CA Inter Law Question Paper May 2022

CA Inter Law Question Paper May 2022 – CA Inter Law Study Material is designed strictly as per the latest syllabus and exam pattern.

CA Inter May 2022 Law Question Paper

Question 1.
(a) MNP Limited is a registered public company having the following members: [3 + 3]

i	Directors and their Relatives	18
ii	Employees	26
iii	Ex – Employees (Shares were allotted during employment)	15
iv	Members holding shares jointly (7 × 2)	14
v	Other Members	137

The Board of Directors of MNP Limited proposes to convert the company into a private limited company. Referring the provisions of the Companies Act, 2013, /advise:
(i) Whether the company can be converted into a private company?
(ii) Whether existing number of members need to be reduced for the proposed private company?
Answer:
Conversion from public company to private company:
As per Sec. 2(68) of the Companies Act, 2013, “Private Company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles, except in case of OPC, limits the number of its members to 200.

However, where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member.

It is further provided that –
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members.

In the instant case, MNP Limited may be converted into a private company only if the total members of the company are limited to 200. Total Number of members, for this purpose are computed as below:

(i)	Directors and their relatives	50
(ii)	Joint Shareholders (7*1)	5
(iii)	Others	137
	Total	192

Conclusion: Based on the above stated provisions, following conclusions may be drawn:

Company can be converted into a private company.
There is no need for reduction in the number of members since existing number of members does not exceed maximum limit of 200.

(b) (i) SKIP Limited (the Company) was incorporated on 1.04.2019. The balances extracted from its audited financial statement are as given below: [3]

Financial Year	Net Profit before tax	Net Profit after tax (Ignore Income Tax Computation)
2019-20	₹ 5.00 Crore	₹ 3.75 Crore
2022-21	₹ 7.00 Crore	₹ 5.25Crore

The Company proposes to allocate the minimum required amount for CSR Activities to be undertaken during FY 2021-22, if it is mandatory. You are requested to advice the Company in this regard and compute the minimum amount to be allocated, if so required, taking into account the relevant provisions of the Companies Act, 2013.
Answer:
Amount to be allocated for CSR:
As per Sec. 135(1) of the Companies Act, 2013, every company having net worth of ₹ 500 crore or more, or turnover of ₹ 100 crore or more, or a net profit of ₹ 5 crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board.

As per Sec. 135(5) of the Companies Act, 2013, the Board of every company referred in Sec. 135(1), shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years or where the company has not completed the period of 3 financial years since its incorporation, during such immediately preceding financial years, in pursuance of its CSR Policy.

Conclusion:

In the given case, net profit of the company for immediately preceding financial year is ₹ 7 crore, hence the provisions of CSR are applicable over the company.
As the company has not completed 3 financial years since its incorporation, hence average of preceding 2 financial years is to be considered for CSR spending.
Amount to be allocated for this purpose will be ₹ 12 lakh [2% of Average profits of preceding two FYs, ₹ 5 crore + ₹ 7 crore/2 = ₹ 6 crore]

(ii) SKS Limited issued 8% 1,50,000 Redeemable Preference Shares of 1100 each in the month of May, 2010, which are liable to be redeemed within a period of 10 years. Due to the Covid-19 pandemic, the Company is neither in a position to redeem the preference shares nor to pay dividend in accordance with the terms of issue. The Company with the consent of Redeemable Preference Shareholders of 70% in value, made a petition to the Tribunal [NCLT) to accord approval to issue further redeemable preference shares equal to the amount due. Will the petition be approved by the Tribunal in the light of the provisions of the Companies Act, 2013?

Can the company include the dividend unpaid in the above issue of redeemable preference shares? [3]
Answer:
Redemption of Preference Shares:
As per Sec. 55 of the Companies Act, 2013, where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may:

with the consent of the holders of 3/4th in value of such preference shares, and
with the approval of the Tribunal on a petition made by it in this behalf,
issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.

The Tribunal shall, while giving approval, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares.

In the given case, company with the consent of Redeemable Preference Shareholders of 70% in value, made a petition to the Tribunal [NCLT] to accord approval to issue further redeemable preference shares equal to the amount due.

Conclusion: Petition will not be approved by the Tribunal as the consent of the holders of 3/4th in value of such preference shares is not taken.

Company can include the dividend unpaid in the above issue of redeemable preference shares, subject to consent of the holders of 3/4th in value of such preference shares.

(C) (i) Ramu has given authority to Prem to buy certain goods at the market rate. Prem buys the goods at a higher rate than the market rate. However, Ramu accepted the purchase inspite of higher rate. Afterwards, Ramu comes to know that the goods purchased belonged to Prem himself. Decide, whether, Ramu is bound by ratification done? [2]
Answer:
Ratification of Agency:
As per Sec. 198 of the Indian Contract Act, 1872, for a valid ratification, the person who ratifies the already performed act must have clear knowledge of the facts of the case. If the principal’s knowledge is materially defective, the ratification is not valid and hence no agency.

In the given case, Ramu has given authority to Prem to buy certain goods at the market rate. Prem buys the goods at a higher rate than the market rate. However, Ramu accepted the purchase inspite of higher rate. Afterwards, Ramu comes to know that the goods purchased belonged to Prem himself.

Conclusion: Ramu is not bound by ratification done.

(ii) Hari, authorises Bharat, a merchant in Mumbai, to recover dues from Bankey & Co. Bharat instructs Deepak, a solicitor, to take legal proceedings against Bankey & Co. for recovery of the money. Explain the legal position of Deepak, referring provisions of the Indian Contract Act, 1872, related to agency. [2]
Answer:
Relation between Principal and person duly appointed by Agent to act in business of Agency:
As per Sec. 194 of the Indian Contract Act, 1872, where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

In the given case, Hari, authorises Bharat, a merchant in Mumbai, to recover dues from Bankey & Co. Bharat instructs Deepak, a solicitor, to take legal proceedings against Bankey & Co. for recovery of the money.

Conclusion: Deepak is not a sub-agent, but is a solicitor for Hari.

(d) Examine the validity of the following statements with reference to the Negotiable Instruments Act, 1881. [3]

When payment on an instrument is made in due course, both the instrument and the parties to it are discharged.
Alteration of rate of interest specified in the Promissory Note is not a material alteration.
Conversion of the blank indorsement into an indorsement in full is not a material alteration and it does not require authentication.

Answer:
Validity of Statements with reference to the Negotiable Instruments Act, 1881:

Statement is valid. As per Sec. 78, when payment on an instrument is made in due course, both the instrument and the parties to it are discharged subject to the provision of Sec. 82(c). The payment on an instrument may be made by any party to the instrument. It may even be made by a stranger provided it is made on account of the party liable to pay.
Statement is not valid. Alteration of rate of interest specified in the Promissory Note is considered as a material alteration.
Statement is partially valid. Conversion of the blank indorsement into an indorsement in full is a material alteration, but it is authorised by the Act and does not require authentication.

Question 2.
(a) (i) Beauty Limited obtained a working capital loan from a Nationalized Bank against the hypothecation of Stocks & Accounts receivable of the Company. An instrument creating the charge was duly signed by the Company and the Bank. The Company is not willing to register the charges with the Registrar of Companies. In the light of the provisions of the Companies Act, 2013, discuss: [4]
(i) Is there any provision empowering the Nationalized Bank (charge holder) to get the charges registered?
(ii) When can the Registrar refuse to register the charges in the present scenario?
Answer:
Registration of Charge by Chargeholder:
(i) As per Sec. 78 of the Companies Act, 2013, where a company fails to register the charge within the period of 30 days, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed.

The Registrar may, on such application, within a period of 14 days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed.

(ii) Registrar shall not allow such registration by the charge-holder, if the company itself registers the charge or shows sufficient cause why such charge should not be registered.

(ii) ABC Ltd. has declared dividend of ₹ 2/- per equity share in the general meeting. Mr. Suresh is holding 5000 equity shares of ₹ 10 face value each, on which ₹ 10,000 towards call money is due. Whether the dividend amount payable to him be adjusted against such dues as per the provisions of the Companies Act, 2013? Give reasons for your answer.
Answer:
Adjustment of Dividend against call money:
As per the proviso to Sec. 127 of the Companies Act, 2013, no offence will be said to have been committed by a director for adjusting the calls in arrears remaining unpaid or any other sum due from a member from the dividend as is declared by a company.

In the given case, Mr. Suresh is holding 5000 equity shares of face value of ₹ 10 each and has not paid an amount of ₹ 10,000 towards call money on shares. Mr. Suresh is entitled for dividend of ₹ 10,000, but this amount can be adjusted towards call money due on his shares.
Conclusion: Company can adjust sum of ₹ 10,000 due towards call money on shares against the dividend amount payable to Mr. Suresh.

(b) XYZ Ltd. received a communication from Central Government for preparation of periodical financial results and complete audit or limited review of such periodical financial results. The Board of Directors have raised an objection on the ground that as, it is an unlisted company, periodical financial results need not to be prepared. Examine, referring the provisions of the Companies Act, 2013, in this regard. [4]
Answer:
Periodical Financial results:
As per Sec. 129A of the Companies Act, 2013, the C.G. may, require such class or classes of unlisted companies, as may be prescribed:
(a) to prepare the financial results of the company on such periodical basis and in such form as may be prescribed;
(b) to obtain approval of the Board of Directors and complete audit dr limited review of such periodical financial results in such manner as may be prescribed; and
(c) file a copy with the Registrar within a period of 30 days of completion of the relevant period with such fees as may be prescribed.

In the given case, XYZ Ltd. received a communication from Central Government for preparation of periodical financial results and complete audit or limited review of such periodical financial results. The Board of Directors have raised an objection on the ground that as, it is an unlisted company, periodical financial results need not to be prepared.

Conclusion: Objection of the Board of Directors is not tenable as provisions of Sec. 129A relating to periodical financial results are applicable in case of unlisted companies.

Creditor should proceed legal action first against the Principal Debtor and later against the surety.
A guarantee which extends to a single debt/specific transaction is called continuing Guarantee.
Variation which is not material and beneficial to the surety will not discharge him of his liability.
If the bailee does not use the goods according to the terms and conditions of bailment, the contract of bailment becomes void.

Answer:

Statement is not valid. The creditor has a right to sue the surety directly without first proceeding against principal debtor.
Statement in not valid. A guarantee which extends to a single debt/specific transaction is called a specific guarantee. A guarantee which extends to a series of transaction is called a continuing guarantee
Statement is valid. Variation which is not substantial or material or which is beneficial to the surety will not discharge him of his liability.
Statement is not valid. A contract of bailment is voidable at the option of the bailor, if the bailee does not use the goods according to the terms and conditions of bailment.

(d) Healthcare Services Limited (the Bidder), bids the tender floated by Super Care Hospital (the Tenderer), attaching a cheque dated 1.04.2021 for ₹ 5,00,000/ towards earnest money deposit Since the tender process was extended, the Tenderer returned the cheque expiring on 30.06.2021 to the Bidder for its resubmission after having revalidated by changing the date of the cheque to 1,07.2021. Accordingly, the revalidated cheque was resubmitted by the Bidder to the Tenderer. The cheque presented by the Tenderer to the banker. It was dishonoured by the bank. Examine, whether, the cheque altered with a new date shall be deemed a valid cheque binding the Bidder for payment as per the Negotiable Instruments Act, 1881? [5]
Answer:
Validity of a Negotiable instruments in case of material alteration:
As per Sec. 87 of the Negotiable Instruments Act, 1881, any material alteration of negotiable instruments renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties.

However, the party who consents to the alteration as well as the party who makes the alteration are disentitled to complain against such alteration e.g. the drawer of the cheque himself altered the date of the cheque for validating or revalidating the same instrument, he cannot take advantage of it by saying that the cheque becomes void as there was a material alteration thereto. It is always open to a drawer to voluntarily revalidate a negotiable instrument including a cheque.

In the given case, Healthcare Services Limited (the Bidder), bids the tender floated by Super Care Hospital (the Tenderer), attaching a cheque dated 1.04.2021 for ₹ 5,00,000/- towards earnest money deposit. Since the tender process was extended, the Tenderer returned the cheque expiring on 30.06.2021 to the Bidder for its resubmission after having revalidated by changing the date of the cheque to 1.07.2021. Accordingly, the revalidated cheque was resubmitted by the Bidder to the Tenderer. The cheque presented by the Tenderer to the banker. It was dishonoured by the bank.

Conclusion: Cheque altered with a new date shall be deemed a valid cheque binding the Bidder for payment.

Question 3.
(a) As per the financial statement as on 31.03.2021 the Authorized and Issued share capital of Manorama Travels Private Limited (the Company) is of ₹ 100 lakh divided into 10 lakh equity shares of ₹ 10 each. The subscribed and paid-up share capital on that date is ₹ 80 lakh divided into 8 lakh equity shares of ₹ 10 each. The Company has reduced its share capital by cancelling 2 lakh issued but unsubscribed equity shares during the financial year 2021-22, without obtaining the confirmation from the National Company Law Tribunal (the Tribunal). It is noted that the Company has amended its Memorandum of Association by passing the requisite resolution at the duly convened meeting for the above purpose. While filing the relevant e-form the Practicing Company Secretary refused to certify the Form for the reason that the action of the Company reducing the share capital without confirmation of the Tribunal is invalid.

In light of the above facts and in accordance with the provisions of the Companies Act, 2013, you are requested to (i) examine, the validity of the decision of the Company and contention of the practicing company secretaiy and (ii) state, the type of resolution required to be passed for amending the capital clause of the Memorandum of Association. [5]
Answer:
Alteration of Share Capital:
As per Sec. 61 of the Companies Act, 2013, a limited company having a share capital is empowered to alter its capital clause of the Memorandum of Association. In accordance with Sec. 61(1)(e), a limited company having a share capital may, if so, authorised by its articles, alter its memorandum in its general meeting by cancelling 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. The cancellation of shares shall not be deemed to be a reduction of share capital.

In the given case, company has reduced its share capital by cancelling 2 Lakh issued but unsubscribed equity shares during the financial year 2021-22, without obtaining the confirmation from the National Company Law Tribunal (the Tribunal).

Conclusion: Based on the above discussion, following conclusions may be drawn:

Decision of the Company to alter the capital clause without obtaining confirmation of NCLT is valid and contention of the practicing company secretary is not tenable.
Ordinary resolution will be required to be passed for amending the capital clause of the Memorandum of Association.

(b) The Board of Directors of ABC Limited are proposing to raise funds from the public through issue of equity shares. However due to volatile financial markets, the price per share and the number of shares to be issued are left open and to be decided post closure of the issue. As a financial advisor of the company, what would you suggest to the Board in this regard as per the provisions of the Companies Act, 2013? [4]
Answer:
Raising funds through red herring Prospectus:
As the price per share and the number of shares to be issued are left open and to be decided post closure of the issue, company is advised to raise funds through issue of red herring prospectus. A prospectus which does not include complete particulars of the quantum or price of the securities included therein is known as red herring prospectus. Provisions relating to issue of red herring prospectus are covered u/s 32 of the Companies Act, 2013 and stated as below:

A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.
A company proposing to issue a red herring prospectus shall file it with the Registrar at least 3 days prior to the opening of the subscription list and the offer.
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.
Filing of Final Prospectus with Registrar and SEBI: 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 SEBI.

(c) ‘A’ draws a cheque for t 5,000 in favour of ‘B’. ‘A’ had sufficient funds in his bank account to meet it, when the cheque ought to be presented in the bank. The bank fails before the cheque is presented.

‘B’ wants to claim it from ‘A’. Decide, whether ‘A’ is liable as per the Negotiable Instruments Act, 1881. [3]
Answer:
Discharge by the drawer not duly presenting a cheque for payment:
As per Sec. 84 of the Negotiable Instruments Act, 1881, cheque should be presented to Bank within reasonable time. If cheque is not presented within reasonable time, meanwhile the drawer suffers actual damage, the drawer is discharged to the extent of such actual damage. This would be so if the cheque would have been passed if it was presented within reasonable time.

In determining what is a reasonable time, regard shall be had to (a) the nature of the instrument (b) the usage of trade and of bankers, and (c) facts of the particular case.

The drawer will get discharge, but the holder of the cheque will be treated as creditor of the bank, in place of drawer. He will be entitled to recover the amount from Bank.

Conclusion: In the given case drawer i.e. A has suffered damage as cheque was not presented by B within reasonable time. Hence, A will be discharged but B will be the creditor of bank for the amount of cheque and can recover the amount from the bank.

(d) Explain the provision related to ‘Effect of Repeal’ as per the General Clauses Act,1897. [3]
Answer:
Effects by repeal of an existing Act by central legislation:
As per Sec. 6 of the General Clauses Act, 1897, where any Central legislation or any regulation made after the commencement of this Act repeals any Act made or yet to be made, unless another purpose exists, the repeal shall not:

Revive anything not enforced or prevailed during the period at which repeal is affected or;
Affect the prior management of any legislation that is repealed or anything performed or undergone or;
Affect any claim, privilege, responsibility or debt obtained, ensued or sustained under any legislation so repealed or;
Affect any punishment, forfeiture or penalty sustained with regard to any offence committed as opposed to any legislation or
Affect any inquiry, litigation or remedy with regard to such claim, privilege, debt or responsibility or any inquiry, litigation or remedy may be initiated, continued or insisted.

Question 4.
(a) (i) ABC Private Ltd. has two wholly owned subsidiary companies, D Private Limited and E Private Limited. Examine, whether, D Private Limited and E Private Limited will be treated as related party as per the provisions of the Companies Act, 2013? [3]
Answer:
Related Parties:
As per the section 2{76)(viii), related party with reference to a company, means any body corporate which is:
(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary; or
(C) an investing company or the venturer of the company.

However, clause (viii) shall not apply with respect to Sec. 188 to a private company.

Conclusion: D Pvt. Ltd. and E Pvt. Ltd. are not related parties for the purpose of Sec. 188. However, if D Pvt. Ltd. and E Pvt. Ltd. have common directors, then they will be deemed to be related parties because of section 2(76)(iv).

(ii) Sapphire Private Limited has registered its articles along with memorandum as on 1st July, 2021. The directors of the company seek your advice regarding effect of registration of the company, on the company itself and on its members. [3]
Answer:
Effects of Registration of a company:
As per Sec. 9 of the Companies Act, 2013, from the date of incorporation (mentioned in the certificate of incorporation), the subscribers to the memorandum and all other persons, who may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum.

Such a registered company shall be:

capable of exercising all the functions of an incorporated company under this Act and
having perpetual succession with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and
to sue and be sued, by the said name.

(b) ABC Limited is an unlisted company, having its registered office at Kolkata. The Annual General Meeting was held at Goa on 1st July, 2021 at 3.00 PM and concluded at 8.00 PM. Consent of all the members to conduct AGM at Goa were received by 24th June, 2021 by e-mail. [2 + 2]
(i) Examine the validity of the meeting as per the provisions of the Companies Act, 2013.
(ii) State, the consequences if a resolution has passed in such meeting, without sufficient disclosure regarding interest of a director.
Answer:
Place for holding an annual general meeting:
As per Sec. 96(2) of the Companies Act, 2013, annual general meeting shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated:

Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Conclusion: As ABC Limited is an unlisted company and consent of all the members to conduct AGM at Goa were received in advance, meeting stands valid.

Consequences if resolution passed in AGM, without sufficient disclosure regarding interest of a director:
As per Sec. 102(4) of the Companies Act, 2013, if as a result non-disclosure or insufficient disclosure in explanatory statement, any benefit accrues to a promoter, director, manager, other KMP or their relatives, such person shall hold such benefit in trust for the company, and shall, without prejudice to any other action being taken against him under this Act or under any other law for the time being in force, be liable to compensate the company to the extent of the benefit received by him.

(c) The Ministry of Corporate Affairs (MCA) published in the Gazette of India, the proposed draft of Rules further to amend certain rules under the Companies Act, 2013. The MCA made some modifications in the draft Rules already published. In the light of the provisions of the General Clauses Act, 1897, answer the following: [4]

Is it required for MCA to publish a draft of the proposed Rules ?
in case of any irregularities in the publication of the draft, can it be questioned?
Is MCA entitled to make suitable changes in the draft?
is it necessary to republish the Rules in the amended form when the changes made are ancillary to the earlier draft?

Answer:
Provisions Applicable to Making of Rules or Bye-Laws after Previous Publications:

Sec. 23 of General Clauses Act, 1897 deals with the provisions Applicable to Making of Rules or Bye-Laws after Previous Publications. Accordingly:

The authority having power to make the rules or bye-laws shall, before making them, publish a draft of the proposed rules or bye-laws for the information of persons likely to be affected thereby. Hence, it is required for MCA to publish a draft of the proposed Rules.
There shall be published with the draft a notice specifying a date on or after which the draft will be taken into consideration. Hence, in case of any irregularities in the publication of the draft, it can be questioned before that date.
MCA is entitled to make suitable changes in the draft based on any objection or suggestion which may be received by it.
It is necessary to republish the Rules in the amended form when the changes made are ancillary to the earlier draft.

(d) Does an explanation added to a section widen the ambit of a section? [3]
Answer:
Explanation:
Sometimes an explanation is added to a section of an Act for the purpose of explaining the main provisions contained in that section. If there is some ambiguity in the provisions of the main section, the explanation is inserted to harmonise and clear up and ambiguity in the main section.

Something may be added to or something may be excluded from the main provision by insertion of an explanation. But the explanation should not be construed to widen the ambit of the section.

Question 5.
(a) HD Software Private Limited is engaged in the business of providing software services. The company appointed its statutory auditors. The engagement letter was signed with a clause that fee to be mutually decided. However, the remuneration was not finalised. Directors of the company seeks your advice for provisions related to remuneration of directors as per the provisions of the Companies Act, 2013. [5]
OR.
ABC & CoH Chartered Accountants, are statutory auditors of Moon Exports Limited. In an inquiry, it is proved that ‘A’, one of the partners of the firm has acted in fraudulent manner and colluded in fraud to its partners. Explain the consequences of such act under the provisions of the Companies Act, 2013.
Answer:
Provisions relating to Remuneration of Auditors:

Provisions relating to remuneration of auditors are covered u/s 142 of the Companies Act, 2013. Accordingly, remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein. The remuneration of the first auditor appointed by BoD may be fixed by BoD.
The remuneration shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him
Remuneration does not include any remuneration paid to him for any other service rendered by him at the request of the company.

Responsibility for fraudulent acts:
As per Sec. 147(5) of the Companies Act, 2013, where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.

However, in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.

(b) (i) Mr. Ram, a shareholder of PQR Ltd., has made a request to the company for providing a copy of minutes book of general meeting. Whether, the shareholder of a company is entitled to receive a copy of minutes book? Explain, provisions of the Companies Act, 2013. [3]
Answer:
Issue of copy of minutes to the member:
As per Sec. 119 of the Companies Act, 2013, any member shall be entitled to be furnished, within 7 working days after he has made a request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of any minutes.

Rule 26 of the Companies (Management and administration) Rules, 2014 provides the following:

Any member shall be entitled to be furnished, within 7 working days after he has made a request in that behalf to the company, with a copy of any minutes of any general meeting, on payment of such sum as may be specified in the articles of association of the company, but not exceeding a sum of ₹ 10 for each page or part of any page.
A member who has made a request for provision of soft copy in respect of minutes of any previous general meetings held during a period immediately preceding 3 financial years shall be entitled to be furnished, with the same free of cost.

If any copy required is not furnished within the time specified therein, the company shall be liable to a penalty of ₹ 25,000 and every officer of the company who is in default shall be liable to a penalty of ₹ 5,000 for each such refusal or default, as the case may be.

(ii) Explain the provision relating to ‘Credit Rating’ which an ‘Eligible Company’ should follow to raise public deposits as per the Companies Act, 2013. [2]
Answer:
Provisions relating to ‘Credit Rating’ applicable in case of eligible companies:

Provisions relating to ‘Credit Rating’ to be followed by an ‘eligible company’ are covered in Sec. 76(1) of the Companies Act, 2013 read with Rule 3(8) of the Companies (Acceptance of Deposits) Rules, 2014. Accordingly, an ‘eligible company’ which desires to raise public deposits shall be required to comply with the following requirements relating to credit rating:

Eligible company shall obtain the rating from a recognised credit rating agency. The given rating which ensures adequate safety shall be informed to the public at the time of invitation of deposits from the public.
Credit rating shall be obtained every year during the tenure of deposits.
Copy of the credit rating shall be sent to the Registrar of Companies along with the Return of Deposits in Form DPT-3.
Credit rating shall not be below the minimum investment grade rating or other specified credit rating for fixed deposits.
Credit rating shall be obtained from any one of the approved credit rating agencies as specified for NBFC in the NBFC Acceptance of Public Deposits (RBI) Directions, 1998.

(c) Mr. Truth deposited 100 bags of groundnut in the factory of Mr. False for safe keeping. Mr. False mixed the groundnut bags with the other groundnut bags in the factory with the consent of Mr. Truth and consumed it to produce edible oil. [4]
(i) Whether Mr. Truth is entitled to claim his share in the edible oil produced under the provisions of the Indian Contract Act, 1872?
(ii) What will be the consequences in case the groundnut bag was mixed without the consent of Mr. Truth under the above said Act?
Answer:
Bailee Duties not to mix the goods:
(i) Bailor claim in case of mixing of goods:
As per Sec. 155 of the Indian Contract Act, 1872, if the Bailee, mixes the goods bailed with his own goods, with the consent of the bailor, both the parties shall have an interest in proportion to their respective shares in the mixture thus produced.
Hence, Mr. Truth is entitled to claim his share in the edible oil produced.

(ii) Consequences if goods are mixed without the consent of bailor:
As per Sec. 156 of the Indian Contract Act, 1872, if the bailee, without the consent of the bailor, mixes the goods bailed with his own goods and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expense of separation or division and any damage arising from the mixture.

As per Sec. 157 of the Indian Contract Act, 1872, if the bailee, without the consent of the bailor mixes the goods of the bailor with his own goods in such a manner that it is impossible to separate the goods bailed from the other goods and to deliver them back, the bailor is entitled to be compensated by the bailee for loss of the goods.

(d) What is the effect of proviso? Does it qualify the main provisions of the enactment? Explain it with reference to Interpretation of Statutes. [3]
Answer:
Effect of Proviso:

Normally a Proviso is added to a section of an Act to except something or qualify something stated in that particular section to which it is added.
A proviso should not be, ordinarily, interpreted as a general rule. A proviso to a particular section carves out an exception to the main provision to which it has been enacted as a Proviso and to no other provision. [Ram Narian Sons Ltd. v. Assistant Commissioner of Sales Tax]

CA Inter May 2022 Law Question Paper

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