next week at the same time and place, or to such other day, not being a National Holiday, or at such other time and place as the Board may determine, there the company shall give at least 3 days notice to the members either individually or by publishing an advertisement in 2 newspapers (one in English and one in vernacular language).

No quorum in an adjourned meeting- If at the adjourned meeting also, a quorum is not present within half- an-hour from the time appointed for holding meeting, the members present, being not less than two in numbers, will constitute the quorum.

If a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the adjourned Meeting shall be given in accordance with the provisions contained here in above relating to Notice.

110. Chairman of Meetings
Unless the articles of the company otherwise provided, the members personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands.

If a poll is demanded on the election of the Chairman, it shall be taken forth with in accordance with the provisions of this Act and the Chairman elected on a show of hands shall continue to be the Chairman of the meeting untìl some other person is elected as Chairman as a result of the poll, and such other person shall be the Chairman for the rest of the meeting.

111. Proxies
A person who is appointed by a member to attend and vote at a meeting in the absence of the member at the meeting is termed as proxy. Thus proxy is an agent of the member appointing him. The term ‘proxy’ is also used to refer to the instrument by which a person is appointed as proxy. Section 105 of the Companies Act, 2013 provides that a member, who is entitled to attend to vote, can appoint another person as a proxy to attend and vote at the meeting on his behalf.

112. Demand for Poll
Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf by the following person(s):

in the case a company having a share capital: by the members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than ₹ 5,00,000/- or such higher amount as may be prescribed, has been paid-up; and
in the case of any other company: by any member or members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power.
The Chairman shall get the validity of the demand verified.
The demand for a poll may be withdrawn at any time by the persons who made the demand.

113. Postal Ballot
As per Section 2(65) “postal ballot” means voting by post or through any electronic mode. Following items of business shall be transacted only by means of voting through a postal ballot:

• Alteration of the objects clause of the memorandum
• Alteration of articles of association
• Change in place of registered office outside the local limits of any city, town or village
• Change in objects for which a company has raised money from public through prospectus
• Issue of shares with differential rights as to voting or dividend
• Variation in the rights attached to a class of shares or debentures
• Buy-back of shares by a company
• Election of a director
• Sale of the whole or substantially the whole of an undertaking of a company.

Amendment made by Companies (Amendment) Act, 2017
Any item of business required to be transacted by means of postal ballot (as stated above), maybe transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under Section 108, in the manner provided in that section.

114. Circulation of Members’ Resolution
As per Section 111, a company shall, on requisition in writing of certain number of members, give notice to members of any proposed resolution intended to be moved in the meeting or circulate any statement with respect to matters referred in proposed resolution. The company shall be bound to give notice of resolution only if the requisition is deposited not less than six weeks before the meeting. In case of other requisition not less than 2 weeks before the meeting.

115. Minutes
Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitionists and all proceedings of meeting of any class of shareholders or creditors or Board of Directors or committee of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every such meeting concerned.

Directors And Other Concepts CMA Inter Law and Ethics Notes

1. No.of directors
Every public company shall have at least 3 directors and every private company shall have at least 2 directors and every one-person company shall have at least 1 director under Section 149.

2. Legal position of director
Directors are trustees for the company i.e. the directors are persons selected to manage the affairs of the company for the benefit of the shareholders.

3. Maximum Number of Director
Maximum Number of Director is 15, which can be increased by passing a special Resolution.

4. Woman director
Certain prescribed class or classes of companies is required to have at least one woman director. This is a mandatory provision.

5. Resident of director
Every company including one person company shall have at least one director who stays in India for a period of not less than 182 days in the previous calendar year.

6. Number of directorships
Maximum limit on total number of directorships has been fixed at 20 companies including sub limit of 10 for public companies.

7. Removed of director
A director may be removed from the office by giving a special notice.

8. Managerial remuneration
The overall limit on managerial remuneration shall not exceed 11% of the net profits.

9. More than one such director
If there is more than one such director, remuneration shall not exceed 10% of the net profits of the company.

10. Independent director
An independent director in relation to a company means a director other than a managing director or a whole-time director of a nominee director.

11. An independent director can be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent director.

12. Independent No. of director
Every listed company shall have one-third independent directors.

13. Section 149(8)
Section 149(8) provides that the company and independent directors shall abide by the provisions specified in Schedule IV.

14. Term of independent director
An independent director shall hold office for a term up to 5 consecutive years on the Board of a company.

15. Resignation or removal of an Independent director
The resignation or removal of an independent director will be in the manner as is provided in Sections 168 & 169 of the act.

16. Composition of Board of Directors
50% of the Board is to be independent if the Chairman is a promoter, otherwise 1/3rd of the board are to be independent prescribed under Clause 49 of Listing Agreement.

Note:
Regulation 17(1) 0f the SEBI (LODR) Regulation 2015. SEBI has notified new regulation named SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 on 2nd September, 2015. A time period o 90 days has been given for implementing the Regulations. However, two provisions of the regulations, which are facilitating in nature, are applicable with immediate effect. Other provisions of this new regulation have come into effect from 1st Dec 2015. The new regulation aims to consolidate arid streamline the provisions of existing Listing Agreements for different segments of the capital market.

However, for the sake of students’ help, we have provided the questions and answer under this chapter as per old listing Agreement as well as new regulation about listing agreement.

17. Nomination Committee
The Nomination Committee shall lay down the evaluation criteria for performance evaluation of independent directors.

18. Director
Director can participate in the Board Meeting through video conferencing or other audio-visual mode as may be prescribed.

19. Notice of Board Meeting
Notice of not less than seven days in writing is required to call a board meeting and notice of meeting to all directors shall be given, whether he is in India or outside India by hand delivery or by post or by electronic means.

20. The participation of director at Board Meeting through video conferencing or by other electronic means shall be counted for the purpose of Quorum.

21. Audit Committee
Every Listed Company and such other company as may be prescribed shall form Audit Committee comprised of minimum 3 directors with majority of the Independent Directors and majority of members of committee shall be person with ability to read and understand financial statements.

22. Nomination and Remuneration Committee
Every listed company and prescribed class or classes of companies shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors.

23. Intercorporate Investments
Intercorporate investments not to be made through more than 2 layers of investment companies.

24. Meeting of Board
In addition to the first meeting to be held within thirty days of the date of incorporation, there shall be minimum of four Board Meetings every year and not more one hundred and twenty days shall intervene between two consecutive Board Meetings.

In case of One Person Company (OPC), small company and dormant company, at least one Board Meeting should be conducted in each half of the calendar year and the gap between two meetings should not be less than Ninety days.

25. Matters not to be dealt with in a Meeting through Video Conferencing or other Audio Visual Means

• the approval of the annual financial statements;
• the approval of the Board’s report;
• the approval of the prospectus;
• the Audit Committee Meetings for consideration of accounts; and
• the approval of the matter relating to amalgamation, merger, demerger, acquisition and take over.

26. Quorum for Board Meeting

• One-third of total strength or two directors, whichever is higher, shall be the quorum for a meeting.
• For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio-visual means shall also be counted.
• If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time.

27. Audit Committee
The requirement of constitution of Audit Committee has been limited to:
(a) Every listed Public Companies; or
(b) The following class of companies –

• all public companies with a paid-up capital of ₹ 10 crores or more;
• all public companies having turnover of ₹ 100 crores or more;
• all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding ₹ 50 crores or more.

28. Corporate Social Responsibility Committee
The Section applies to the following classes of companies during any financial year:

• Companies having Net Worth of ₹ 500 crores or more;
• Companies having turnover of ₹ 1,000 crores or more;
• Companies having Net Profit of ₹ 5 crores or more.

Amendment made by Companies (Amendment) Act, 2017 Revised Section 135(1)-
“Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Provided that where a company is not required to appoint an independent director under sub-section (4) of Section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”

Revised Section 135(3)(a)-
“(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII.”

Revised Explanation to Section 135(5)
“For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198.”

29. Prohibitions and Restrictions Regarding Political Contributions
The non-government company or the company which has been in existence less than three financial years may contribute any amount directly or indirectly to any political party. Further, the limit of contribution to political parties is 7.5% of the average net profits during the three immediately preceding financial years.

Note:
Section 154 of the Finance Act, 2017 amends Section 182 of the Companies Act, 2013. As per the amendment, the limit on the maximum amount that can be contributed by a company to a political
party has been removed.

30. Key Managerial Personnel
Under Section 2(51) a Key Managerial Personnel is defined as the Chief Executive Off iCor or Managing Director or the manager or, a Company Secretary or the whole time director, and the Chief Financial Officer in relation to a company.

Amendment made by Companies (Amendment) Act, 2017 Revised Section 2(51)-
“Key managerial personnel” in relation to a company, means-

• the Chief Executive Officer or the managing director or the manager
• the Company Secretary;
• the whole-time Director;
• the Chief Financial Officer;
• such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
• such other officer as may be prescribed;”

Every listed Company having a paid-up share capital of ₹ 10 crore or more is compulsorily required to have a key managerial personnel.

The whole time key managerial personnel is to be appointed by the Board and shall not hold office in more than one company however he is permitted to hold such other office with the permission of Board of the company.

31. Penalty for not Appointing Key Managerial Personnel when Mandatory
Every director or the key managerial personnel who is in default shall be liable to penalty which may extend to ₹ 50,000 and a further fine which may be extended to ₹ 1,000 for every day during which the default continues.

As per Companies (Amendment) Act, 2019
Section 203 of Companies Act, 2013 make provisions for mandatory appointment of certain Key Managerial personnel like MD or CEO, Company Secretary, and CFO.

If any company makes any default in complying with the provisions of section 203, such company shall be liable to a penalty of five lakh rupees, and every director and key managerial personnel of the company who; in default shall be liable to a penalty of fifty thousand rupees and where he default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees – Section 203(5) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

In section 203 of the principal Act, for sub-section (5), the following sub-section shall be substituted, namely:
“(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees, and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.”

32. Section 203.
The Company Secretary has been covered under the same section of KMP i.e. Section 203. Rule 8A Appointment of Company Secretaries in companies not covered under rule 8 A company other than a company covered under rule 8 which has a paid-up share capital of ₹ 5 crore or use shall have a whole the company secretaries.

33. Managerial Personnel
1. Overall managerial remuneration
Section 197 of the Companies Act, 2013 prescribed the maximum ceiling for payment of managerial remuneration by a public company to its managing director whole-time director, and manager which shall not exceed 11 % of the net profit of the company in that financial year computed in accordance with Section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

2. Remuneration to Managing Director/whole time Director/Manager
The remuneration payable to any one managing director or whole-time director or manager shall not exceed 5% of the net profits of the company and if there are more than one such director remuneration shall not exceed 10% of the net profits to all such directors.

3. Remuneration to other directors
Except with the approval of the company in general meeting, the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,-

• 1% of the net profits of the company, if there is a managing or whole-time director or manager;
• 3% of the net profits in any other case.

4. Remuneration by a company having no profit or Inadequate profit
If, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including managing or whole-time directors or managers, any remuneration exclusive of any fees payable to directors except in accordance with the provisions of Schedule V and if it is not able to comply with Schedule V, with the previous approval of the Central Government.

Managerial Remuneration under Schedule V (Part II)
Section I: Remuneration by Companies Having Profits
A company having profits in a financial year may pay remuneration to its managerial persons or persons or other directors or directors in accordance with Section 197.

Section II: Where in any financial year during the currency of tenure of a managerial person, or other directors a company has no profits or its profits are inadequate It may without Central Government approval, pay remuneration to the managerial person not exceeding the limits under (A) and (B) given below:

A

1. Where the Effective Capital (in rupees) is	2. Limit of yearly Remuneration payable shall not exceed (in Rupees) in case of a managerial person	3. Limit of yearly Remuneration payable shall not exceed (in Rupees) in case of other directors
(i) Negative or less than 5 crores.	60 lakhs	12 lakhs
(ii) 5 crores and above but less than 100 crores.	84 lakhs	17 lakhs
(iii) 100 crores and above but less than 250 crores.	120 lakhs	24 lakhs
(iv) 250 crores and above	120 lakhs plus 0.01% of the effective capital in excess of ₹ 250 crores.	24 lakhs plus 0.01% of the effective capital in excess of ₹ 250 crores.

Provided that the above limits shall be doubled if the resolution passed by the shareholders is a special resolution.

Explanation-
It is hereby clarified that for a period less than one year, the limits shall be pro-rated.
(B) In case of a managerial person or other directors who is functioning in a professional capacity, no approval of Central Government is required, if such managerial person or other director is not having any interest in the capital of the company or its holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and not having any direct or indirect interest or related to the directors or promoters of the company or its holding company or any of its subsidiaries at any time during the last two years before or on or after the date of appointment and possesses graduate level qualification with expertise and specialized knowledge in the field in which the company operates:
Provided that any employee of a company holding shares of the company not exceeding 0.5% of its paid-up share capital under any scheme formulated for allotment of shares to such employees including Employees Stock Option Plan or by way of qualification shall be deemed to be a person not having any interest in the capital of the company.

Amendment made by Companies (Amendment) Act, 2017
Revised First Proviso to Section 197(1)-
‘Provided that the company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding eleven percent. of the net profits of the company, subject to the provisions of Schedule V:”
Revised Second Proviso to Section 197(1)-
“Provided further that, except with the approval of the company in general meeting by a special resolution,-
(i) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five percent. of the net profits of the company and if there is more than one such director remuneration shall not exceed ten percent. of the net profits to all such directors and managers taken together;

(ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,-

• one percent. of the net profits of the company,, if there is a managing or whole-time director or manager;
• three percent. of the net profits in any other case. Third Proviso to Section 197(1)-

“Provided also that, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditors, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.”

34. Secretarial audit
The Central Government through rules has prescribed such other classes of companies as under-

• every public company having a paid-up share capital of fifty crore rupees or more; or
• every public company having a turnover of two hundred fìftycrore rupees or more

Steps for the Appointment of Whole-time Director

Appointment of Whole-time Director as per Schedule V	Appointment of a Whole-time Director with the prior approval of Central Government
1 Convene a Board Meeting- (a) to appoint Whole-time Director of the Company till the ensuing. General Meeting of the Company (additional director). (a) To fix date, time, and place of the General Meeting in order to take the approval of the shareholders to appoint a “Whole-time Director” of the Company.	Convene a Board Meeting- (a) to appoint Whole-time Director of the Company till the ensuing General Meeting of the Company (additional director). (b) To fix date, time and place of the General Meeting in order to take the approval of the shareholders to appoint a whole-time Director” of the Company.
2. File E-form MGT-14 and DIR-12 (with necessary attachments) with ROC within 30 days from the date of appointment as an additional director of the Company.	File E-form MGT-14 and DIR-12 (with necessary attachments) with ROC within 30 days from the date of appointment as an additional director of the Company.
3. Convene Extra-ordinary General Meeting of the Company and take shareholders’ approval for the appointment of Whole-time Director of the Company.	Convene the Extra-ordinary General Meetings of the Company and take shareholders’ approval for the appointment of Whole-time Director of the Company.
4. Not Applicable	File E-form MA-2 to obtain the approval of Central Government with regard to the appointment of whole-time Director of the Company.
5. File E-Form DIR-12 within 30 days from the date of general meeting for regularization of whole-time Director of the Company.	File E-Form DIR-12 within 30 days from the date of general meeting for regularization of whole-time Director of the Company.
6. File E-form MR-1 (Return of Appointment) within 60 days of the date of appointment in the board meeting with regard to the appointment of whole-time director.	File E-form MR-1 (Return of Appointment) within 60 days of the date of appointment in the board meeting with regard to the appointment of whole-time director.

List of Important Forms

Form No.	Purpose of Form as per Companies Act, 2013	Important Section	Important Rule
DIR-1	Application for inclusion of name in the databank of independent Directors	150	6(4)
DIR-2	Consent to act as it director of a company	152(5)	8
DIR-3	Applicant for allotment of Director Identification Number	153	Rule 10 of Limited Liability Partnership Rules, 2009
DIR-4	Verification of applicant for applicant for DIN	153	9(3)(a)(iv)
DIR-5	Application for surrender of Director Identification Number	153	11(f)
DIR-6	Intimation of change in particulars of Director to be given to the Central Government	–	12(1)
DIR-7	Verification of applicant for change in DIN particulars	–	12(1)(i)
DIR-8	Intimation by Director	164(2)	14(1)
DIR-9	Report by the Company Registrar to	164(2)	14(2)
DIR- 10	Form of Applicant for Removal of Disqualification of Directors	164(2)	14(5)
DIR-11	Notice of resignation of a Director to the Registrar	168(1)	16
DIR- 12	Particulars of appointment of directors and the key managerial personnel and the changes among them	7(1)(c), 168,170 (2)	17
MR. 1	Return of appointment of key managerial personnel	196,197 and sch. V	3
MR. 2	Form of application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or overpayment to managing director or whole-time director or manager and commission or remuneration to directors	196, 197,200, 201 (1), 203 (1) and Sch V	7
MR. 3	Secretarial Audit Report	204 (1)	9

The Code on Wages, 2019 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

The Code on Wages, 2019 – CMA Inter Law and Ethics Study Material

Descriptive Questions

Questions 1.
What is the time limit for payment of wages under the Code?
Answer:
The time limit for payment of wages Section 17-
1. The employer shall pay or cause to be paid wages to the employees, engaged on:

• daily basis, at the end of the shift;
• weekly basis, on the last working day of the week, that is to say, before the weekly holiday;
• fortnightly basis, before the end of the second day after the end of the fortnight;
• monthly basis, before the expiry of the seventh day of the succeeding month.

2. Where an employee has been:

• removed or dismissed from service; or
• retrenched or has resigned from service, or became unemployed due to closure of the establishment, the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation.

3. Notwithstanding anything contained in sub-section (1) or sub-section (2), the appropriate Government may provide any other time limit for payment of wages where it considers reasonable having regard to the circumstances under which the wages are to be paid.

4. Nothing contained in sub-section (1) or sub-section (2) shall affect any time limit for payment of wages provided in any other law for the time being in force.

Question 2.
How is the work wage and hours of work fixed under the Code?
Answer:
Fixing hours of work for normal working day:
1. Where the minimum rates of wages have been fixed under this Code, the appropriate Government may:

• fix the number of hours of work which shall constitute a normal working day inclusive of one or more specified intervals;
• provide for a day of rest in every period of seven days which shall be allowed to all employees or to any specified class of employees and for the payment of remuneration in respect of such days of rest;
• provide for payment for work on a day of rest at a rate not less than the overtime rate.

2. The provisions of sub-section (1) shall, in relation to the following classes of employees apply, only to such extent and subject to such conditions as may be prescribed, namely:

• employees engaged in any emergency which could not have been foreseen or prevented;
• employees engaged in work of the nature of preparatory or complementary work which must necessarily be carried on outside the limits laid down for the general working in the employment concerned;
• employees whose employment is essentially intermittent;
• employees engaged in any work which for technical reasons has to be completed before the duty is over; and
• employees engaged in a work which could not be carried on except at times dependent on the irregular action of natural forces.

3. For the purposes of clause (c) of sub-section (2), employment of an employee is essentially intermittent when it is declared to be so by the appropriate Government on the ground that the daily hours of duty of the employee, or if there be no daily hours of duty as such for the employee, the hours of duty normally include periods of inaction during which the employee may be on duty but is not called upon to display either physical activity or sustained attention.

The central or state government may fix the number of hours that constitute a normal working day. In case employees work in excess of a normal working day, they will be entitled to overtime wages, which must be at least twice the normal rate of wages.

Wages for overtime work:
Section 14 – Where an employee whose minimum rate of wages has been fixed under this Code by the hour, by the day or by such a longer wage period as may be prescribed, works on any day in excess of the number of hours constituting a normal working day, the employer shall pay him for every hour or for part of an hour so worked in excess, at the overtime rate which shall not be less than twice the normal rate of wages.

Mode of payment of wages:
Section 15- All wages shall be paid in current coin or currency flotes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode:
Provided that the appropriate Government may, by notification, specify the industrial or other establishments, the employer of which shall pay to every person employed in such industrial or other establishments, the wages only by cheque or by crediting the wages in his bank account.

Fixation of wage period.
Section 16- The employer shall fix the wage period for employees either as daily or weekly or fortnightly or monthly subject to the condition that no wage period in respect of any employee shall be more than a month: Provided that different wage periods may be fixed for different establishments.

Question 3.
How are deductions to the wages calculated under the Code?
Answer:
Section 18: Deductions which may be made from wages:
1. Notwithstanding anything contained in any other law for the time being in force, there shall be no deductions from the wages of the employee, except those as are authorised under this Code.

Explanation: For the purpose of this subsection,
(a) any payment made by an employee to the employer or his agent shall be deemed to be a deduction from his wages;
(b) any loss of wages to an employee, for a good and sufficient cause, resulting from:

• the withholding of increment or promotion, including the stoppage of an increment; or
• the reduction to a lower post or time scale; or
• the suspension, shall not be deemed to be a deduction from wages in a case where the provisions made by the employer for such purposes are satisfying the requirements specified in the notification issued by the appropriate Government in this behalf.

2. Deductions from the wages of an employee shall be made in accordance with the provisions of this Code and may be made only for the following purposes, namely:-

• fines imposed on him;
• deductions for his absence from duty;
• deductions for damage to or loss of goods expressly entrusted to the employee for custody; or for loss of money for which he is required to account, where such damage or loss is directly attributable to his neglect or default;

(d) deductions for house accommodation supplied by the employer or by appropriate Government or any housing board set up under any law for the time being in force, whether the Government or such board is the employer or not, or any other authority engaged in the business of subsidising house accommodation which may be specified in this behalf by the appropriate Government by notification;

(e) deductions for such amenities and services supplied by the employer as the appropriate Government or any officer specified by it in this behalf may, by general or special order, authorise and such deduction shall not exceed an amount equivalent to the value of such amenities and services. Explanation.-For the purposes of this clause, the expression “services” does not include the supply of tools and raw materials required for the purposês of employment;

(f) deductions for recovery of:

• advances of whatever nature (including advances for travelling allowance or conveyance allowance), and the interest due in respect thereof, or for adjustment of overpayment of wages;
• loans made from any fund constituted for the welfare of labour, as may be prescribed by the appropriate Government, and the interest due in respect thereof;

(g) deductions for recovery of loans granted for house-building or other purposes approved by the appropriate Government and the interest due in respect thereof;

(h) deductions of income tax or any other statutory levy levied by the Central Government or State Government and payable by the employee or deductions required to be made by order of a court or other authority competent to make such order;

(i) deductions for subscription to, and for repayment of advances from any social security fund or scheme constituted by law including provident fund or pension fund or health insurance scheme or fund known by any other name;

(j) deductions for payment ot cooperative society subject to such conditions as the appropriate Government may impose;

(k) deductions made, with the written authorisation of the employee, for payment of the tees and contribution payable by him for the membership of any Trade Union registered under the Trade Unions Act, 1926;

(i) deductions for recovery of losses sustained by the railway administration on account of acceptance by the employee of counterfeit or base coins or mutilated or forged currency flotes;

(m) deductions for recovery of losses sustained by the railway administration on account of the failure of the employee to invoice, to bill, to collect or to account for the appropriate charges due to the railway administration whether in respect of fares, freight, demurrage, wharfage and cranage or in respect of sale of fool in catering establishments or in respect of commodities in grain shops or otherwise;

(n) deductions for recovery of losses sustained by the railway administration on account of any rebates or refunds incorrectly granted by the employee where such loss is directly attributable to his neglect or default;

(o) deductions, made with the written authorisation of the employee, for contribution to the Prime Minister’s National Relief Fund or to such other fund as the Central Government may, by notification, specify.

(p) Notwithstanding anything contained in this Code and subject to the provisions of any other law for the time being in force, the total amount of deductions which may be made under subsection (2) in any wage period from the wages of an employee shall not exceed fifty per cent of such wages.

3. Where the total deductions authorised under sub-section (2) exceed fifty per cent of the wages, the excess may be recovered in such manner, as may be prescribed.

4. Where any deduction is made by the employer from the wages of an employee under this section but not deposited in the account of the trust or Government fund or any other account, as required under the provisions of the law for the time being in force, such employee shall not be held responsible for such default of the employer.

Question 4.
How are Central Advisory Board and State Advisory Boards constituted?
Answer:
Advisory boards: The central and state governments will constitute advisory boards. The Central Advisory Board will consist of:

• employers,
• employees (in equal numbers as employers),
• independent persons, and
• five representatives of state governments. State Advisory Boards will consist of employers, employees, and independent persons. Further, one-third of the total members on both the central and state Boards will be women.

The Boards will advise the respective governments on various issues including:

• fixation of minimum wages, and
• increasing employment opportunities for women.
• Chapter V of the Code talks about the advisory board.

Section 42 of the Code lays down that:
1. The Central Government shall constitute the Central Advisory Board which shall consist of persons to be nominated by the Central Government:

• representing employers;
• representing employees which shall be equal ¡n number of the members specified in clause (a);
• independent persons, not exceeding one-third of the total members of the Board; and
• five representatives of such State Governments as may be nominated by the Central Government.

2. One-third of the members referred to in sub-section (1) shall be women and a member specified ¡n clause (c) of the said sub-section shall be appointed by the Central Government as the Chairperson of the Board.

3. The Central Advisory Board constituted under sub-section (1) shall from time to time advise the Central Government on reference of issues relating to:

• fixation or revision of minimum wages and other connected matters;
• providing increasing employment opportunities for women;
• the extent to which women may be employed in such establishments or employments as the Central Government may, by notification, specify in this behalf;
• and any other matter relating to this Code, and on such advice, the Central Government may issue directions to the State Government as it deems fit in respect of matters relating to issues referred to the Board.

4. Every State Government shall constitute a State Advisory Board for advising the State Government:

• In fixation or revision of minimum wages and other connected matters;
• for the purpose of providing increasing employment opportunities for women;
• with regard to the extent to which women may be employed in such establishments or employments as the State Government may, by notification, specify in this behalf; and
• in any other matter relating to this Code, which the State Government may refer from time to time to the Board.

5. The State Advisory Board may constitute one or more committees or sub-committees to look into issues pertaining to matters specified in clauses (a) to (d) of sub-section (4).

6. The State Advisory Board and each of the committees and sub-committees thereof shall consist of persons: representing employers;
representing employees which shall be equal in number of the members specified in clause (a); and independent persons, not exceeding one-third of the total members of the Board or committee or subcommittee, as the case may be.

7. One-third of the members referred to in sub-section (6) shall be women and one among the members specified in clause of the said sub-section shall be:

• appointed by the State Government as the Chairperson of the Board;
• appointed by the State Advisory Board as the Chairperson of the committee or sub-committee, as the case ay be.

8. In tendering its advice in the matters specified in clause (b) or clause (c) of sub-section (4), the State Advisory Board shall have regard to the number of women employed in the concerned establishment, or employment, the nature of work, hours of work, suitability of women for employment, as the case may be, the need for providing increasing employment opportunities for women, including part-time employment, and such other relevant factors as the Board may think it.

9. The State Government may, after considering the advice tendered to it by the State Advisory Board and after inviting and considering the representations from establishment or employees or any other person which that Government thinks it. issue such direction as may be deemed necessary.

1o. The Central Advisory Board referred to in sub-section (1) and the State Advisory Board referred to in sub-section (4) shall respectively regulate their own procedure including that of the committees and subcommittees constituted by the State Advisory Board, in such manner as may be prescribed.

11. The terms of office of the Central Advisory Board referred to in subsection (1) and the State Advisory Board referred to in subsection (4) including that of the committees and sub-committees constituted by the State Advisory Board, shall be such as may be prescribed.

Chapter VI of the Code discusses about the payment of dues, claims and audits. Section 43 of the Code talks about:
Every employer shall pay all amounts required to be paid under this Code to every employee employed by him:
Provided that where such employer fails to make such payment in accordance with this Code, then, the company or firm or association or any other person who is the proprietor of the establishment, in which the employee is employed, shall be responsible for such payment.

Explanation: For the purposes of this section the expression “firm” shall have the same meaning as assigned to it in the Indian Partnership Act, 1932.

Question 5.
Do employers have a responsibility for payment of various dues under the Code?
Answer:
Section 44 lays down provisions relating to payment of various undisbursed dues in case of death of employee.
1. Subject to the other provisions of this Code, all amounts payable to an employee under this Code shall, if such amounts could not or cannot be paid on account of his death before payment or on account of his whereabouts not being known:

• be paid to the person nominated by him in this behalf in accordance with the rules made under this Code; or
• where no such nomination has been made or where for any reasons such amounts cannot be paid to the person so nominated, be deposited with the such authority, as may be prescribed, who shall deal with the amounts so deposited in the manner as may be prescribed.

2. Where in accordance with the provisions of sub-section (1), all amounts payable to an employee under this Code:

• are paid by the employer to the person nominated by the employee; or
• are deposited by the employer with the authority referred to in clause
• of sub-section (1), then, the employer shall be discharged of his liability to pay those amounts.

Question 6.
Does the Code provide for appointment of Inspector-cum-Facilitators and what are their powers?
Answer:
Section 51 specifically talks about the appointment of Inspector-cum Facilitators and their powers. It lays down that:
1. The appropriate Government may, by notification, appoint Inspector-cum-Facilitators for the purposes of this Code who shall exercise the powers conferred on them under sub-section (4) throughout the State or such geographical limits assigned in relation to one or more establishments situated in such State or geographical limits or in one or more establishments, irrespective of geographical limits, assigned to him by the appropriate Government, as the case may be.

2. The appropriate Government may, by notification, lay down an inspection scheme which may also provide for generation of a web-based inspection and calling of information relating to the inspection under this Code electronically.

3. Without prejudice to the provisions of sub-section (2), the appropriate Government may, by notification, confer such jurisdiction of randomised selection of inspection for the purposes of this Code to the Inspectorcum-Facilitator as may be specified in such notification.

4. Every Inspector-cum-Facilitator appointed under sub-section (1) shall be deemed to be public servant within the meaning of section 21 of the Indian Penal Code.

5. The Inspector-cum-Facilitator may:

• advice to employers and workers relating to compliance with the provisions of this Code;
• inspect the establishments as assigned to him by the appropriate Government, subject to the instructions or guidelines issued by the appropriate Government from time to time.

6. Subject to the provisions of sub-section (4), the Inspector-cum-Facilitator may:

• examine any person who is found in any premises of the establishment, whom the Inspector-cum Facilitator has reasonable cause to believe, is a worker of the establishment;
• require any person to give any information, which is in his power to give with respect to the names and addresses of the persons;
• search, seize or take copies of such register, record of wages or notices or portions thereof as the Inspector-cum-Facilitator may consider relevant in respect of an offence under this Code and which the inspector-cum-Facilitator has reason to believe has been committed by the employer;
• bring to the notice of the appropriate Government defects or abuses not covered by any law for the time being in force; and
• exercise such other powers as may be prescribed.

7. Any person required to produce any document or to give any information required by an Inspector-cum Facilitator under sub-section (5) shall be deemed to be legally bound to do so within the meaning of section 175 and section 176 of the Indian Penal Code.

8. The provisions of the Code of Criminal Procedure, 1973 shall, so far as may be, apply to the search or seizure under sub-section (5) as they apply to the search or seizure made under the authority of a warrant issued under section 94 of the said Code.

The present code talks about provisions relating to offences and their corresponding penalties. The Code specifies penalties for offences committed by an employer, such as:

• paying less than the due wages, or
• for contravening any provision of the Code.
• Penalties vary depending on the nature of offence, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees.

Question 7.
What are the powers of officers of appropriate Government to impose penalty in certain cases under the Code?
Answer:
Section 53 talks about the power of officers of appropriate Government to impose penalty in certain cases. It lays down that:
1. Notwithstanding anything contained ¡n section 52, for the purpose of imposing penalty under clauses (a) and (c) of sub-section (1) and sub-section (2) of section 54 and sub-section (7) of section 56, the appropriate Government may appoint any officer not below the rank of Under Secretary to the Government of India or an officer of equivalent rank in the State Government, as the case may be, for holding enquiry in such manner, as may be prescribed by the Central Government.

2. While holding the enquiry, the officer referred to in sub-section (1) shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document, which in the opinion of such officer, may be useful for or relevant to the subject matter of the enquiry and if, on such enquiry, he is satisfied that the person has committed any offence under the provisions referred to in sub-section (1), he may impose such penalty as he thinks fit in accordance with such provisions.

This Chapter Includes

Payment of wages	Deductions
Floor wage	Determination of bonus
Fixing the minimum wage	Gender discrimination
Overtime	Advisory boards
Payment of wages	Penalties for offences.

The Code on Wages, 2019 CMA Inter Law, and Ethics Notes

The new definition of wage under the Code specifically excludes

• any bonus payable under any law for the time being in force;
• the value of any house accommodation, or of the supply of light, water, medical attendance or other amenity;
• contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
• any conveyance allowance or the value of any travelling concession;
• any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
• house rent allowance
• remuneration payable under any award or settlement between the parties or order of a court or Tribunal; (h) any overtime allowance;
• any commission payable to the employee;
• any gratuity payable on the termination of employment;
• any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to himThn the termination of employment.

The social purpose of the Code that it seeks to achieve is to avoid all kinds of gender-based discrimination. Section 3 of the Code states that
1. There shall be no discrimination in an establishment or any unit thereof among employees on the grounds of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee.

2. No employer shall –

• for the purposes of complying with the provisions of sub-section (1), reduce the rate of wages of any employee; and
• make any discrimination on the grounds of sex while recruiting any employee for the same work or work of similar nature and in the conditions of employment, except where the employment of women in such work is prohibited or restricted by or under any law for the time being in force.

Mode of payment of wages:

• Section 15- All wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode:
• Provided that the appropriate Government may, by notification, specify the industrial or other establishment, the employer of which shall pay to every person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in his bank account.

Fixation of wage period:
Section 16- The employer shall fx the wage period for employees either as daily or weekly or fortnightly or monthly subject to the condition that no wage period in respect of any employee shall be more than a month: Provided that different wage periods may be fixed for different establishments.

Section 40 of the Code lays down that:
1. If in any accounting year an establishment in public sector sells any goods produced or manufactured by it or renders any services, in corn petition with an establishment in private sector, and the income from such sale or services or both, is not less than twenty per cent. of the gross income of the establishment in public seçtor for that year, then, the provisions of this Chapter shall apply in relation to such establishment in public sector as they apply in relation to a like establishment in private sector.

2. Save as otherwise provided in subsection (1), nothing in this Chapter shall apply to the employees employed by any establishment in public sector.

Section 46 lays down provisions relating to reference of disputes under this Code. It lays down that notwithstanding anything contained in this Code, where any dispute arises between an employer and his employees with respect to:

• fixation of bonus or eligibility for payment of bonus under the provisions of this Code; or
• the application of this Code, in respect of bonus, to an establishment in public sector, then, such dispute shall be deemed to be an industrial dispute within the meaning of the Industrial Disputes Act, 1947.

Section 52 talks about cognizance of offences. The provisions lays down that
1. No court shall take cognizance of any offence punishable under this Coder save on a complaint made by or under the authority of the appropriate Government or an officer authorised in this behalf, or by an employee or a registered Trade Union registered under the Trade Unions Act, 1926 or an Inspector-cum- Facilitator.

2. Notwithstanding anything contained in the Code of Criminal Procedure, 1973, no court inferior to that of a Metropolitan Magistrate or Judicial Magistrate of the first class shall try the offences under this Code.

Employees State Insurance Act, 1948 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Employees State Insurance Act, 1948 – CMA Inter Law and Ethics Study Material

Short Notes

Question 1.
Write notes on the following:
Purposes for which Employees’ State Insurance Fund may be expended under the Employees’ State Insurance Act, 1948. (Dec 2012, 5 marks)
Answer:

• Various purposes for which ESifund may be expended under the Employees State Insurance Act, 1948. are as follows:
• Payment of benefits to the insured person or their families.
• Payment in relation to any contract entered for implementing the provisions of the Act.
• Payment of salaries to the employees of Employee State Insurance Corporation.
• Payment of fees to members of standing committee.

Question 2.
Write short note on the following term:
Dependent (Dec 2019, 5 marks)
Answer:
“Dependant” means any of the following relatives of a deceased insured person, namely,-
(i) a widow, a legitimate or adopted son who has not attained the age of twenty-five years, an unmarried legitimate or adopted daughter. [i(a) a widowed mother].

(ii) if wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of twenty-five years and is infirm;

(iii) if wholly or in part dependent on the earnings of the insured person at the time of his death,-

• parent other than a widowed mother,
• a minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or adopted or illegitimate if married and a minor or if widowed and a minor,
• a minor brother or an unmarried sister or a widowed sister if a minor,
• a widowed daughter-in-law,
• a minor child of a pre-deceased son,
• a minor child of a pre-deceased daughter where no parent of the child is alive, or
• a paternal grandparent if no parent of the insured person is alive.

Question 3.
Write short note on the following terms:
Duties of medical benefit council (Dec 2022, 5 marks)

Descriptive Questions

Question 4.
What are the different purposes for which employees’ state insurance funds may be utilized by the central government? (June 2017, 10 marks)
Answer:
Purposes for which the fund may be expended
Section 28 of the Act provides the Central Government may utilize the State Insurance Fund only for the following purposes:
payment of benefits and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families, the provision of such medical benefits to their families in accordance with the provisions of this Act and defraying the charges and costs in connection therewith;

payment of fees and allowances to members of the corporation, the Standing Committee and the Medical Benefit Council, the Regional Boards, Local, Committees and Regional and Local Medical Benefit Councils;

payment of salaries, leave and joining time allowances, travelling and compensatory allowances, gratuities and compassionate allowances, pensions, contributions to provident or other benefit fund of officers and servants of the corporation and meeting the expenditure in respect of offices and other services set up for the purpose of giving effect to the provisions of this Act;

establishment and maintenance of hospitals, dispensaries and other institutions and the provision of medical and other ancillary services for the benefit of insured persons and, where the medical benefit is extended to their families;

payment of contributions to any State Government, local authority or any private body or individual, towards the cost of medical treatment and attendance provided to insured persons and, where the medical benefit is extended to their families, including the cost of any building and equipment, in accordance with any agreement entered into by the Corporation;

defraying the cost (including all expenses) of auditing the accounts of the Corporation and of the valuation of its assets and liabilities;

defraying the cost (including all expenses) of the Employees’ Insurance Courts set up under this Act;

payment of any sums under any contract entered into for the purpose of this Act by the Corporation or the Standing Committee or by any officer duly authorized by the Corporation or the Standing Committee in that behalf:

payment of any sums under any decree, order or award of any Court or tribunal against the corporation or any of its officers or servants for any act done in the execution of his duty or under a compromise or settlement of any suit or other legal proceedings or claim instituted or made against the corporation;

defraying the cost and other charges of instituting or defending any civil or criminal proceedings arising out of any action taken under this Act;

defraying expenditure, within the limits prescribed, on measures for the improvement of the health, welfare of insured persons and for the rehabilitation and re-employment of insured persons who have been disabled or injured; and

such other purposes as may be authorized by the corporation with the previous approval of the Central Government.

Question 5.
Mention the benefits that are entitled to the insured persons under the Employees’ State Insurance Act, 1948. (Dec 2018, 6 marks)
Answer:
According to Section 46 of the Employees State Insurance Act, 1948 states that the insured persons, their dependents shall be entitled to the following benefits

1. Annual payments to any insured person in case of his sickness
2. Annual payments to an insured woman in case of confinement or miscarriage or sickness arising out of the pregnancy, confinement, premature birth of child or miscarriage
3. Annual payments to an insured person siffering from a disablement as a result of an employment injury sustained as an employee
4. Annual payments to such dependents of an insured person who dies as a result of an employment injury sustained as an employee
5. Medical treatment for and attendance on insured persons
6. Payment to the eldest surviving member of the family of an insured person, who has died, towards the expenditure on the funeral of the deceased insured person; if the injured person at the time of his death does not have a family, the funeral payment will be paid to the person who actually incurs the expenditure.

The amount of such payment shall not exceed such amount as may be prescribed by the Central Government. The claim for such payments shall be made within 3 months of the death of the insured person or within such extended period as the Corporation allows in this behalf.

Question 6.
Mention any seven purposes for which the ESI fund may be expended. (Dec 2019, 7 marks)
Answer:
Section 28 of the Employees State Insurance Act, 1948 provides the Central. Government may utilize the State Insurance Fund only for the following purposes:

• payment of benefits: and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families, the provision of such medical benefit to their
  families in accordance with the provisions of this Act and defraying the charges and costs in connection therewith;
• payment of fees: and allowances to members of the Corporation, the Standing Committee and the Medical Benefit Council, the Regional Boards, Local Committees and Regional and Local Medical Benefit Councils;
• payment of salaries: leave and joining time allowances, travelling and compensatory allowances, gratuities and compassionate allowances, pensions, contributions to provident or other benefit fund of officers and servants of the Corporation and meeting the expenditure in respect of offices and other services set up for the purpose of giving effect to the provisions of this Act;

Question 7.
Mention any seven purposes for which the ESI fund may be expended. (Dec 2019, 7 marks)
Answer:
Section 28 of the Employees State Insurance Act, 1948 provides the Central.
Government may utilize the State Insurance Fund only for the following purposes:
(i) payment of benefits: and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families, the provision of such medical benefit to their families in accordance with the provisions of this Act and defraying the charges and costs in connection therewith;

(ii) payment of fees: and allowances to members of the Corporation, the Standing Committee and the Medical Benefit Council, the Regional Boards, Local Committees and Regional and Local Medical Benefit Councils;

(iii) payment of salaries: leave and joining time allowances, travelling and compensatory allowances, gratuities and compassionate allowances, pensions, contributions to provident or other benefit funds of officers and servants of the Corporation and meeting the expenditure in respect of offices and other services set up for the purpose of giving effect to the provisions of this Act;

(iv) establishment and maintenance of: hospitals, dispensaries and other institutions and the provision of medical and other ancillary services for the benefit of insured persons and, where the medical benefit is extended to their families;

(v) payment of contributions: to any State Government, local authority or any private body or individual, towards the cost of medical treatment and attendance provided to insured persons and, where the medical benefit is extended to their families, including the cost of any building and equipment, in accordance with any agreement entered into by the Corporation;

(vi) defraying the cost: of auditing the accounts of the Corporation and of the valuation of its assets and liabilities;

(vii) payment of any sums: under any contract entered into for the purpose of this Act by the Corporation or the Standing Committee or by any officer duly authorized by the Corporation or the Standing Committee in that behalf;

(viii) payment of sums under any decree, order or: award of any Court or Tribunal against the Corporation or any of its officers or servants for any act done in the execution of his duty or under a compromise or settlement of any suit or other legal proceeding or claim instituted or made against the Corporation;

(ix) defraying expenditure: within the limits prescribed, on measures for the improvement of the health, welfare of insured persons and for the rehabilitation and re-employment of insured persons who have been disabled or injured.

Practical Questions

Question 8.
Attempt the following stating relevant legal provisions and decided case law, it any:
Electronics Ltd. is an establishment covered under the Employees’ State Insurance Act, 1948. The salesmen of the company were paid a commission @ 10 % of the sales done by them every month. The ESI Inspector asked the employer to deposit contributions (the sum of money payable to the ESI Corporation by the principal employer in respect of an employee) in respect of the commission paid. Is he justified? Give reasons. (Dec 2012, 4 marks)
Answer:
According to ESI Act, 1948 wages includes any remuneration paid at intervals not exceeding two months. The employee receives incentives! commission in addition to wages. As the commission is paid every month, the ESI Inspector can ask the employer to deposit contributions.

Employees State Insurance Act, 1948 CMA Inter Law, and Ethics Notes

1. Objective and Scope of Employees’ State Insurance Act

• An act to provide benefits to employees of organised sector.
• Applies to whole of India including Jammu & Kashmir.
• Objective of the act is protect the interest of workers in contingencies such as sickness, disability, maternity or death due to employment injury.
• Amended in 2010 by virtue of ESI (Amendment) Act, 2010 with a view to increase the purview of the Act.
• Applies to employees receiving wages monthly up to 21,000 per month.

2. Dependent
“Dependant” means any of the following relatives of a deceased insured person, namely,-
(i) a widow, a legitimate or adopted son who has not attained the age of twenty-five years, an unmarried legitimate or adopted daughter. [i (a) a widowed mother].

(ii) if wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of twenty-five years and is infirm;

(iii) if wholly or in part dependent on the earnings of the insured person at the time of his death,-

• parent other than a widowed mother,
• a minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or adopted or illegitimate if married and a minor or if widowed and a minor,
• a minor brother or an unmarried sister or a widowed sister if a minor,
• a widowed daughter-in-law,
• a minor child of a pre-deceased son,
• a minor child of a pre-deceased daughter where no parent of the child is alive, or
• a paternal grandparent if no parent of the frisured person is alive.

3. Employment injury

• Employment injury means an injury caused to an employee arising out of and in the course of his employment being an insurable employment.
• Whether the accident occurs within or outside the territorial limits of India.
• Employment injury need not be confined to employer’s premises only.
• It extends to time and place(theory of notional extension).
• It is not limited to injury or wound but has broader coverage.
• There needs to be some nexus (means relation) between the employment and the accident.

Includes

• Injury by knocking the belt of pulley though caused by ignorance of employee himself
• Injury caused by person who was beaten at the job though there was threat pre-announced due to call for strike

Excludes
Accident while on the way to office

4. Types of disablement
(i) Temporary Disablement:
Condition resulting from an employment injury which requires medical treatment and results the employee temporarily incapable.
(ii) Permanent Partial Disablement:
It means such disablement of a permanent nature, as reduced the earning capacity of an employee in every employment which he was capable of undertaking at the time of the accident resulting in the disablement. Provided that every injury specified in Part II of the Second Schedule to the Act shall be deemed to result in permanent partial disablement.

(iii) Permanent Total Disablement:

• It means such disablement of a permanent nature as incapacitates an employee for all work which he was capable of performing at the time of the accident resulting in such disablement.
• Provided that permanent total disablement shall be deemed to result from every injury specified in Part- I of the Second Schedule to the Act or from any combination of injuries specified in Part- II there of, where the aggregate percentage of loss of earning capacity, as specified in the said Part – II against those injuries, amount to 100% or more.

Noteworthy Points:

• The rate of contribution towards the Employees’ State Insurance Fund is 3.25% and 0.75% of employee’s wages by the employers and employees respectively.
• According to ESI Act, 1948 wages includes any remuneration paid at intervals not exceeding two months.
  Factory or establishment to which the Employees’ State Insurance Act,1948 applies has to be registered within 15 days.
• The judge of Employees Insurance Court (EIC)should be either a Judicial Officer or Legal practitioner for at least 5 years.

5. Changes in Employees State Insurance Act, 1948

• Employees must be registered online on the date of appointment; the online system shall allow maximum 10 days to register the new employee.
• Employee will have to collect their Biometric ESI Permanent Card from nearest Branch Office.
• Contribution against employee must be deposited within the due date. One shall not be able to deposit contribution online after 42 days from the end date of the contribution period.
• Exemption from payment of employee’s contribution – The average daily wages during a wage period for exemption from payment of employee’s contribution under section 42 shall be upto and inclusive of rupees one hundred seventy-six only.

Contribution have been reduced:

ESI contribution Rates	Rate (%)
Employer’s Share	3.25
Employee share	0.75
Total ESI Contribution	4

Employees Provident Fund and Miscellaneous Provisions Act, 1952 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Employees Provident Fund and Miscellaneous Provisions Act, 1952 – CMA Inter Law and Ethics Study Material

Descriptive Questions

Question 1.
Explain basic wages under The Employees Provident Fund Act, 1952. Enumerate the items which are not included in it. (June 2014, 3 marks)
Answer:
Basic Wages: As per Section 2(b) of the Employees Provident Funds and Miscellaneous Provision Act, 1952, the term “Basic Wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not includes:

• the cash value of any food concessions;
• any dearness allowance (that is to say all cash payments, by whatever name called, paid to an employee on account of rise in the cost of living), house rent allowance, overtime allowance, bonus, commission or pay and other similar allowance payable to the employee in respect of his employment or of work done in such employment; or
• any presents made by the employer.

Question 2.
State the Salient features of Employees Deposit Linked Insurance as outlined in Employee’s Provident Fund & Miscl Provisions Act, 1952. (Dec 2014, 4 marks)
Answer:
Employees Deposit-linked Insurance Scheme:
1. The Central Government may, by notification in the Official Gazette, frame a scheme to be called the Employees’ Deposit-linked Insurance Scheme for the purpose of providing life insurance benefits to the employees of any establishment or class of establishments to which this Act applies.

2. There shall be established, as soon as may be after the framing of the Insurance Scheme, a Deposit linked Insurance Fund into which shall be paid by the employer from time to time in respect of every such employee in relation to whom he is the employer, such amount, not being more than one per cent of the aggregate of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable in relation to such employee as the Central Government may, by notification in the Official Gazette, specify.

Explanation: For the purposes of this sub-section, the expressions “dearness allowance” and “retaining allowance” have the same meanings as in Section 6.

3. The employer shall pay into the Insurance Fund such further sums of money, not exceeding one-fourth of the contribution which he is required to make under sub-section (2), as the Central Government may, from time to time, determine to meet all the expenses in connection with the administration of the Insurance Scheme other than that expenses towards the cost of any benefits provided by or under that scheme.

4. The Insurance Fund shall vest in the Central Board and be administered by it in such manner as may be specified in the Insurance Scheme.

5. The Insurance Scheme may provide for all or any of the matters specified in Schedule IV.

6. The Insurance Scheme may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in that Scheme.

Question 3.
Answer the question:
A person was declared insolvent and the Court ordered attachment of all his properties. State whether the accumulations in the Provident Fund Account of the person is attachable. (June 2015, 3 marks)
Answer:
According to Sec. 10 of E.P.F. & M.P. Act, 1952 the amount standing to the credit of any member in the fund or of any exempted employee in a fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or order of any Court in respect of any debt or liability incurred by the member or order of any Court in respect of any debt or liability incurred by the member or exempted employee and neither the Official Assignee or any Receiver appointed under respective Acts shall be entitled to or have any claim on any such amount.

The said treatment will also hold good in case of the death of the person and accumulated amount is payable to his nominee.

Question 4.
Answer the question:
Is the amount standing to the credit of a member of the Provident Fund attachable in the execution of decree or order of the Court Examine the law, on this point, laid down in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. (June 2016, 7 marks)
Answer:
Protection against attachment:
Section 10 provides that the amount standing to the credit of any member of the Fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or any court in respect of any debt or liability incurred by the member and neither the official assignee nor any receiver shall be entitled to, or have any claim on, any such amount.

Question 5.
Answer the question:
Employees provident funds and Miscellaneous Provisions Act, 1952 is not applicable to certain establishments. List out those establishments. (Dec 2016, 5 marks)
Answer:
The Employees Provident Fund and Miscellaneous Provisions Act, 1952 does not apply to certain establishments as specified under Section 16 of the said Act.

They are as follows:
(a) Any establishment registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any state relating to co-operative societies employing less than 50 persons and working without the aid of power or
(b) To any establishment belonging to or under the Control of the Central Government or a State Government and whose employees are entitled to the benefit of Contributory Provident Fund or old age pension.
Or
(c) Any other establishment set up under any Central Provincial or State Act and whose employees are entitled to any Contributory provident fund or old age pension.
(d) Any newly set up establishment (less than 3 years).

Central Government having regard to the financial position of any class of establishment or other circumstances of the case may exempt that case of establishment from the operation of this Act for such period as specified in the notification Issued for this purpose.

Question 6.
When can a member withdraw from his National Pension Funds account? (Dec 2017, 5 marks)
Answer:
Withdrawal from the Natiònal Pension Fund Account is allowed for the following purposes-
For the purchase ‘of a dwelling house/flat or for the construction of a dwelling house including the acquisition of a suitable site for this purpose;
For repayment of loans in special cases;
Withdrawal within one year before the retirement; Such withdrawals are not required to be repaid.

Practical Questions

Question 7.
‘A’ on retirement withdrew the entire amount of his accumulation in the Provident Fund. Later on he was appointed for a fixed tenure. Employer disagreed to allow P.F. benefit in view of his retirement and withdrawal of entire amount. Offer your views based on Rule’s position. (Dec 2012, 2 marks)
Answer:
When any employee withdraws all his deposited amount from his provident. fund account, his account is treated as closed and no further benefit can be given to the employee on this account. Hence employer was right.

Question 8.
An inspector appointed under the Employees’ Provident Funds and Miscellaneous. Provisions Act, 1952 takes an inspection at 10 p.m. (five hours after factory timings) and seeks to take copies of the “shareholders Register”. How far under the Act is his action reasonable? (Dec 2013, 3 marks)
Answer:
Under Section 13(2) of the Employees Provident Funds and Miscellaneous Provision Act, 1952, an inspector can inspect and make copies of, take extract from any book, register or other documents maintained in relation to the establishment and where he has reason to believe that any offence under this Act has been committed by an employer seize with assistance as he may think fit, such book, register or other documents or portions thereof as he may consider relevant in respect of that
offence. The register of shareholders is not relevant in any offence mentioned in the Act. He is not justified in taking the copies of such register.

Moreover, he should take copies of documents during working hours. It is unreasonable on his part to take copies at 10.00 p.m. In the present case, the inspector had sought to take copies of the shareholder’s register which is irrelevant to the offence, after the working hours (10.00 pm) which is not reasonable.

Question 9.
Sushi retired from the services of ABC Limited, on 31st March 2014. He had a sum of lo lakhs In his Provident Fund Account. It has become due for payment to Sushil on 30th April 2014, but the company made the payment of the said amount after one year. Sushil claimed for the payment of interest on due amount at the rate of 15 per cent per annum for one year. Decide, whether the claim of Sushil is tenable under the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. (Dec 2015, 3 marks)
Answer:
According to Section 7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the employer shall be liable to pay simple interest @ of 12% per annum or at such high rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment.

However, the higher rate of interest specified in the Scheme cannot exceed the lending rate of interest charged by any scheduled bank. As per above provision, Sushil can claim for the payment of interest on due amount @ 12 per cent per annum or at the rate specified in the Scheme, whichever is higher, for one year. Here in the absence of specified rate Sushil can claim only 12 percent per annum interest on the due amount. Hence, claim of Sushil for interest rate 15% is not tenable.

Repeatedly Asked Questions
Question	Frequency
1. Discuss the different provisions relating to pension fund as per section 23 of the PFRDA Act, 2013. 21 – Dec, 22 – Dec	2 Times

Employees’ Provident Fund And Miscellaneous Provisions Act, 1952 CMA Inter Law, and Ethics Notes

1. Objective and Scope of the Act

• An act to provide for institution of provident funds, pension funds and deposit-linked insurance fund
• Applies to whole of India excluding Jammu & Kashmir.
• Administered by Govt. of India through Employees’ Provident Fund Office.
• Objective of the act is protect the interest of workers and provide to them security in old age.

2. Applicability of the Act

• Factory having 20 or more persons engaged in industry mentioned under Schedule
• Any other establishment to which Central Govt. notifies.

Excludes:

• Co-operative establishments with less than 50 persons and working without power
• Establishment of! under control! under Act of CG/SG where employees are entitled to benefits of provident or pension schemes.

Note:

• Act to apply even if later on number of person reduce to less than 20
• Act to apply even if the unit divides itself and operates as an independent unit

3. Employee for the purpose of the Act
Person employed for wages.
Includes:

• Contract employee
• Apprentice excluding apprentice engaged under Apprenticeship Act
• Part-time employee.

4. Provident Fund (Section 5)

• Every employee working in a factory or establishment shall be entitled and required to be a member from the date of joining onwards.
• Contribution is mandatory.
• 10% of the basic wage, dearness allowance and retaining allowance of an employee to be paid by employer as Employer’s Contribution.
• Employee needs to pay an amount equal to the employer’s contribution.
• Employee may even opt to pay higher, but this cast no obligation on employer.

5. Pension Scheme (Section 6A)
The Central Government framed Employees’ Pension Scheme for the purpose of providing for-

• Superannuation pension;
• Retiring pension or permanent total disablement pension to the employees of any establishment or class of establishments to which this Act applies; and
• Widow or widower’s pension;
• Children’s pension or orphan pension payable to the beneficiaries of such employees.
• The Pension Scheme may provide for all or any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in that behalf in that scheme.

Contribution
There is no contribution from the employee. The employer is to contribute 8.33% of the basic wages, dearness allowance and retaining allowance, if any of the concerned employees as may be specified in the pension scheme. Contribution is not payable when the employee crosses 58 years of age since the scheme ceases on completion of 58 years.

6. Employee Deposit Linked Insurance Scheme (Section 6C)
The Central Government made the Employees’ Deposit Linked Insurance Scheme, 1976 which came into effect from 01.09.1976. It applies to all factories and other establishments to which the Act applies except tea factories in State of Assam.
The wage ceiling limit under Employees Deposit Linked Insurance Scheme has been increased from ₹ 6,500 to ₹ 15,000.
The insurance benefit under the scheme shall be an amount between 2.5 lakhs and 6 lakhs.

7. Withdrawal from the fund
Withdrawal from the fund is allowed for the following purposes-

• For the purchase of a dwelling house/flat or for the construction of a dwelling house including the acquisition of a suitable site for this purpose;
• For repayment of loans in special cases;
• Withdrawal within one year before the retirement;
• Withdrawal up to 75% of the balance, if not employed from one month or more, subject to approval of P.F. Commissioner or any officer authorised by him.
• Such withdrawals are not required to be repaid.

8. Advances from the fund
Advances from the fund are paid for the following purposes-

• For illness in certain cases;
• For marriages or post-matriculation education of children;
• In abnormal conditions such as calamity of exceptional nature such as floods, earthquakes or riots – (non-refundable)
• Granted to members affected by cut in the supply of electricity; (non-refundable)
• Grant of advance to members who are physically handicapped; (non-refundable)

Payment of Gratuity Act, 1972 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Payment of Gratuity Act, 1972 – CMA Inter Law and Ethics Study Material

Short Notes

Question 1.
Write short note on:
Forfeiture of Gratuity. (Dec 2012, 4 marks)
Answer:
Forfeiture of Gratuity:

• Gratuity can be forfeited for any employee whose services have been terminated for any act of violence, wilful omission or negligence causing damage or destruction to the property belonging to the employer.
• It can also be forfeited for any act which constitutes an offence involving moral turpitude.
• Where services have not been terminated on any of the above ground, the employer cannot withhold gratuity due to employee.
• Where the land of the employer is not vacated by the employee, gratuity cannot be with held.

Question 2.
Write short notes on:
Forfeiture (Gratuity Act, 1972) (June 2013, 4 marks)
Answer:
Forfeiture of Gratuity:

• Gratuity can be forfeited for any employee whose services have been terminated for any act of violence, wilful omission or negligence causing damage or destruction to the property belonging to the employer.
• It can also be forfeited for any act which constitutes an offence involving moral turpitude.
• Where services have not been terminated on any of the above ground, the employer cannot withhold gratuity due to employee.
• Where the land of the employer is not vacated by the employee, gratuity cannot be with held.

Descriptive Questions

Question 3.
State the nature of dispute as to gratuity that may be decided by the Controlling Authority. (June 2014, 3 marks)
Answer:
The Controlling Authority may decide the following disputes:

• Dispute as to amount of gratuity payable to an employee under the Payment of Gratuity Act.
• Dispute as to the admissibility of any claim of, or in relation to an employer for payment of gratuity.
• Dispute as to the person entitled to receive gratuity [Sec. 7(4)(a)].

Question 4.
Answer the question:
Under what circumstances the gratuity payable to an employee be forfeited? (June 2016, 8 marks)
Answer:
Forfeiture of Gratuity:
The legal provisions relating to the forfeiture of gratuity are contained in Section 4 (6) of the Payment of Gratuity Act, 1972 and may be summed up as under:
1. The gratuity payable to an employee shall be forfeited where the services of an employee have been terminated due to any act, willful omission or negligence on the part of the employee and employee’s such act etc. has caused:

• damage or loss to the property belonging to the employer, or
• destruction of the property belonging to the employer.

In this case, the gratuity payable to the employee shall be forfeited to the extent of the damage or loss caused to employer’s property due to employees act, omission or negligence [Section 4(6)(a)]

2. The gratuity payable to an employee may be forfeited:

• If the services of such employee have been termìnated for his riotous or disorderly conduct or any other Act of violence on his part, or
• If the services of such employee have been terminated for any Act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. In the above stated cases, the gratuity payable to an employee may be forfeited wholly or partially. [Section 4(6)(b)]

Following judicial decisions are important to note in connection with the forfeiture of gratuity by the employer:

• The right of the employer to forfeit the amount of gratuity can employee whose services were terminated due to any Act, willful omission or negligence causing any damage to the employer’s property is limited to the extent of damage and the proof of such damage. [Permali Wallance Ltd. Vs. State of M.P. (1996) IILLJ 515 (MP)].
• The right of the employer to forfeit the gratuity is available only in the circumstances enumerated in Section 4(6), as stated in points (1) and (2) above, and is not available in any other circumstances as employee’s right to gratuity is the statutory right. (K.C.Mathew Vs. Plantation Corpn. of Kerala Ltd. (2001) LLR 123 (ker.)).
• The refusal by the employees to surrender land belonging to the employer is not a ground for forfeiture of gratuity. (Travancore Plywood Industries Ltd. Vs. Regional Joint Labour Commissioner, (1996)11 LLJ 85 (ker.)).
• In case of termination of services on account of offence involving moral turpitude, the gratuity may be wholly or partially forfeited. In this regard, the Karnataka High Court has held that when an offence of theft under law involves moral turpitude, gratuity stands wholly forfeited in view Of Section 4 (6) of the Act. [Bharat Gas Mines Ltd. Vs. Regional Labour Commissioner (Central) (1987) 70 FJR 11 (Karnataka)].

Question 5.
Answer the question:
Explain the manner in which the gratuity payable to employees in a seasonal establishments is calculated under the Payment of Gratuity Act, 1972. State also the maximum amount of gratuity payable under the Act. (Dec 2016, 5 marks)
Answer:
Seasonal Establishments:
In the case of seasonal establishment the employees can be classified into 2 groups.

• Those who work throughout the year and
• Those who work only during the season.

The former are entitled to get the gratuity at the rate of 15 days wages for every completed year of service or part thereof in excess of 6 months. The latter are entitled to receive gratuity at the rate of 7 days for each season. Under Section 4(3) provides that the amount of gratuity payable to an employee shall not exceed ₹ 20 lakhs.

Question 6.
Discuss the procedure for determination of the amount of gratuity as per Section 7 of the Payment of Gratuity Act, 1972. (Dec 2017, 5 marks)
Answer:
Section 7 prescribes the procedure for determination of the amount of gratuity. As soon as the gratuity becomes payable, the employer shall, whether the employee has made application or not, determine the amount of gratuity. Then he is to give notice to the person to whom the gratuity is payable and also to the Controlling Authority, specifying the amount of gratuity so determined. The notice shall be in Form L.

The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom it is payable. If it is not paid within the stipulated period the employer is liable to pay interest at the rate of 10% per annum. If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.

If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee or legal heir, as the case may be, specifying the reasons why the claim for gratuity ¡s not considered admissible. In either case a copy of the notice shall be endorsed to the controlling authority.

Question 7.
Mr. Gill, an employee of M/s Sonabheel Tea Ltd., continued to occupy the quarter of the company for eight months after superannuation, company decided to forfeit the amount of gratuity of Mr. Gill. Examine the decision taken by the company to forfeit the amount of gratuity in the light of the Payment of Gratuity Act, 1972. (Dec 2018, 5 marks)
Answer:
The gratuity of an employee, whose services have been terminated for any Act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss so caused.

The gratuity payable to an employee may be wholly or partially forfeited:

• if the services of such employee have been terminated for his riotous or disorderly conduct or any other Act of violence on his part or
• if the services of such employee have been terminated for any Act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

It is not a valid ground forfeiture of entire gratuity. In the above case, the company is entitled to charge the quarter rent as per rules and after adjustment of such charges, Mr. Gill is entitled to receive the balance gratuity.

Question 8.
Discuss the procedure for determination of the amount of gratuity. (Dec 2021, 5 marks)
Answer:
Amount of Gratuity:
As per Section 7 of the Payment of Gratuity Act, 1972 provides that the procedure for determination of the amount of gratuity. As soon as the gratuity becomes payable the employer shall whether the employee has made application or not, determine the amount of gratuity.

Then he is to give notice to the person to whom the gratuity is payable and also to the controlling authority, specifying the amount of gratuity so determined.

The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom It is payable. If it is not paid within stipulated period the employer is liable to pay interest at the rate of 10 % per annum.

If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.
If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee or legal heir, as the case may be, specifying the reasons why the claim for gratuity is not considered admissible. In either case a copy of the notice shall be endorsed to the controlling authority.

Question 9.
What is the procedure of determining the amount of gratuity as per the Payment of Gratuity Act, 1972? (Dec 2022, 5 marks)

Practical Questions

Question 10.
Comment on the following based on legal provisions:
Mr. S.K. Paul employed in seasonal establishment and was not employed throughout the year claimed gratuity at the rate of 15 days wages for each year of service. But Employer refused to pay any Gratuity to employees of seasonal establishments. (Dec 2012, 2 marks)
Answer:
Employer shall pay gratuity at the rate of seven days wages for each season to employees who are employed in a seasonal establishment and who are not so employed throughout the year. Wages will include Basic and D.A. Hence Mr. Paul is entitled to Gratuity.

Question 11.
ABC Pvt. Ltd. incorporated on 2nd January 1980 carrying on business from the date of incorporation employing 50 persons. Due to loss, the number of employees reduced to five w.e.f. 02.06.2011. Mr. ‘A’ who retired on 31.05.2013 was refused gratuity on the ground that the total number of employees is below 10 (ten). Whether employer was justified? (June 2013, 3 marks)
Answer: .
The Payment of Gratuity Act, 1972 was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons.

Every employee, other than apprentice irrespective of his wages is entitled to receive gratuity after he has rendered continuous service for five years or more. Gratuity is payable at the time of termination of his service either

• on superannuation or
• on retirement or resignation or
• on death or disablement due to accident or disease. Termination of services includes retrenchment.

However, the condition of five years continuous service is not necessary if services are terminated due to death or disablement. In case of death of the employee, the gratuity payable to hire is to be paid to his nominee, and if no nomination has been made, then to his heirs.

If the Act has become applicable to any establishment, it will continue to be applicable even if the number of persons employed falls below ten or any number as specified by the Central Government.

All the employees irrespective of salary or status are entitled to the payment of gratuity on completion of 5 years of service, in case of death or disablement there is no minimum eligibility period. In the light of above the employer is not justified in refusing gratuity to A.

Question 12.
Anurag was an employee of Coffee Estate Ltd. The whole undertaking of Coffee Estate Ltd. was taken over by a new company Asian Coffee Ltd. The Service of Anurag remained continuous in the new company. After serving for one year, Anurag met with an accident and became permanently disable. Anurag applied to the new company for the payment of gratuity. The company Asian Estate Ltd. refused to pay gratuity on the ground that Anurag has served only for a year in the company. Examine the validity of refusal of the company in the light of the provisions of the Payment of Gratuity Act, 1972. (Dec 2013, 3 marks)
Answer:
According to the Section 4(1) of the Payment of Gratuity Act,1 972, gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years or on his superannuation or, on his retirement or resignation or on his death or disablement due to accident or disease.

The condition of the completion of five years of continuous service is not essential in case of the termination of the employment of any employee due to death or disablement for the purpose of this section.

Disablement means such disablement as incapacities of an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

• The given problem fulfils all the above requirements as stated.
• Therefore, Anurag is entitled to recover gratuity after becoming permanently disabled, and continuous service of five years is not required in this case.
• Hence, the company cannot refuse to pay gratuity on the ground that he has served only for a year.

Question 13.
Mr. Mahavir joined the company on 25.05.1 987 and retired on 30.11.2012 when his salary was INR 70,000 per month. He also received conveyance allowance INR 20,000 per month and average overtime INR 1000 per month, calculate the amount of gratuity. (Dec 2013, 3 marks)
Answer:
He superannuated on 30.11.2012
Joined on 25.05.1987
He is entitled for 25 year 6 months + 5 = 26 years
Amount of gratuity
= \(\frac{15 \times 26 \times 70,000}{26}\)
INR 10,50,000
Maximum ceiling being INR 20,00,000
His gratuity is INR 10,50,000

Question 14.
Ram is employed in Sweet Sugar factory, a seasonal establishment. The factory was in operation for four months only during the financial years 2011-12. Ram was not in continuous service during this period. However, he has worked only 60 days. Referring to the provisions of The Payment of Gratuity Act, 1972, decide whether Ram is entitled to gratuity payable under the Act. Would your answer be the same in case Ram works for 100 days? (June 2014, 2 marks)
Answer:
For entitlement of gratuity, one must work for at least 75% of the days on which the establishment was open and in operation. The factory was in operation for 120 days.

One must work for 75% of 120 i.e. 90 days to claim gratuity. Ram is not entitled to gratuity, since he has actually worked for less than 75% of the number of days on which the establishment was in operation during such period.

If Ram had worked for 100 days, then he would have been entitled to gratuity since the number of days on which he would have worked, in that case, would have been 75% or more of the number of days on which the establishment was in operation.

Payment of Gratuity Act, 1972 CMA Inter Law, and Ethics Notes

1. Objective and Scope of Gratuity Act, 1972

• An act to provide for payment of gratuity to employees engaged in certain establishments.
• Applies to whole of India including Jammu & Kashmir.
• Objective of the act is to provide an old-age retirement social security benefit to an employee at the time of termination of services, a lump sum payment/amount.
• Amended by virtue of Gratuity (Amendment Act), 2018
• Ceiling of gratuity has been enhanced from 10 lakhs to 20 lakhs.

2. Applicability of the Act

• National Pension System
• National Pension System Trust
• Pension Fund
• Point of presence
• Document
• Individual pension Account
• Intermediary
• Central Record keeping Agency
• Regulated Assets
• Securities Appellate Tribunal

3. Employee for the purpose of the Act

• Person employed for wages.
• Excludes:
• Apprentice

Note:
Teachers are to be considered as an employee.

4. Payment of Gratuity

• Gratuity is payable on termination of employment provided he/she has rendered continuous service for a maximum of 5 years
• Gratuity is calculated on the basis of continuous service( for every completed year or part in excess of 6 months), at the rate of 15 days wages last drawn
• Gratuity Payable = Wages x Completed years of service x 15/26

5. Gratuity is payable on

• Retirement or resignation
• Death or disability
• Superannuation

6. Forfeiture of Gratuity
Gratuity forfeited on account of such act, omission or negligence which causes loss, damage or destruction is termed as partial forfeiture of gratuity since the same can be carried out only to the extent of loss, damage or destruction so caused.

As against this, in case the services of an employee get terminated due to violence or riotous act or committing an offence involving moral turpitude in relation to his employment, the same can lead to forfeiture of the whole or part of the gratuity.

If the services of an employee are terminated due to wilful omission or negligence which causes damage to the property of an employer, gratuity can be forfeited to the extent of damage or loss caused. The whole amount cannot be forfeited for wilful omission by employee.

7. Rights and Obligations of the Employer
As soon as the Gratuity becomes payable the employer shall determine the amount of gratuity & shall give the notice to the person to whom the gratuity is payable and to the controlling authority.

The employer shall arrange to pay the amount of gratuity within 30 days of the date of its becoming payable to the person to whom it is payable.

If such amount is not payable within due time, the employer shall pay from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at the rate of 10% per annum.

Factories Act, 1948 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.

Factories Act, 1948 – CMA Inter Law and Ethics Study Material

Short Notes

Question 1.
Write short note on the following term:
Cleanliness of factory (Dec 2017, 5 marks)
Answer:
Section 11 of the Act provides every factory shall be kept clean and free from effluvia arising from any drain, privy or other nuisance, and in particular-

• removal of accumulated dirt and refuse on floors, benches of workroom, stair cases and passages and effective disposal of the same;
• cleaning of the floor of every workroom – once in every week by washing with disinfectant or by some other effective method;
• providing effective drainage for removing water to the extent possible;
• to ensure that interior walls and roofs etc., are kept clean the following is to be complied with whitewash or colour wash should be carried out at least once in every period of 14 months;
• where surface has been painted or varnished, repair or re-varnish should be carried out once in every five years, if washable then once in every period of six months;
• where they are painted or varnished or where they have smooth impervious surfaces, it should be cleaned once in every period of 14 months by such method as may be prescribed.
• all doors, windows and other frameworks which are of wooden or metallic shall be kept painted or varnished at least once in every period of five years,
• The dates on which such processes are carried out shall be entered in the prescribed register.

Question 2.
Write short note on out of the following term:
Manufacturing process under the Factories Act 1948. (June 2018, 5 marks)
Answer:
manufacturing process under the Factories Act, 1948:“Manufacturing Process” means Process for:

• Making, altering, repairing, oiling, washing, cleaning, ornamenting, finishing, packiñg, breaking up, or otherwise treating or adapting any article or substance with a view to its use, sale transport, delivery or disposal, or
• Pumping oil, water, sewage or any other substance or,
• Generating, transforming or transmitting, power, or
• Composing types for printing the letterpress, lithography, photographing, or other similar process or book binding, or
• Constructing, reconstructing, repairing, refitting, or breaking up of ships or vessels; or
• Preserving or Storing any articles in cold storage;

In this regard it becomes necessary to discuss some special circumstances that came up in some court cases:
1. Preparation of food with aid of various electrical appliances in kitchen of a hotel is a manufacturing process: As decided in the case of “Poona Industrial Hotel vs. IC. Sarin, 1980, Lab l.C. 100.

2. Selling of petrol or diesel by a petrol dealer or repairing of motor vehicle will not come within the term “manufacturing process, as noted in the case of: “National Service Centre and Petrol Pump Vs. E.S.I Corporation, 1983 lab I.C. 412 (P. & H.).

3. The work of mere packing cannot be catled as a manufacturing process; (ref. A.l.R. 1955 NUC 27101.

4. The business of sale of diesel oil, motor spirit, lubricant, servicing of cars and lorries, repairing vehicles, and charging batteries with the aid of power, by employing more than 20 workers /labourers amount to manufacturing process, as noted in the case of ‘’Baranagar Service Station Vs. E.S.I Corporation (1987) 1 L.L.N 912 (Cal.) (Divisional Bench). & Lab I.C. 302.

5. Decorticating groundnuts in electric mill is a manufacturing process (A.I.R. 1959 Madras 30).

6. Breaking up of boulders is a manufacturing process – as decided in case of “Larsen & Toubro Vs. State of Crissa, 1992 Lab IC. 1513 (Crissa Divisional Bench).

7. Transportation of goods on contract basis from one place to another by road with the assistance of transport carriers is not a manufacturing process as decided in the case of Regional Director, E.SI.C Vs. Jaihind Roadways, Bangalore (2001 ),1 L.L.J 1187 (Kamataka).

8. Reading the definition of ‘Manufacturing Process’ in the light of Supreme Court in ‘Workmen”, Delhi Electricity Supply Undertaking Vs. management, (1974) 3 S.C.C. 108, the word ‘or’ ¡n Section 2(k) (iii) must be read as ‘and’.

Question 3.
Write short flotes on the following terms:
(d) Annual Leave under the Factories Act, 1948 (June 2019, 5 marks)
Answer:
Annual leave:
Section 79 of The Factories Act, 1948 Provides that every worker who has worked for a period 240 days or more in a factory during a calendar year shall be allowed leave with wages for a number lays calculated at the rate of-

• if an adult, one day for every 20 days of work performed by him during the previous calendar rear
• if a child, one day for every 15 days of work performed by him during the previous calendar year
• The following shall be deemed to be days on which the worker has worked for the purpose of computation of the period off 240 days or more-
• any days of layoff, by agreement or contract or as permissible under the standing orders
• in the case of a female worker, maternity leave for any number of days not exceeding 12 weeks and the leave earned
• In the year prior to that in which the leave is enjoyed.

But the above shall not be entitled for a worker to earn leave. The leave admissible shall be exclusive of all holidays whether occurring during or at either end of the period of leave.
In calculating the leave fraction of leave of half a day or more shall be treated as one full day leave and fraction of less than half a day shall be omitted.

Question 4.
Write Short Notes on Hazardous Process. (Dec 2021, 3 marks)
Answer:
Hazardous Process
Section 2 (CB) of the Factories Act, 1948 defines the expression ‘hazardous process’ as any process or activity in relation to an industry specified in the First Schedule where, unless special care is taken, raw materials used therein orthe intermediate or finished products, bye products, wastes, or effluents thereof would

• Cause material impairment to the health of the persons engaged in or connected therewith, or
• Result in the pollution of the general environment.
• The State Government may, by notification in the Official Gazette, amend the First Schedule by way of addition, omission or variation of any industry, specified in the said Schedule.

Descriptive Questions

Question 5.
(c) Are there any provisions in the Factories Act for protection of eyes of Workmen? (Dec 2012, 2 marks)
(e) (i) Who is ‘Occupier’ (Factories Act)
(ii) State the Duty of the Occupier when a new manager is appointed in the factory. (Dec 2012,2 + 2 = 4 marks)
Answer:
(c) Yes, State Govt. by rules require that effective screens or suitable goggles shall be provided for the protection of eyes of persons employed on or in the immediate vicinity of manufacturing process which involves:

1. Risk of injury to the eyes from particles or fragments thrown off in the course of process or
2. Risk to the eyes by reason of exposure to excessive light.

(e)

• Occupier has been defined in the Factories Act in Section 2(n) as the person who has ultimate control over the affairs of the factory.
• It is also stated further that in case of firm or other association of individuals, any one of the partners or members thereof shall be deemed to be the ‘occupier’.

The Section 2 further states that in case of a company, any of the directors shall be deemed to be the occupier’. The Supreme Court resolved in JK Industries vs Chief Inspector of Factories in 1997 that only a member of Board of Directors of the company can be a occupier’ of the factory of the company. The ultimate control of the factory vests with the BOD of the company and not on anyone else.

Any company which owns a factory cannot nominate its employee or its officer except the director of the company as the occupier of its factory.

(ii) When the new manager is appointed, it is the duty of the occupier to inform the inspector and chief inspector in writing regarding the appointment within seven days of the appointment.

Question 6.
Comment on the following based on legal provisions:
Factories Act, 1948 is applicable to all the factories wherein 50 or more workers are working. (June 2013, 2 marks)
Answer:
Factories Act, 1948 is applicable to factory which is defined as: Factory:
means any premises including its precincts (means zone, sector, ground, division, area. Precinct means any area enclosed by wall.)
where

• Ten or more workers are working or were working on any day ot the preceding twelve months, in a manufacturing process which is carried on with the help of power Or
• twenty or more workers are working or were working in any day of the preceding twelve months, in a manufacturing process which is carried on without the help of power.

Question 7.
As per Factories Act, adequate shelters, rest rooms, and lunch rooms are mandatory in all the factories. Do you agree? Give correct answer. (June 2013, 2 marks)
Answer:
The occupier is required to provide suitable shelters or rest rooms and a suitable lunch rooms with provision of drinking water, in his factory if more than one hundred and fifty workers are ordinarily employed in it.

Question 8.
Does a laundry attached to the hospital (main Institution) used for washing linen used in the hospital is factory within the meaning of the Factories Act, 1948? (June 2014, 3 marks)
Answer:
When hospital is not a factory, it is obvious that any department of hospital cannot be treated as factory.
In Dr. PSS Sundar Rao, GS y Inspect or of Factories Vellore 1984 LLJ 237 Mad, the question was whether a laundry attached to the Christian Medical College and Hospital, Vellore is Factory within the meaning of this Act.
The Madras High Court held that the laundry run by the hospital cannot be separated from the main Institution. In order to ensure high degree of hygienic standard the Hospital is having its own laundry for washing the linen used in the hospital.

Therefore, laundry is only subsidiary, minor or incidental establishment of the hospital which is not a factory.

One department of the Hospital established for the efficient functioning of the Hospital cannot be therefore be disjoined from the main Institution and termed to be a factory.

The paramount or the primary character of the main Institution alone has to be taken into consideration and when the main Institution is not a factory; a department thereof cannot become so, even though a manufacturing process is carried on there.

Question 9.
Answer the question:
(iii) Explain the right of workers to warn about imminent danger under the Factories Act, 1948. (June 2015, 3 marks)
Answer:
As per Section 41 H of the Factories Act, 1948, it is the right of workers to warn about imminent danger
1. Where the workers employed in any factory engaged in a hazardous process have reasonable apprehension that there is a likelihood of imminent danger to their lives or health due to any accident, they may bring the same to the notice of the occupier, agent, manager or any other person who is in charge of the factory or the process concerned directly or through their representatives in the safety committee and simultaneously bring the same to the notice of the Inspector.

2. It shall be the duty of such occupier, agent, manager or the person in-charge of the factory or process to take immediate remedial action if he is satisfied about the existence of such imminent danger and send a report forthwith the action taken to the nearest Inspector.

3. If the occupier, agent manager or the person in charge referred to in sub-section (2) is not satisfied about th existence of any imminent danger as apprehended by the workers, he shall, nevertheless, refer the matter forthwith to the nearest Inspector whose decision on the question of the existence of such imminent danger shall be final.

Question 10.
Answer the question:
Employees of an electricity generation station claimed that their unit is covered under the definition of ‘factor considering the process of transforming and transmission of electricity generated at the power station as a ‘manufacturing process’. Will their claim succeed under Factories Act, 1948. (Dec 2016, 6 marks)
Answer:
As per Section 2(k) of the Factories Act, 1948, manufacturing process means any process for:

• Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to Its use, sale, transport, delivery or disposal, or
• Pumping oil, water, sewage or any other substance; or;
• Generating, transforming or transmitting power; or
• Composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;
• Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
• Preserving or storing any article in cold storage; Process is undertaken at electricity generating station, Sub-station is transferring and transmitting electricity is not a manufacturing process and are not thus factory- [Delhi Electricity Supply Undertaking vs. Management of DESU, AIR(1973)SCC 365].

Question 11.
What are the responsibilities of an occupier in a factory? (June 2017, 5 marks)
Anew:
Responsibility of the occupier.
The occupier has to follow the procedure:

• to lay down a detailed policy with respect to the health and safety of the workers;
• to disclose all the information regarding dangers including health hazards and the measures to overcome such hazards arising from the exposure to or handling of the materials or substances in the manufacture, transportation, storage and other processes to the workers employed in the factory;
• to draw up an onsite emergency plan and detailed disaster control measures for the factory and make known to the workers and to the general public long in the vicinity of the factory, the safety measures required to be taken in the event of accident taking place.
• to lay down measures for the handling usage, transportation, and storage of hazardous substances inside the factory premises and the disposal of such substances outside the factory premises and publicize them in the manner prescribed among the workers and the general public living in the vicinity.

Section 41 C provides that the occupier is having specific responsibilities in relation to hazardous processes. He has to maintain the health records of the employees. He is to appoint experienced persons who possess specified qualifications in handling hazardous substances and competent to supervise such handling within the factory.

Question 12.
Critically examine the duties of certified surgeons under the Factories Act, 1948. (June 2018, 8 marks)
Answer:
Section 10 under the Factories Act, 1948 provides that the State Government may appoint qualified medical practitioners to be certifying surgeons for the purposes of this Act within such local limits or for such factory or class or description of factories as it may assign to them respectively. The duties of certified surgeons are as follows-

• the examination and certification of young persons;
• the examination of person engaged in factories in such dangerous occupations or processes as may be prescribed;
• the exercising of such medical supervision as may be prescribed for any factory or class or description of factories, where –

cases of illness have occurred which it is reasonable to believe are due to the nature of the manufacturing process carried on, or other conditions of work prevailing, therein;

by reason of any change in the manufacturing process carried on or in the substances used therein or by reason of the adoption of any new manufacturing process or of any new substance for use in a manufacturing process, there is a likelihood of injury to the health of workers employed in that manufacturing process;
young persons are, or are about to be, employed in any work which is likely to cause injury to their health.

Question 13.
Discuss the welfare measures to be taken in a factory for the workmen employed therein as per the Factories Act, 1948. (Dec 2019, 8 marks)
Answer:
The following are the welfare measures prescribed in the Factories Act, 1948 to be provided by the factory to their workmen:
1. Washing facilities
As per Section 42 provides that in every factory adequate and suitable facilities for washing shall be provided and maintained for the use of the workers. Separate and adequately screened facilities shall be provided for the use of male and female workers.

2. Facilities for storing and drying clothing
Section 43 provides that the State Government may, in respect of any factory or class or description of factories, make rules requiring the provision therein of suitable places for keeping clothing not worn during working hours and for the drying of wet clothing.

3. Facilities for sitting
Section 44 provides that suitable arrangements for sitting shall be provided and maintained for all workers obliged to work in a standing position, in order that they make take advantage of any opportunities for rest which may occur in the course of their work.

4. First aid appliances
Section 45 provides that first aid appliances shall be provided and maintained so as to be readily accessible during all working hours or cupboards equipped with the prescribed contents and the number of such boxes or cupboards to be provided and maintained shall not be less than for every 150 workers at any one time in the factory.

5. Canteens
Section 46 provides that if more than 250 workers are employed in a factory a canteen or canteens shall be provided and maintained by the occupier for the user of the workers. The items of expenditure in the running of the canteen which are not to be taken into account in fixing the cost of foodstuffs shall be borne by the employer.

6. Shelters, rest rooms, and lunch rooms
Section 47 provides that if more than 150 workers are employed adequate and suitable shelters or rest rooms and a suitable lunch room with provision for drinking water shall be provided and maintained for the use of the workers.

7. Creches
Section 48 provides that if more than 30 women workers are employed there shall be provided and maintained a suitable room for the use of children under the age of 6 years of such women. The same shall be adequately ventilated and shall be maintained in clean and sanitary conditions and under the charge of women trained in the care of children and infants.

8. Welfare Officers
Section 49 provides that if 500 or more than workers are employed in a factory, the occupier shall employ in the factory such number of welfare officers as may be prescribed.

Question 14.
Discuss the different powers that can be exercised by an inspector under the Factories Act. (Dec 2021, 7 marks)
Answer:
As per section 8 of the Factories Act, 1948 provides that the government may appoint a person possessing the prescribed qualifications to be inspector for the purpose of this Act and may also assign local limits as may be think fit by the said government.
As per Section 9 of the Factories Act, 1948 the following powers can be exercised by the inspector:

• He may enter to any place which is used, or which has reason to believe is used as a factory,
• He can examine the premises, plant, machinery, article or substance,
• He may inquire into any accident or dangerous occurrence whether resulting in bodily injury, disability or not take on the spot statements of any person which he may consider necessary for such inquiry,
• He can require the production of any document relating to factory,
• He may seize or take copies of any register, record or other documents of any portion thereof as he may consider necessary,
• He can take possession of any article or substance or part thereof and detain it for so long as is necessary for suct examination
• He can exercise any such other powers as may be prescribed.

Question 15.
Discuss the powers of an inspector appointed by the State Government as prescribed in the Factories Act, 1948. (Dec 2022, 9 marks)

Practical Questions

Question 16.
Answer the question:
ABC Ltd. carrying manufacturing activities with aid of power and with eight workers for last two years ending on 31.03.2014. Three more workers were appointed on 01.04.2014, two workmen left the company on 30.04.2014. Thereafter no workman was employed nor any workmen left. Mr. Basant, one of the workmen demanded that Factories Act, 1948 shall be applicable to this company but the management denied. Give your opinion. (Dec 2015,3 marks)
Answer:
According to Sec. 2 (m) of the Factories Act, 1948, ‘factory’ means any premises including the precincts thereof:

• Where in 10 or more workers are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
• Where in 20 or more workers are working or were working on. any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on. In the given case, during the period 01.04.2014 to 30.04.2014, there were 11 workers carrying manufacturing activities with aid of power. So, the Factories Act, 1948 is applicable on ABC Ltd. Mr. Basant is correct.

Repeatedly Asked Questions
Question	Frequency
1. Discuss the powers of an inspector appointed by the State Government as prescribed in the Factories Act, 1948. 21 – Dec, 22 – Dec	2 Times

Factories Act, 1948 CMA Inter Law, and Ethics Notes

1. Objective and Scope of Factories Act, 1948

• An Act to consolidate and amend the laws regulating labour an factories.
• Applies to whole of India including Jammu & Kashmir.
• Objective of the Act is to ensure safety measures and promote health and welfare of factory workers.

2. What is Factory as per the Act

• Factory includes any premises including the precincts thereof, where or 10 or more workers are working for any of the day in the preceding 1 months to carry any manufacturing process with the aid of power OR 20 or more in case the manufacturing process is carried without power.
• Excludes mines, unit of armed forces, railway running shed, hotel, restaurants or eating places.
  Premises including precincts enlarges the scope.
• Factory includes all the length of railway line, company engaged in construction of railway line.
• Open land engaged in the conversion of seawater into crystals of salt will be regarded as Factory.
• Seasonal factories like sugarcane etc. will continue to remain as factory during the off-season.

3. What is manufacturing process as per the Act
The term manufacturing process mean’s any process for

• Making, altering, repairing, oiling, ornamenting, fishing, packing, washing, clearing, breaking, demolishing or otherwise treating any article with a view to use, for sale, disposal or delivery;
• Generating, transforming, transmitting powers
• Pumping oil, water or sewage
• Printing, composing types for printing or bookbinding
• Repairing, constructing, fishing, etc of vessels or ships
• Preserving or storing in cold storage.

Includes the following:

• Laundry
• Carpet beating
• Process involved for pumping water
• Stitching bags
• Conversion of latex into rubber
• Conversion of seawater into salt
• Tracing and adapting on raw film
• Packing and packaging into smaller units
• Processes like moistening, stripping, breaking up, adaption, and packing of tobacco for use in manufacture of cigarettes

Excludes the following:

• Transforming and transmitting electricity
• Training Institute
• Exhibition of film

4. What is worker as per Factories Act, 1948 As per Sec. 2(1) of Factories Act, 1948, the definition of worker has following ingredients:
Person should be employed:

• There should exist an employer-employee relationship
• Employers not just to control what work to be done but also the manner in which the same shall be done.
• Relationship of master and servant not necessary.
• Piece-rated workers who work on regular basis shall be treated as ‘workers’.
• Partner or independent contractor cannot be regarded as worker.

Employment to be direct or through some agency:

• Employment should be directly by the management or through employment agency.
• There should exist a privity of contract.

Employment should be in some manufacturing process:
Includes in its purview people directly involved in manufacturing process but also incidental to manufacturing process.

Includes:

• People working in canteen
• Munim in a factory.

Employment may be for remuneration or not

• Includes
• Apprentice
• Honorary worker
• Person employed on price work basis
• Person employed for no wages.

5. Enforcement of Factories Act, 1948
State Government is responsible for enforcement of the Act.
State Government carries administration of the Act through:

• Inspecting Staff
• Certifying Surgeons
• Welfare Officers
• Safety Officers
• Welfare officer to be appointed wherein 500 or more workers are employed
• Safety officer to be appointed wherein 1000 or more workers are employed

6. Occupier & his Role under the Factories Act, 1948
Occupier as per Section 2(n) means a person who has the ultimate control over the affairs of the factory. Occupier of the factory needs to give a notice to Chief Inspector:

• 30 days before date of resumption of seasonal factories
• 15 days before date of use of premises by occupier

Where new manager is appointed, occupier to intimate within:
7 days of appointment

Contents of Notice:

• Name and address of factory
• Name and address of occupier
• Name and address of owner
• Name of manager
• Address of communication
• Number of Workers
• Nature of manufacturing work
• Total power installed

Occupiers should ensure worker’s:

• Health
• Safety and
• Welfare
• He should make a written statement of the policy adopted by him with respect to the aforesaid points (health, etc.) and even make the workers aware about the same.

He shall provide:

• Proper maintenance of the plants so as to ensure that they are safe.
• Safety arrangement with regards to use, handling, and transportation of substances.
• Training and supervision.
• Safe access to all places of work in the factory.
• Adequate facilities and arrangements for welfare of the workers in the factory.

7. Working hours as per Factories Act, 1948

• Adult worker to work for 48 hours a week.
• Cannot be made to work for more than 9 hours a day.
• In case of work exceeding 9 hours, overtime at twice the normal rate needs to be given.
• Needs to be given at least half an hour break after continuous 5 hours of work.
• There shall be one holiday every week.
• No adult worker shall work for consecutively 10 days.
• Child who has not completed 14 years of age shall not be employed in factory.
• Where a worker has worked for 240 days, adult worker shall be entitled to leave for 20 days.