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Accounting for Share Based Payments (ESOS & ESOP) – Corporate and Management Accounting MCQ

Leave a Comment / CS Executive / By Murali / April 6, 2024 April 10, 2024

Students should practice Accounting for Share Based Payments (ESOS & ESOP) – Corporate and Management Accounting CS Executive MCQ Questions with Answers based on the latest syllabus.

Accounting for Share Based Payments (ESOS & ESOP) – Corporate and Management Accounting MCQ

Question 1.
______means the option given to the whole-time directors, officers or employees of a company, which gives such directors, officers, or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price.
(A) Employee Stock Purchase
(B) General Employee Benefits
(C) Employee Stock Option
(D) Retirement Benefits
Answer:
(C) Employee Stock Option

Question 2.
Which of the following section of the Companies Act, 2013 allows a company to offer shares to employees under a scheme of employee’s stock option?
(A) Section 61
(B) Section 65
(C) Section 62
(D) Section 68
Answer:
(C) Section 62

Question 3.
As per Section 62(2) of the Companies Act, 2013, a company can offer shares to employees under a scheme of employees stock option bypassing
(A) Board Resolution
(B) Special Resolution
(C) Ordinary Resolution
(D) Extraordinary Resolution
Answer:
(B) Special Resolution

Question 4.
A listed company can offer various benefits to employees such as ESOS or ESPS by complying with provisions of the
(1) Companies Act, 2013
(2) SEBI (Share Based Employee Benefits) Regulations, 2014
(3) Companies (Share Capital & Debentures) Rules, 2014
Select the correct answer from the options given below.
(A) (1) only
(B) (1) and (2) only
(C) (2) and (3) only
(D) (1), (2), and (3)
Answer:
(B) (1) and (2) only

Question 5.
Which of the following persons is covered under the provisions relating to share-based payment regulation made by the SEBI?
(A) Permanent employee
(B) Whole-time director
(C) Employee of a subsidiary
(D) All of the above
Answer:
(D) All of the above

Question 6.
As per Rule 12 of the Companies (Share Capital & Debentures) Rules, 2014, ’employee’ includes
(I) A permanent employee of the company who has been working outside India
(II) Independent director
(III) An employee who is a promoter
(IV) Whole-time director
(V) Director who holds more than 10% of the outstanding equity shares of the start-up company
Select the correct answer from the options given below.
(A) (III), (II) & (IV)
(B) (I), (II), (IV) & (V)
(C) (V), (IV) & (I)
(D) (I) and (IV)
Answer:
(D) (I) and (IV)

Question 7.
Which of the following person can be treated as ‘employee’ and hence eligible for employees’ share-based payment benefits?
(A) Relative of the director who holds more than 10% of the outstanding equity shares of the company
(B) Temporary employee of the company who has been working in India
(C) Employee of Associate Company
(D) None of the above
Answer:
(D) None of the above

Question 8.
SEBI (Share Based Employee Benefits) Regulations, 2014 applies to:
(1) Employee Stock Option Schemes
(2) Employee Stock Purchase Schemes
(3) Stock Appreciation Rights Schemes
(4) General Employee Benefits Schemes
(5) Retirement Benefit Schemes
Select the correct answer from the options given below.
(A) (2) and (1)
(B) (3) and (4)
(C) (4) and (5)
(D) All of the above are correct
Answer:
(D) All of the above are correct

Question 9.
Under the employees are given an option to purchase shares on the spot at a discount price.
(A) Employees Stock Purchase Scheme
(B) Employee Stock Option Scheme
(C) Stock Appreciation Rights Scheme
(D) Preferential Allotment Scheme
Answer:
(A) Employees Stock Purchase Scheme

Question 10.
Under ESPS employees are given an option to purchase shares on the spot at a
(A) Discounted price
(B) Special price
(C) Discount price
(D) Floor price
Answer:
(C) Discount price

Question 11.
Under ESOS,____ employees are given an option to purchase shares at:
(A) On the spot
(B) Later date i.e. after vesting period
(C) Relevant date
(D) Later date i.e. after the end of the accounting year
Answer:
(B) Later date i.e. after vesting period

Question 12.
Shares to be issued under ESOS
(A) Can be issued as a part of a public issue.
(B) Has no vesting periods
(C) Has to be approved separately by the company in general meeting by passing a special resolution.
(D) All of the above
Answer:
(C) Has to be approved separately by the company in general meeting by passing a special resolution.

Question 13.
______means the price, if any, payable by the employee for exercising the option or SAR granted to him.
(A) Offer price
(B) the Exercise price
(C) Market Price
(D) Fair price
Answer:
(B) the Exercise price

Question 14.
____means the process by which the company issues Options, SARs, Shares, or any other benefits under any of the schemes.
(A) Grant
(B) Option
(C) Exercise
(D) Appreciation
Answer:
(A) Grant

Question 15.
A company may implement share-based employees benefit schemes:
(A) Directly
(B) Trust Route
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(C) Either (A) or (B)

Question 16.
On 1.4.2019, a company offered 300 shares to each of its 1,200 employees at ₹ 75 per share. The employees are given a month to accept the shares. The shares issued under the plan shall be subject to lock-in to transfer for 3 years from the grant date Le. 30.4.2019. The market price of shares on the grant date is ₹ 90 per share. Due to post vesting restrictions, the fair value of shares issued under the plan is estimated at ₹ 84 per share. Up to 30.4.2019,50% of employees accepted the offer and paid ₹ 75 per share. The face value of the share is ₹ 10. Expenses to be recognized in the year 2019-2020 =?
(A) ₹ 5,40,000
(B) ₹ 32,40,000
(C) ₹ 16,20,000
(D) ₹ 10,800
Hint:
The market price of the share on the grant date is not considered as Fair Value is specifically given.
Fair value of an option = ₹ 84 – ₹ 75 = ₹ 9
Number of employees accepting the offer = 1,200 employees × 50% = 600 employees .
Number of shares issued = 600 employees × 300 shares = 1,80,000 shares
Fair value of ESOS = 1,80,000 shares × ₹ 9 = ₹ 16,20,000 Expenses recognized in 2019-2020 = ₹ 16,20,000
Alternatively,
(84 – 75) × 1,200 employees × 300 shares × 50% = 16,20,000
Answer:
(C) ₹ 16,20,000

Question 17.
X Ltd. has its share capital divided into equity shares of ₹ 10 each. On 1.1.2020 it granted 20,000 employees stock option at ₹ 50 per share when the market price was ₹ 120 per share. The options were to be exercised between 15.3.2020 & 31.3.2020. The employees exercised their options for 16,000 shares only and the remaining options lapsed. The company closes its books on 31st March every year. Which of the following is correct?
(A) No entry is passed when Stock Options are granted to employees. Hence, no entry will be passed on 1.1.2020.
(B) The difference ₹ 120 ₹ 50 = ₹ 70 per share is employee compensation expense and will be charged to Profit & Loss A/c for the number of options exercised Le. 16,000 shares by ₹ 11,20,000.
(C) Securities Premium A/c will be credited by ₹ 17,60,000
(D) All of the above
Hint:

1. No entry is passed when Stock Options are granted to employees. Hence, no entry will be passed on 1.1.2020.
2. The difference ₹ 120 – ₹ 50 = ₹ 70 per share is employee compensation expense and will be charged to Profit & Loss A/c for the number of options exercised ie. 16,000 shares by ₹ 11,20,000.
Answer:
(D) All of the above

Question 18.
A company has its share capital divided into shares of ₹ 10 each. On 1.1.2016, it granted 5,000 employees stock option at ₹ 50, when the market price was ₹ 140. The options were to be exercised between 1.3.2017 to 31.3.2017. The employees exercised their options for 4,800 shares only; the remaining options lapsed. How much amount will be transferred from Employees Compensation Expenses A/c to Profit & Loss A/c?
(A) ₹ 4,32,000
(B) ₹ 4,36,000
(C) ₹ 4,28,000
(D) ₹ 4,44,000
Hint:
(140 – 50) × 4,800 = 4,32,00019.
Answer:
(A) ₹ 4,32,000

Question 19.
On 1.4.2019, GP Ltd. offered 100 shares to each of its 500 employees at ₹ 50 per share. Employees are given a year to accept the offer. Shares issued under the plan shall be subject to lock-in on transfer for 3 years from the grant date. The market price of shares on the grant date is ₹ 60 per share. Due to post-vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at ₹ 56 per share. On 31.3.2020,400 employees accepted the offer and paid ₹ 50 per share, (a) Expenses to be recognized = ? & (b) Securities Premium A/c will be credited by =?
(A) ₹ 3,40,000; ₹ 20,40,000
(B) ₹ 2,40,000; ₹ 18,40,000
(C) ₹ 2,40,000; ₹ 22,40,000
(D) ₹ 3,40,000; ₹ 18,40,000
Hint:

Answer:
(B) ₹ 2,40,000; ₹ 18,40,000

Question 20.
A company has its share capital divided into shares of ₹ 10 each. On 1.4.2018, it granted 5,000 shares as employee stock options at ₹ 40 per share, when the market price was ₹ 130 per share. The options were to be exercised between 16.12.2018 and 15.3.2019. The employees exercised their options for 4,500 shares only; the remaining options lapsed. Which of the following is correct?
(A) Bank A/c will be debited by ₹ 5,85,000 (4,500 shares × ₹ 130)
(B) Equity Share Capital A/c will be credited by ₹ 5,00,000 (5,000 shares × ₹ 10)
(C) Securities Premium A/c will be credited by ₹ 5,40,000 (4,500 shares × ₹ 120)
(D) All of the above
Hint:

Answer:
(C) Securities Premium A/c will be credited by ₹ 5,40,000 (4,500 shares × ₹ 120)

SEBI (Prohibition of Insider Trading) Regulations, 2015 – Securities Laws and Capital Markets Important Questions

Leave a Comment / CS Executive / By Murali / April 6, 2024 April 10, 2024

SEBI (Prohibition of Insider Trading) Regulations, 2015 – Securities Laws and Capital Markets Important Questions

Question 1.
Explain the disclosure requirements by certain persons under the SEBI (Prohibition of Insider Trading) Regulations, 2015. [June 2009 (4 Marks)]
Answer:
Disclosures by certain persons [Regulation 7]:
Initial Disclosures:
(a) Every promoter, member of the promoter group, KMP, and director of the listed company shall disclose his holding of securities to the company within 30 days of these regulations taking effect.

(b) Every person on appointment as KMP or a director of the company or upon becoming a promoter or member of promoter group shall disclose his holding of securities of the company within 7 days of his appointment as KMP, director or becoming a promoter.

Continual Disclosures:
(a) Every promoter, member of the promoter group, designated person, and director of every company shall disclose to the company the number of securities acquired or disposed of within 2 trading days if the value of the securities traded over any calendar quarter exceeds ₹ 10 lakhs or such other value as may be specified.

(b) On receipt of the above information, the company shall notify the same to the stock exchange within 2 trading days of receipt information or from becoming aware of such information.

Disclosures by other connected persons:
A listed company may at its discretion require any other connected person to make disclosures of holdings and trading in securities in such form and at such frequency as may be determined by the company in order to monitor compliance.

Question 2.
Distinguish between: ‘Insider’ and ‘connected persons’ as per the SEBI (Prohibition of Insider Trading) Regulations, 2015. [Dec. 2010 (5 Marks)]
Answer:
Insider [Regulation 2(g)]: Insider means any person who is:

a connected person or
In possession of or having access to unpublished price sensitive information;

Connected Person [Regulation 2(d)]: Connected person means
1. Any person who is or has during the 6 months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary, or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.

2. Following categories shall be deemed to be connected persons unless the contrary is established:
(a) An immediate relative of connected persons specified in clause (i)
or
(b) A holding company or associate company or subsidiary company
or
(c) An intermediary as specified in Section 12 of the SEBI Act, 1992 or an employee or director thereof
or
(d) An investment company, trustee company, AMC, or an employee or director thereof
or
(e) An official of a stock exchange or of clearing house or corporation
or
(f) A member of the board of trustees of a mutual fund or a member of the board of directors of the AMC of a mutual fund or is an employee thereof
or
(g) A member of the board of directors or an employee, of a public financial institution
or
(h) An official or an employee of a self-regulatory organization recognized
or
(i) A banker of the company
or
(j) A concern, firm, trust, HUF, company, or AOP wherein a director of a company or his immediate relative or banker of the company, has more than 10% of the holding or interest.

Question 3.
Write a short note on Chinese Wall Policy [June 2011 (4 Marks)]
Answer:
A ‘Chinese Wall’ means an arrangement where information known to the person in one part of the business is not available directly or indirectly to those in another part of the business.

To prevent the misuse of confidential information the organization shall adopt a “Chinese Wall Policy” which separates those areas of the organization that routinely have access to confidential information, from those areas which deal with sale/marketing/investment advice or other departments providing support services. The employees in the respective areas shall not communicate any price-sensitive information to the other areas.

Question 4.
What is meant by “unpublished price sensitive information”? What are the restrictions on communication or procurement of unpublished price-sensitive information? [Dec. 2011 (4 Marks)]
Answer:
Unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available, is likely to materially affect the price of the securities and ordinarily includes information relating to the following:
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, dc-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions
(e) Changes in KMP
(f) Material events in accordance with the listing agreement. [Deleted]

Communication or procurement of unpublished price sensitive information [Regulation 3]:
1. No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, the performance of duties or discharge of legal obligations.

2. No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, the performance of duties, or discharge of legal obligations.

3. The board of directors of a listed company shall make a policy for the determination of “legitimate purposes as a part of “Codes of Fair Disclosure and Conduct” formulated under regulation 8.

Explanation: The term “legitimate purpose” shall include sharing of unpublished price sensitive information in the ordinary course of business an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals, or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations.

4. Any person in receipt of unpublished price sensitive information pursuant to a legitimate purpose” shall be considered an “insider” for purposes of these regulations and due notice shall be given to such persons to maintain the confidentiality of such unpublished price sensitive information in compliance with these regulations.

5. An unpublished price sensitive information may be communicated, provided, allowed access to or procured, in connection with a transaction that would:
1. entail an obligation to make an open offer under the takeover regulations where the board of directors of the listed company is of informed opinion that sharing of such information is in the best interests of the company;

2. not attract the obligation to make an open offer under the takeover regulations but where the board of directors of the listed company is of informed opinion that sharing of such information is in the best interests of the company and the information that constitute unpublished price sensitive information is disseminated to be made generally available at least 2 trading days prior to the proposed transaction being effected in such form as the board of directors may determine to be adequate and fair to cover all relevant and material facts.

6. The board of directors shall require the parties to execute agreements to contract confidentiality and non-disclosure obligations on the part of such parties and such parties shall keep information so received confidential and shall not otherwise trade in securities of the company when in possession of unpublished price sensitive information.

7. The board of directors or heads of the organization of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information and the names of such persons who have shared the information and also the names of such persons with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.

8. The board of directors or heads of the organization of every person required to handle unpublished price sensitive information shall ensure that the structured digital database is preserved for a period of not less than eight years after completion of the relevant transactions and in the event of receipt of any information from the SEBI regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.

Question 5.
What do you mean by insider trading? Enumerate the penalties which can be imposed under the SEBI Act, 1992 for insider trading? [June 2013 (4 Marks)]
Answer:
Insider shall not communicate, provide or allow access to any unpublished price-sensitive information relating to the company or its securities to any person.

In the given case, Raghav has found to be indulging in insider trading, which is prohibited under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Insider trading is punishable u/s 15G of the SEBI Act, 1992. The penalty is as follows:

An insider shall be liable to a penalty which shall not be less than ? 10 lakhs but which may extend to ^ 25 Crores or 3 times of profits out of insider trading, whichever is higher.

Taking action by the company does not preclude the SEBI from taking any action under the SEBI Act, 1992. Hence, Raghav’s plea that he had already penalized by the company by terminating his services is not acceptable.

Question 6.
Insider trading normally means trading in shares of a company by the persons who are in the management of the company or close to them on the basis of unpublished price-sensitive information which they possess but others not.
In the light of this, state whether the following information is price sensitive:
(i) The CEO of a company met with an accident and had been hospitalized.
(ii) Intended declaration of rights issue in near future.
(iii) RBI has increased repo rate by 25 basis points.
(iv) The company is going to have another plant at Rudrapur, Uttarakhand.
(v) The Chairman of the company has submitted his resignation to the Board under protest for selling a particular brand to another company. [Dec. 2013(4 Marks)]
Answer:
Unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally j available and which upon becoming generally available, is likely to materially 1 affect the price of the securities.

In view of the above, the answer to the given problem is as follows:

Information	Price sensitive or not	Reason
The CEO of a company died in an air crash.	No	Though information relates to the company, it is not relating to security or its price, or any other parameters included in the definition.
RBI has increased the report by 25 basis points.	No	This information is not related to the company, its security, or price of security hence it is not ‘unpublished price sensitive information. In fact, it is information relating to the general economy of the country.
The company is setting up another plant in Gujarat	Yes	Information relating to the expansion of business is included in the definition of ‘unpublished price sensitive information.
The company is negotiating with a foreign company to sell its stake in Star Ltd.	Yes	This information relates to the investment strategy of the company and may likely affect the price of its security and hence included in the definition.

Question 7.
Write a short note on Unpublished price sensitive information [June 2014 (4 Marks)]
Answer:
Unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available, is likely to materially affect the price of the securities and ordinarily includes information relating to the following:
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions
(e) Changes in KMP and
(f) Material events in accordance with the listing agreement. [Deleted]

Question 8.
Raghav, General Manager (Accounts) of X Ltd., was found to be indulging in insider trading and as a consequence, the company terminated his services. The SEBI also took cognizance of the matter and initiated proceedings against him under the SEBI (Prohibition of Insider Trading) Regulations, 2015. Raghav pleaded that since X Ltd. had already penalized him by terminating his services, the SEBI could not initiate any proceedings against him. As per the SEBI Regulations and decided case laws, suggest whether the SEBI has a right to take any action against Raghav in this case of insider trading. [June 2014 (8 Marks)]
Answer:
Insider shall not communicate, provide or allow access to any unpublished price-sensitive information relating to the company or its securities to any person.

In the given case, Raghav has found to be indulging in insider trading, which is prohibited under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Insider trading is punishable u/s 15G of the SEBI Act, 1992. The penalty is as follows:

An insider shall be liable to a penalty which shall not be less than ? 10 lakhs but which may extend to ^ 25 Crores or 3 times of profits out of insider trading, whichever is higher.

Question 9.
A company shall specify a trading period for trading in its own securities. Comment. [Dec. 2014 (4 Marks)]
Answer:
Trading when in possession of unpublished price sensitive information [Regulation 4]:
1. Insider shall not trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price-sensitive information.

Explanation: When a person who has traded in securities has been in possession of unpublished price-sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession.

However, the insider may prove his innocence by demonstrating the circumstances including the following:
1. The transaction is an off-market inter .se transfer between insiders who were in possession of the same unpublished price sensitive information without being in breach of Regulation 3 and both parties had made a conscious and informed trade decision. Such unpublished price-sensitive information was not obtained under regulation 3(3). Such off-market trades shall be reported by the insiders to the company within 2 working days. Every company shall notify the particulars of such trades to the stock exchange on which the securities are listed within 2 trading days from receipt of the disclosure or from becoming aware of such information.

2. The transaction was carried out through the block deal window mechanism between persons who were in possession of the unpublished price-sensitive information without being in breach of Regulation 3 and both parties had made a conscious and informed trade decision. Such unpublished price-sensitive information was not obtained by either person Regulation 3(3).

3. The transaction in question was carried out pursuant to a statutory or regulatory obligation to carry out a bona fide transaction.

4. The transaction in question was undertaken pursuant to the exercise of stock options in respect of which the exercise price was pre-determined in compliance with applicable regulations.

5. In the case of non-individual insiders:
(a) the individuals who were in possession of such unpublished price sensitive information were different from the individuals taking trading decisions and such decision-making individuals were not in possession of such unpublished price sensitive information when they took the decision to trade; and

(b) appropriate and adequate arrangements were in place to ensure that these regulations are not violated and no unpublished price sensitive information was communicated by the individuals possessing the information to the individuals taking trading decisions and there is no evidence of such arrangements having been breached;

6. The trades were pursuant to a trading plan set up in accordance with Regulation 5.

2. In the case of connected persons the onus of establishing, that they were not in possession of unpublished price-sensitive information, shall be on such connected persons, and in other cases, the onus would be on the SEBI.

3. The SEBI may specify such standards and requirements, from time to time, as it may deem necessary for the purpose of these regulations.

Trading Plans [Regulation 5]:
1. An insider shall be entitled to formulate a trading plan and present it to the compliance officer for approval and public disclosure pursuant to which trades may be carried out on his behalf in accordance with such plan.

2. A trading plan formulated by an insider is subject to the following conditions:

Trading as per the trading plan can be commenced after 6 months from the date of public disclosure of such trading plan.
Trading as per the trading plan cannot be executed 20th trading day prior to the last day of any financial period and the second trading day after the disclosure of such financial results. (logic is that 20th day earlier to close of the financial period the company has to announce financial results)
A trading plan should not be less than 12 months.
Two trading plans should not overlap each other. (In other words, the second trading plan cannot be made unless the first trading plan ends)
Such a trading plan shall set out either the value of trades to be affected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected.
A trading plan shall not be used for trading in securities for market abuse.

3. The compliance officer shall review the trading plan to assess whether the plan would have any potential for violation of these regulations and shall be entitled to seek such express undertakings as may be necessary to enable such assessment and to approve and monitor the implementation of the plan. However, pre-clearance of trades shall not be required for a trade executed as per an approved trading plan. It is also provided that trading window norms and restrictions on contra trade shall not be applicable for trades carried out in accordance with an approved trading plan.

4. The trading plan once approved shall be irrevocable and the insider shall mandatorily have to implement the plan, without being entitled to either deviate from it or to execute any trade in the securities outside the scope of the trading plan. However, the implementation of the trading plan shall not be commenced if any unpublished price sensitive information in possession of the insider at the time of formulation of the plan has not become generally available at the time of the commencement of implementation and in such event, the compliance officer shall confirm that the commencement ought to be deferred until such unpublished price sensitive information becomes generally available information so as to avoid a violation of Regulation 4(1).

5. Upon approval of the trading plan, the compliance officer shall notify the plan to the stock exchanges on which the securities are listed.

Question 10.
Sunil, Company Secretary and Executive Director of a company had bought shares of that company on behalf of his family members on the basis of unpublished price sensitive information, which was not known to the general public but to him as an employee of the company.
Family members, later on, tendered the said shares in an open offer announced by some acquiring company at a higher price, thereby making huge gains. The SEBI found Sunil guilty of misconduct of insider trading and imposed a penalty. Sunil admitted that he had made a mistake but contested the penalty. He, however, was willing to pay back the profit earned by the sale of shares.
Considering the facts of the case, you are required to suggest whether as per j the relevant legal provisions relating to insider trading, the SEBI should waive the penalty considering the fact that Sunil admits indulging in insider trading and is willing to pay back the whole profit earned. [Dec. 2014 (8 Marks)]
Answer:
Insider trading is punishable u/s 15G of the SEBI Act, 1992. The penalty is as follows:
An insider shall be liable to a penalty which shall not be less than ₹ 10 lakhs but which may extend to f 25 Crores or 3 times of profits out of insider trading, whichever is higher.

In the given case, Sunil being the Company Secretary and Executive Director of a company is an insider and has committed the offense of insider trading. Thus, SEBI can impose a penalty on him as per Section 15G of the SEBI Act, 1992.

The Supreme Court in the matter of SEBI v. Sriram Mutual Fund had held that “once the violation of statutory regulation is established, imposition of penalty becomes the sine qua non of violation and intention of parties committing violation totally becomes irrelevant”.

However, in given since Mr. Sunil has admitted his offense and has offered to pay back profit so penalty to that extend may be reduced.

Question 11.
Unpublished price-sensitive information is any information that relates directly or indirectly to a company. [June 2015 (4 Marks)]
Answer:
Unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available, is likely to materially affect the price of the securities and ordinarily includes information relating to the following:
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions
(e) Changes in KMP and
(f) Material events in accordance with the listing agreement. [Deleted]

Question 12.
Write a short note on Insider Trading [June 2015 (4 Marks)]
Answer:
Insider trading is the trading of a public company’s stock or other securities by individuals with access to non-public information about the company. In various countries, trading based on insider information is illegal. This is because it is seen as unfair to other investors who do not have access to the information as the investor with insider information could potentially make far larger profits that a typical investor could not make.

Thus, in insider trading, an insider takes undue advantage of ‘price-sensitive information’ for his personal benefit. This is not fair in the interest of the capital market in general and investors. Insider trading is an offense in India.

Penalty for insider trading [Section 15G]: An insider shall be liable to a penalty which shall not be less than ₹ 10 lakhs but which may extend to ₹ 25 Crore or 3 times of profits out of insider trading, whichever is higher.

Question 13.
The SEBI Act, 1992 provides for the prohibition of manipulative and deceptive devices and insider trading. [Dec. 2015 (5 Marks)]
Answer:
“Insider trading generally means trading in the shares of a company by the persons who are in the management of the company or are close to them on the basis of undisclosed price sensitive information regarding the working of the company, which they possess but which is not available to others.”

The concept of Insider Trading in India started fermenting in the ’80s and ’90s and came to be known and observed extensively in the Indian Securities J market. The rapidly advancing Indian Securities market needed more comprehensive legislation to regulate the practice of Insider Trading, thus resulting in the formulation of the SEBI (Insider Trading) Regulations in the year 1992, which were amended in the year 2002 after the discrepancies observed in 1992 regulations in the cases like Hindustan Levers Ltd. v. SEBI, Rakesh Agarwal v. SEBI, etc. to remove the lacunae existing in the Regulations of 1992. The amendment in 2015 came to be known as the SEBI (Prohibition of Insider | Trading) Regulation, 2015.

Question 14.
‘Insider’ means any person who is or was connected with the company i or is deemed to have been connected with the company. Comment. [June 2016 (4 Marks)]
Answer:
Insider [Regulation 2(g)]: Insider means any person who is:

a connected person or
In possession of or having access to unpublished price sensitive information;

Connected Person [Regulation 2(d)]: Connected person means:
1. Any person who is or has during the 6 months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary, or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.

2. Following categories shall be deemed to be connected persons unless the contrary is established –
(a) An immediate relative of connected persons specified in clause (i)
or
(b) A holding company or associate company or subsidiary company
or
(c) An intermediary as specified in Section 12 of the SEBI Act, 1992 or an employee or director thereof
or
(d) An investment company, trustee company, AMC, or an employee or director thereof
or
(e) An official of a stock exchange or of clearing house or corporation
or
(f) A member of the board of trustees of a mutual fund or a member of the board of directors of the AMC of a mutual fund or is an employee thereof
or
(g) A member of the board of directors or an employee, of a public financial institution
or
(h) An official or an employee of a self-regulatory organization recognized
or
(i) A banker of the company
or
(j) A concern, firm, trust, HUF, company, or AOP wherein a director of a company or his immediate relative or banker of the company, has more than 10% of the holding or interest.

Question 15.
What is ‘price-sensitive information’? Which information is deemed to be price-sensitive information? State with reasons whether the following information is price sensitive:
(i) The CEO of a company died in an air crash.
(ii) RBI has increased its statutory liquidity ratio (SLR) by 25 basis points,
(iii) The company is setting up another plant in Gujarat,
(iv) The company is negotiating with a foreign company to sell its stake in Star Ltd. [June 2016 (8 Marks)]
Answer:
Unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally j available and which upon becoming generally available, is likely to materially affect the price of the securities and ordinarily includes information relating to the following:
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions
(e) Changes in KMP
(f) Material events in accordance with the listing agreement. [Deleted] In view of the above, the answer to the given problem is as follows:

Information	Price sensitive or not	Reason
The CEO of a company died in an air crash.	No	Though information relates to the company, it is not relating to security or its price, or any other parameters included in the definition.
RBI has increased the repo rate by 25 basis points.	No	This information is not related to the company, its security, or price of security hence it is not ‘unpublished price sensitive information. In fact, it is information relating to the general economy of the country.
The company is setting up another plant in Gujarat	Yes	Information relating to the expansion of business is included in the definition of ‘unpublished price sensitive information.
The company is negotiating with a foreign company to sell its stake in Star Ltd.	Yes	This information relates to the investment strategy of the company and may likely affect the price of its security and hence included in the definition.

Question 16.
Write a note on Person deemed to be connected person [Dec. 2016 (4 Marks)]
Answer:
Insider [Regulation 2(g)]: Insider means any person who is:

a connected person or
In possession of or having access to unpublished price sensitive information;

2. Following categories shall be deemed to be connected persons unless the contrary is established –
(a) An immediate relative of connected persons specified in clause (i)
or
(b) A holding company or associate company or subsidiary company
or
(c) An intermediary as specified in Section 12 of the SEBI Act, 1992 or an employee or director thereof
or
(d) An investment company, trustee company, AMC, or an employee or director thereof
or
(e) An official of a stock exchange or of clearing house or corporation or
(f) A member of the board of trustees of a mutual fund or a member of the board of directors of the AMC of a mutual fund or is an employee thereof
or
(g) A member of the board of directors or an employee, of a public financial institution
or
(h) An official or an employee of a self-regulatory organization recognized
or
(i) A banker of the company
or
(j) A concern, firm, trust, HUF, company, or AOP wherein a director of a company or his immediate relative or banker of the company, has more than 10% of the holding or interest.

Question 17.
Write a short note on Provisions of the Companies Act, 2013 relating to insider trading [June 2017 (4 Marks)]
Answer:
Section 195 of the Companies Act, 2013 has been deleted by the Companies (Amendment) Act, 2017. Thus, this question is not relevant for Dec. 2017 and onward exams.

Question 18.
A trading plan is an exception to the general rule that an insider should not trade when in possession of unpublished price-sensitive information. However, a trading plan once made cannot be revoked. Do you agree? If yes, give reasons for the same. [Dec. 2017 (6 Marks)]
Answer:

Trading when in possession of unpublished price sensitive information [Regulation 4]:
1. Insider shall not trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price-sensitive information.

3. The transaction in question was carried out pursuant to a statutory or regulatory obligation to carry out a bona fide transaction.

4. The transaction in question was undertaken pursuant to the exercise of stock options in respect of which the exercise price was pre-determined in compliance with applicable regulations.

6. The trades were pursuant to a trading plan set up in accordance with Regulation 5.

3. The SEBI may specify such standards and requirements, from time to time, as it may deem necessary for the purpose of these regulations.

2. A trading plan formulated by an insider is subject to the following conditions:

Trading as per the trading plan can be commenced after 6 months from the date of public disclosure of such trading plan.
Trading as per the trading plan cannot be executed 20th trading day prior to the last day of any financial period and the second trading day after the disclosure of such financial results. (logic is that 20th day earlier to close of the financial period the company has to announce financial results)
A trading plan should not be less than 12 months.
Two trading plans should not overlap each other. (In other words, the second trading plan cannot be made unless the first trading plan ends)
Such a trading plan shall set out either the value of trades to be affected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected.
A trading plan shall not be used for trading in securities for market abuse.

5. Upon approval of the trading plan, the compliance officer shall notify the plan to the stock exchanges on which the securities are listed.

Question 19.
What is the Trading Plan under the SEBI (Prohibition of Insider Trading) Regulations, 2015? State the requirements to be complied with in this regard. [Dec. 9 2018 (4 Marks)]
Answer:

3. The transaction in question was carried out pursuant to a statutory or regulatory obligation to carry out a bona fide transaction.

4. The transaction in question was undertaken pursuant to the exercise of stock options in respect of which the exercise price was pre-determined in compliance with applicable regulations.

6. The trades were pursuant to a trading plan set up in accordance with Regulation 5.

3. The SEBI may specify such standards and requirements, from time to time, as it may deem necessary for the purpose of these regulations.

2. A trading plan formulated by an insider is subject to the following conditions:

Trading as per the trading plan can be commenced after 6 months from the date of public disclosure of such trading plan.
Trading as per the trading plan cannot be executed 20th trading day prior to the last day of any financial period and the second trading day after the disclosure of such financial results. (logic is that 20th day earlier to close of the financial period the company has to announce financial results)
A trading plan should not be less than 12 months.
Two trading plans should not overlap each other. (In other words, the second trading plan cannot be made unless the first trading plan ends)
Such a trading plan shall set out either the value of trades to be affected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected.
A trading plan shall not be used for trading in securities for market abuse.

5. Upon approval of the trading plan, the compliance officer shall notify the plan to the stock exchanges on which the securities are listed.

Question 20.
You are working as the Company Secretary of a listed company viz. Mind- spare Ltd. The company is in an advanced stage of negotiation with a buyer, who will drastically improve the profitability and financial position of the company. You have got some information that one of the employees of the company, who is involved in the negotiation may indulge in trading of shares of the company. Being a compliance officer, you are required to formulate a code of conduct to regulate, monitor, and report trading by employees and other connected persons towards achieving compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015. [Dec. 2018 (7 Marks)]
Answer:
Code of Conduct of Mindspark Ltd.
[As per Schedule B read with Regulation 9(2)(l) of the SEBI (Prohibition of Insider Trading) Regulations, 2015]
1. Applicability: This Code shall apply to all Designated Employees of the Company and other Connected Persons as defined in SEBI (Prohibition of Insider Trading) Regulations, 2015.

2. Objective of the code: The objective of the Code is to regulate, monitor, and report trading by Designated Employees and other Connected Persons towards achieving compliance with SEBI Regulations.

3. Compliance Officer: The Company Secretary shall be the Compliance Officer for the purpose of the Code.
The Compliance Officer shall be responsible for compliance of policies, procedures, maintenance of records, monitoring adherence to the rules for the preservation of unpublished price sensitive information, monitoring of trades, and the implementation of the Code of Conduct under the overall supervision of the Board of Directors.

4. Prohibition on forward dealings in securities by director or KMP: No Director/Key Managerial Personnel of the company shall buy in the company or in its subsidiary or associate company:
(a) A right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant securities or a specified amount of relevant debentures; or

(b) A right, as he/she may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant securities or a specified amount of relevant debentures.

5. Trading in securities: No Insider shall trade in securities of the Company when in possession of unpublished price sensitive information except otherwise provided under the SEBI Regulations.

All Designated persons shall conduct all their trading in the securities of the company only in a valid trading window and shall not trade in company’s securities during the periods when trading window is closed, as referred to in clause 6.2 or during any other period as may be specified by the Company from time to time.

Insider submitting the Trading Plan shall also adhere to the conditions as stated in clause 10.

6. Trading Window:
6.1 The trading window shall be closed during the time the information referred to in clause 6.2 becomes generally available.

6.2 The Trading Window shall be inter alia closed ten days prior to the following events:
(a) Board meeting for declaration of financial results;
(b) Board meeting for declaration of interim dividend or final dividend;
(c) Board meeting for change in a capital structure like the issue of securities by way of public/right/bonus, buy-back, etc;
(d) Board Meeting held to approve any mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions;
(e) Any such other material event (in accordance with the listing agreement) as may be deemed fit by the Compliance Officer;

However, if the circumstances so warrant the time for closing the window may be increased or decreased with the approval of the Compliance Officer and Chairman & Managing Director.

The trading window shall be opened 48 hours after information referred to in clause

6.2 becomes generally available.
The trading window restrictions shall also be applicable to any person having a contractual or fiduciary relationship with the company, such as auditors, accountancy firms, law firms, analysts, consultants, etc., assisting or advising the company.

7. Pre-clearance of trades: All Designated Persons who intend to trade in the securities of the company should pre-clear the transactions as per the pre-trading procedure as described hereunder.

An application shall be made in Form ‘PC-T to the Compliance Officer indicating the estimated number of securities that the Designated Persons intends to trade in, the details as to the depository with which he has a security account, the details as to the securities in such depository mode and such other details as may be required by any rule made by the company in this behalf.

All Designated Persons shall execute their order in respect of securities of the company within seven trading days after the approval of pre-clearance is given. If the order is not executed within the aforementioned specified period, the Designated person must pre-clear the transaction again by following the above procedure

In case the Designated Persons or his/her immediate relative decides not to execute the trade after securing pre-clearance, he/she shall inform the Compliance Officer of such decision along with reasons thereof immediately.

No Designated Persons shall apply for pre-clearance of any proposed trade when the trading window is closed or if he/she is in possession of unpublished price-sensitive information.

Prior to approving any trades, the compliance officer shall be entitled to seek declarations to the effect that the application for pre-clearance is not in possession of any unpublished price-sensitive information. He shall also have regard to whether any such declaration is reasonably capable of being rendered inaccurate.

All Designated Persons who buy or sell any number of securities of the company shall not execute a contra trade i.e. sell or buy any number of securities during the next 6 months following the prior transaction.

The Compliance Officer may grant relaxation from the strict application of such restriction for reasons to be recorded in writing provided that such relaxation does not violate the SEBI Regulations.

Should a contra trade be executed, inadvertently or otherwise, in violation of such a restriction, the profits from such trade shall be liable to be disgorged for remittance to SEBI for credit to the Investor Protection and Education Fund administered by SEBI under the Act.

8. Trading Plans: An Insider shall be entitled to formulate a trading plan and present it to the Compliance Officer for approval and public disclosure pursuant to which trades may be carried out on his/her behalf in accordance with such plan.

The trading plan once approved shall be irrevocable and the insider shall mandatorily have to implement the plan, without being entitled to either deviate from it or to execute any trade in the securities outside the scope of the trading plan.

Upon approval of the trading plan, the Compliance Officer shall notify the plan within 7 days of such approval to the stock exchanges on which the securities are listed.

9. Disclosure Requirements:
Promoter/Director/KMP/Employee (and also immediate relatives of such person) shall make necessary disclosure to the Company as per Forms attached to Annexure to this code.

10. Uploading of the Code on Company’s Website
This Code and any amendments thereto shall be available on the website of the Company.

11. Compliance with the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information

Any communication, dissemination of unpublished price sensitive information by Designated Persons shall be disclosed only in adherence to the “Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information” except such communication, dissemination is required statutorily.

Annexure
(Various Forms will appear here)
Form A
Form B
Form C
Form D

Question 21.
The price of equity share of a listed company viz. Next Dial Ltd. (NDL) increased from t 10 to a high of ₹ 50 i.e. a rise of 500% during the period 1st April 2018 to 30th Sept. 2018. NDL had entered into a Share Purchase Agreement (SPA) with the proposed acquirer(s) to acquire 40% of the subscribed equity share capital as of 31st Aug. 2018 which would result in a change of management. This initial discussion on the deal was made on 1st April 2018 but SPA was signed on 25th April 2018.
From 1st April 2018 to 30th Sept. 2018, the promoter and his wife dealt in the script of Next Dial Ltd. Referring to the provisions of SEBI (PIT) Regulations, answer the following:
(i) Define Unpublished Price Sensitive Information.
(ii) Whether there was any Unpublished Price Sensitive Information (UPSI)?
(iii) What will be the date of UPSI?
(iv) What are the factors to be taken into account by the adjudicating officer while imposing a penalty for the act? [June 2019 (8 Marks)]
Answer:
As per Regulation 2(n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, unpublished price sensitive information means any information, relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available, is likely to materially affect the price of the securities and ordinarily includes information relating to the following:
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions
(e) Changes in KMP.

Acquisition of 40% shares by acquirer by which management of the company changes is unpublished price sensitive information.

As per Section 15J of the SEBI Act, 1992 following factors shall be taken into account by the adjudicating officer while adjudging the quantum of penalty:
(a) The amount of disproportionate gain or unfair advantage (if quantifiable) made as a result of the default.
(b) The amount of loss to an investor or group of investors as a result of the default.
(c) The repetitive nature of the default.

Securities Laws and Capital Markets Questions and Answers

An Overview of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 – Securities Laws and Capital Markets Important Questions

Amendment Based Questions for Practice – Company Law Important Questions

Leave a Comment / CS Executive / By Murali / April 6, 2024 April 10, 2024

Amendment Based Questions for Practice – Company Law Important Questions

Question 1.
Define the term “Nidhi” as per rule 3(da) of Nidhi (Amendment) Rules, 2019. Also, state the date of applicability of such term “Nidhi”.
Answer:
1. As per rule 3(da) of Nidhi (Amendment) Rules, 2019, “Nidhi” means a company that has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with the rules made by the Central Government for regulation of such class of companies.

2. The definition is inclusive one includes the activities to be carried out by the Nidhi as well as gives exclusive power to the Central Government to make rules and regulations for “Nidhi” operating in India.

3. The effective date for the applicability of the term “Nidhi” is 15th August 2019.

Question 2.
In light of new rule 3A of Nidhi (Amendment) Rules, 2019, if Nidhi Company does not file Form NDH-4 within the prescribed time limit then in such situation which forms are disallowed to be filed by Nidhi Company?
Answer:
1. As per the first proviso of rule 3A of Nidhi (Amendment) Rules, 2019,
A Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment) Rules, 2019 shall file Form NDH-4 within sixty days from the date of expiry of:
(a) one year from the date of its incorporation; or
(b) the period up to which extension of time has been granted by the Regional Director under sub-rule (3) of rule 5.

2. A Nidhi Company does not comply with the requirements of the provisions of rule 3A of Nidhi (Amendment) Rules, 2019 and disallowed to file:

Form No. SH-7 (Notice to Registrar of any alteration of share capital), and
Form PAS-3 (Return of Allotment).

Question 3.
As per rule 23 A of Nidhi (Amendment) Rules, 2019: A Nidhi Company having date of incorporation 20-01-2019. What time frame within which the Company needed to comply with the provisions of rule 3A?
Answer:
1. As per rule 23A of Nidhi (Amendment) Rules, 2019:
Every company referred to in clause (b) of rule 2 and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared as such in accordance with rule 3A within a period of one year from the date of its incorporation or within a period of nine months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later.

2. The time frame to comply is later of the following: [Later of (1) or (2) below]

One year from the date of its incorporation ie. 19-01-2020.
Within a period of six months from the date of commencement of Nidhi (Amendment) Rules, 2019 ie. 15-02-2020.

Thus, within 15-02-2020. (Later of above two)

Question 4.
The director of the Company Mr. P wants to seek clarification on filing of DIR-3 KYC. He already filed the Form DIR-3 KYC. He wants to know whether he is required to file DIR-3 KYC Or DIR-3 KYC Web through Web Service?
Is there any difference in your answer if he wants to change his E-mail Id & Mobile Number this year?
Answer:
The situation I: When Director KYC has already done and no change in details in this year:
Mr. P requires to file DIR-3 KYC Web through Web Services for every financial year till 30th September for the previous financial year.

Situation II: When Director KYC has already done and there is a change in Email and Mobile No. in this year:
Mr. P requires to file DIR-3 KYC for every financial year till 30th September for the previous financial year.
Yes, the answer is different.

In case of change in E-mail Id and Mobile Number this year DIR-3 KYC is required to be filed instead of DIR-3 KYC Web through Web Services.

Question 5.
The Company limited by shares issue equity shares with differential rights as to dividend, voting, or otherwise unless the shares with differential rights exceeding the specified percentage of the total voting power.
(a) What is a requirement of a specified percentage of total voting power in case of differential rights issue.
Answer:
As per rule 4(l)(c) of the Companies (Share Capital & Debentures) Amendment Rules, 2019, No Company limited by shares shall issue equity shares with differential rights as to dividend, voting, or otherwise, unless the shares with differential rights shall not exceed 7496 of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

(b) Is the Company also require a consistent track record of distributable profits for the last three years for such issue?
Answer:
No, not required as clause (d) of rule 4(1) omitted vide MCA notification dated 16th August 2019.

Question 6.
The auditor of Unlisted Public Company having an annual turnover of INR 200 crores as of 31st March 2019 covered under rule 3 of National Financial Reporting Authority Rules, 2018; shall file an annual return under Rule 5 of NFRA Rules, 2018.
What is the time limit to file such returns under Rule 5 as per NFRA (Amendment) Rules, 2019?
Answer:
As per National Financial Reporting Authority Rules, 2018 read with National Financial Reporting Authority (Amendment) Rules, 2019:
Every Auditor referred to in Rule 3 of National Financial Reporting Authority Rules, 2018 shall file a return with the National Financial Reporting Authority on or before 30th November every year in Form NFRA-2.

Note: Vide MCA General Circular dated 5-3-2020, the time limit for filing of Form NFRA-2 for the reporting period Financial Year 2018-19 will be 150 days from the date of deployment of this form on the website of National Financial Reporting Authority (NFRA).

Question 7.
As per National Financial Reporting Authority (Meeting for Transaction of Business) Rules, 2019;
Answer the following:
(I) Is the Video Conferencing option is available for members to attend meetings of the National Financial Reporting Authority?
Answer: As per National Financial Reporting Authority (Meeting for Transaction of Business) Rules, 2019:
Yes, as per Rule 3(6) of said rules: a Video Conferencing option is available.

(II) Who is authorized to decide in advance the date, time, place, and agenda of each meeting of the National Financial Reporting Authority?
Answer:
As per Rule 3(2) of the said rules: The chairperson is authorized to decide in advance the date, time, place, and agenda of each meeting of the National Financial Reporting Authority.

(III) What is the Quorum for Meeting of National Financial Reporting Authority?
Answer:
As per Rule 3(9) of the said rules: The Quorum for Meeting of National Financial Reporting Authority shall be 4 members of which at least 1 member shall be a full-time member.

Question 8.
The Indian Institute of Corporate Affairs notified under Section 150(1) of the Companies Act, 2013 shall create and maintain a databank of persons willing and eligible to be appointed as independent directors.
Prepare the list of details in respect of each person included in the databank to be eligible and willing to be appointed as Independent director?
Answer:
The list of details in respect of each person included in the databank to be eligible and willing to be appointed as Independent director as mentioned below in terms of Rule 3 of Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019:
(a) DIN (Director Identification Number), if applicable;
(b) Income Tax PAN;
(c) the name and surname in full;
(d) the father’s name;
(e) the date of Birth;
(f) gender;
(g) the nationality;
(h) the occupation;
(i) full Address with PIN Code (present and permanent);
(j) phone number;
(k) e-mail id;
(l) the educational and professional qualifications;
(m) experience or expertise, if any;
(n) any pending criminal proceedings as specified in clause (d)of sub-section (1) of section 164;

(o) the list of limited liability partnerships in which he is or was a designated partner along with:

the name of the limited liability partnership;
the nature of the industry; and (m) the duration- with dates;

(p) the Hst of companies in which he is or was director along with:

the name of the company;
the nature of the industry;
the nature of directorship: Executive or Non-executive or Man-aging Director or Independent Director or Nominee Director; and
duration – with dates.

Question 9.
Write Short Note On eCSIN.
Answer:
1. Applicability: Mandatory for members entering into employment with effect from 1 st October 2019 and the Members already holding employment shall mandatorily be required to generate eCSIN not later than 31st December 2019.

2. Any non-compliance with eCSIN Guidelines shall render the members liable for action under the Companies Secretaries Act, 1980 read with First Schedule and Second Schedule to the Company Secretaries Act, 1980.

Question 10.
Write Short Note On UniQuestion Document Identification Number.
Answer:
1. UDIN can be generated by logging onto udin.icsi.edu and will be quoted in the certificate, report, and documents along with the Certificate of Practice Number.

2. ICSI UDIN will be mandatory for prescribed documents signed or certified by a Practicing Member with effect from 1st October 2019.

3. Major significance are:

prevent falsification
prevent fraud
generate trust

4. Any non-compliance with UDIN Guidelines shall render the members liable for action under the Company Secretaries Act, 1980 read with First Schedule and Second Schedule to the Company Secretaries Act, 1980.

Question 11.
Any change in the Capital Structure of the Company during the year includes some specific information which is to be included in the Board Report of the Company as per Secretarial Standard 4 (SS-4). Enumerate the list of specific information regarding changes in capital structure.
Answer:
As per Secretarial Standard 4 (SS-4), any changes in the capital structure of the company during the year, including the following:
(a) change in the authorized, issued, subscribed, and paid-up share capital;
(b) re-classification or sub-division of the authorized share capital;
(c) reduction of share capital or buyback of shares;
(d) change in the capital structure resulting from restructuring; and
(e) change in voting rights.

Question 12:
What disclosures pertaining to the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013 are required as per Secretarial Standard 4 (SS-4)?
Answer:
As per Secretarial Standard 4 (SS-4), the disclosure shall include the following:
(a) A statement that the company has complied with the provision relating to the constitution of the Internal Complaints Committee under the Sexual
Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013.

(b) The details of a number of cases filed and disposed of as required under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013.

Question 13.
Write Short Note On Right of Members to have Copies of the Board Report as per Secretarial Standard 4 (SS-4).
Answer:
1. A copy of the Report along with the financial statement and the Auditor’s Report shall be sent, either physically or in electronic form, to every member at least twenty-one clear days in advance of the annual general meeting.

2. The copies of the above documents can be sent less than twenty-one clear days in advance of the annual general meeting if it is so agreed by members:
(a) holding, if the company has a share capital, the majority in number of members entitled to vote and who represent not less than ninety-five percent of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or

(b) having, if the company has no share capital, not less than ninety-five percent of the total voting power exercisable at the meeting.

3. In the case of section 8 companies, the said documents shall be sent to the members not less than fourteen clear days before the date of the annual general meeting.

Question 14.
As per Secretarial Standard 4 (SS-4), If the Corporate Insolvency Resolution Process initiated under the Insolvency and Bankruptcy Code, 2016 (IBC). In such a case what disclosure is required to be made in Board Report about Corporate Insolvency Resolution Process?
Answer:
The disclosure shall include the following:
(a) details of any application filed for corporate insolvency resolution process, by a financial or operational creditor or by the company itself under the IBC before the NCLT;
(b) status of such application; and
(c) status of the corporate insolvency resolution process, if any, initiated under the IBC.

Question 15.
As per Secretarial Standard 4 (SS-4), discuss the disclosure requirement regarding Risk Management in Board’s Report.
Answer:

A statement indicating the development and implementation of a risk management policy for the company.
Such statement shall, inter alia, disclose:
(a) Various elements of risk which, in the opinion of the Board, may threaten the existence of the company, and
(b) Strategy to mitigate such risks.

Question 16.
What general information is required to be disclosed in Board’s report as per Secretarial Standard 4 (SS-4)?
Answer:
As per Secretarial Standard 4 (SS-4), the following general information is required to be disclosed in Board’s report:

Overview of the industry and important changes in the industry during the last year;
External environment and economic outlook;
Induction of strategic and financial partners during the year; and
In case of a company, which has delisted its equity shares, during the year or till the date of the Report, the particulars of delisting activity giving details like price offered pursuant to delisting offer, offer period of delisting, number of shares tendered and accepted, the total consideration paid and the holding of the Promoters in the company post-delisting.

Question 17.
Disclosures in case of Issue of Non-convertible securities under Secretarial Standard 4 (SS-4).
Answer:
As per Secretarial Standard 4 (SS-4), the disclosure in case of issue of non-convertible securities shall include the following:
(a) date of issue and allotment of the securities;
(b) number of securities;
(c) whether the issue of the securities was by way of preferential allotment, private placement, or public issue;
(d) brief details of the debt restructuring pursuant to which the securities are issued;
(e) issue price;
(f) coupon rate;
(g) maturity date;
(h) amount raised.

Question 18.
Write Detailed Note On Active Company Tagging Identities and Verification (Active).
Answer:
1. As per Rule 25A of Companies (Incorporation) Amendment Rules, 2019: Every company incorporated on or before the 31st December 2017 shall hie the particulars of the company and its registered office, in e-Form Active (Active Company Tagging Identities and Verification) on or before 25.04.2019.

2. MCA e-form Active (INC-22A) is required to be hied to comply with Rule 25A of the Companies (Incorporation) Amendment Rules, 2019.

3. Following cannot be done if MCA e-form Active (INC-22A) is not done within due date unless e-form Active (INC-22A) is filed:

SH-07 (Change in Authorized Capital);
PAS-03 (Change in Paid-up Capital);
DIR-12 (Changes in Director except for cessation);
INC-22 (Change in Registered Office);
INC-28 (Amalgamation, demerger).

4. Following companies are not required to file MCA e-form Active (INC-22A):

Companies that have been struck off or are under the process of striking off; or
Companies under liquidation; or
Companies amalgamated or dissolved, as recorded in the register.

5. Following companies are restricted from filing MCA e-form Active (INC-22A):

any company which has not filed its due financial statements under section 137 with the Registrar; or
any company which has not filed its due annual returns under section 92 with the Registrar; or
both with the Registrar.

6. Consequences of non-filing of MCA e-form Active (INC-22A):

The Company shall be marked as “Active-non-compliant” on or after 26th April 2019; and
shall be liable for action under sub-section (9) of section 12 of the Act
The penalty of INR 10,000: Where a company files “e-Form Active”, on or after 26th April 2019, the company shall be marked as “Active Compliant”, on payment of a fee of ten thousand rupees.

Question 19.
Write Short Note on Commencement of Business
Answer:
1. As per section 11 of the Companies Act, 2013, now all newly incorporated Public and Private Companies having Share Capital would be required to obtain a certificate of commencement of business from the concerned Registrar of Companies before commencing the business or exercise of borrowing powers.

2. A public company or a private limited company not having share capital is not required to comply with any other formalities and may commence its business activities immediately after obtaining the certificate of incorporation from the concerned Registrar of Companies.

3. The commencement of business certificate must be obtained within 180 days of incorporation of the company.

4. While filing the application for commencement, each of the Directors of the company must declare that every subscriber of the memorandum has paid the value of the shares agreed to be taken by him/her on the date of the making of such declaration.

5. MCA e-form-INC 20A is required to be filed within 180 days of incorporation of the company for such purpose.
Note: As per special measures under the Companies Act, 2013 in view of the covid-19 outbreak, an additional period of 180 days is allowed for this compliance as per MCA General Circular dated 24th March 2020.

Question 20.
Write Short Note on E-Form PAS- 6?
Answer:

Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 Every unlisted public company governed by this rule shall submit Form PAS-6 to the Registrar with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014.
The Form PAS-6 within sixty days from the conclusion of each half year.
The certification by a company secretary in practice or chartered accountant in practice is mandatory.

Question 21.
Write a Short Note on the Compliance Monitoring System of MCA.
Answer:
1. The Ministry of Corporate Affairs introduced :

MCA has launched an Artificial Intelligence initiative known as the “Ministry of Corporate Affairs – Compliance Monitoring System” (MCA-CMS)
to monitor the companies’ compliance level and trace the transparency of their affairs.

2. MCA-CMS is the online portal invented by MCA for issuance of electronic SCN to the company or director or any officer in default regarding any non-compliance of any provisions of the Act.
Also, it mandates recipients of the SCN to submit replies through the same portal electronically.

3.MCA-CMS has already started issuing notices to the company or its directors for non-compliance.

4. Currently SCNs are being issued only for the non-compliance of section 96 (Annual General Meeting) and section 204 (Secretarial Audit) and recipients of such SCN must file a reply within 15 days of the date of SCN.

Question 22.
Write a Short Note on ICSI RVO.
Answer:
1. To enable the members of the Institute/others to practice as Registered Valuers, the Institute incorporated ICSI-RVO.

2. ICSI- RVO is a Section 8 company that has been formed with the intent to enroll, register, educate, train, promote, develop and regulate Registered Valuers Rules while establishing and promoting high standards of practice and professional conduct and furthermore, to promote good professionalism, ethical conduct, and competency of Registered Valuers for ensuring the quality of valuation work.

3. The IBBI recognized ICSI RVO as a Registered Valuers Organisation for the Asset Class(es):

Land and Building ;
Plant and Machinery ;
Securities or Financial Assets.

Question 23.
As per Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019, notified by Ministry of Corporate Affairs vide Notification dated 18th November 2019, explain the approval limits for related party transactions with the prior approval of the members of the company by an ordinary resolution?
Answer:
MCA vide Notification dated 18th November 2019 has amended the Companies (Meetings of Board and its Powers) Rules, 2014 to provide a new threshold limit for contracts or arrangements entered into with related party under section 188 with the prior approval of the members of the company by an ordinary resolution:

Sale, purchase, or supply of any goods or materials directly or through the appointment of an agent amounting to 10% or more of the turnover of the company.
Selling or otherwise disposing of, or buying, property of any kind directly or through the appointment of an agent amounting to 10% or more of the net worth of the company.
Leasing of property of any kind amounting to 10% or more of the turnover of the company.
Availing or rendering of any services directly or through the appointment of an agent amounting to 10% or more of the turnover of the company.

Question 24:
Write Short Note On Companies Fresh Start Scheme, 2020?
Answer:
1. The Scheme “Companies Fresh Start Scheme, 2020” gives an opportunity to the defaulting companies and to enable them to file the belated documents on the MCA-21 registry, the Central Government in the exercise of powers conferred under section 460 read with Section 403 of the Companies Act, 2013.

2. It is a one-time opportunity provided by MCA to the companies.

3. This Scheme shall come into force on 1st April 2020 and shall remain in force till 30th September 2020. Further, the extension is granted till 31st December 2020.

4. Major benefits of CFSS, 2020:

No additional fees are required to be paid in the relevance of any period.
Immunity from the prosecution.
No penalty on account of delay in filings.

Question 25.
Write a Short Note on Special provisions for Inactive Companies under the Companies Fresh Start Scheme, 2020 (“CFSS, 2020”)?
Answer:

This fresh start scheme also provides a major benefit to defaulter inactive companies.
Every defaulter inactive company can along with the filing of documents under this scheme also apply for any of the following two options as per their choice.

Option 1: Apply to get themselves declared as “Dormant Company under section 455 of the Companies Act, 2013. This option can be availed by filing the Form MSC-1 electronically by paying a nominal fee on the said form;

Option 2: Apply for striking off their names from the register of companies. This option can be availed by electronically filing the Form STK-2 along with a deposit of nominal fees prescribed for this form.

Question 26.
Write Short Note on Non-Applicability of CFSS, 2020?
Answer:
The CFSS, 2020 shall not apply:

To Companies against which action for final notice for striking off the name u/s 248 of the Companies Act, 2013 (previously Section 560 of the Companies Act, 1956) has already been initiated by the designated authority;
Where an application has already been filed by the Company for striking off the name of the Company from ROCs;
Companies amalgamated under the scheme of compromise & arrangement;
The Company applied for Dormant Status under section 455 of the Companies Act, 2013 before the scheme introduction;
Vanishing Companies.

Question 27.
Explain the detailed provisions regarding “Application for issue of immunity”, “Certificate of Immunity” and “Effect of getting immunity Certificate” under CFSS, 2020?
Answer:
1. The application for seeking immunity by the government in relation to belated documents needs to be filed electronically in the Form CFSS- 2020. No fees shall be charged for filing an application of immunity with the government.

2. This application can be filed by the company after closure of the scheme and after the documents for which immunity is being asked are filed by the company or taken on record or approved by the designated authority as the case may be. It may be noted that under any circumstances.

3. The application for seeking immunity can’t be filed after the expiry of 6 months from the closure of the scheme.

4. Circumstances where immunity shall not be provided:

In cases where the matter is already pending before the court of law.
In cases where the management disputes of the company are pending before the court of law.
No immunity shall be provided in case order for conviction or penalty has been passed by adjudicating authority or by the court under the Act and no appeal against such order has been preferred against such order of the court or adjudicating authority as the case may be before this scheme has come into force Le. 1st April 2020.

5. Order granting Immunity: After the e-form CFSS 2020 has filed by the Company online, an immunity certificate shall be issued by the designated authority under this scheme after the authority is satisfied with the claim and declaration made in the Form: CFSS-2020.

6. Effect of getting Immunity: The concerned designated authority shall withdraw all the prosecutions pending before the concerned authorities. But the proceedings that shall need to be withdrawn should be those relating to the default for submission of the documents or statements and not for any other default for which immunity is not allowed under the scheme. So, accordingly, immunity shall be provided from the designated authority without any further action pending on their part.

Question 28.
Suppose XYZ Limited is a Listed Company. The details of donation made by the listed entities as follows:
1. Donated INR 1 crore towards “Prime Minister’s National Relief Fund” on 8th January 2020.
2. Donated INR 2 crores towards Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)” on 2nd June 2020.
3. Donated INR 1 crore towards “Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents are including widows” on 30th June 2020.
(A) What is the total amount contributed towards CSR as per Schedule VII of the Companies Act, 2013 for Financial Year 2019-2020?
(B) What is the total amount contributed towards CSR as per Schedule VII of the Companies Act, 2013 for Financial Year 2019-2020?
Answer:
1. MCA notification dated 26th May 2020 inserted PM CARES Funds in Schedule VII to the Companies Act, 2013. It is deemed to have come into force on 28th March 2020.
Further, the “Prime Minister’s National Relief Fund” is already part of Schedule VII to the Companies Act, 2013.

2. MCA notification dated 23rd June 2020 inserted “Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows”.

It shall come into force on the date of its publication Le. 23rd June 2020. (A) Therefore, the total amount towards CSR contribution by XYZ Limited for Financial Year 2019-2020 as per Schedule VII is equal to:

Prime Minister’s National Relief Fund + Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund.
= 1 + 2 crores
= 3 crores.

Note: Insertion of PM CARES Funds in Schedule VII to the Companies Act, 2013 deemed to have come into force on 28th March 2020.

(B) Therefore, the total amount towards CSR contribution by XYZ Limited for Financial Year 2020-2021 as per Schedule VII is equal to a donation towards “Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows”
= 1 crore.

Note: Insertion of “Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents are including widows” in Schedule VII to the Companies Act, 2013 have come into force on 23rd June, 2020.

Question 29.
The data of Alpha Private Limited are as follows as per the latest audited financial statements:

Paid-up share capital	INR 9 crores
Turnover	INR 50 crores

The unaudited financial statements figures estimated as follows:

Paid-up Share Capital	INR 10.5 crores
Turnover	INR 50.4 crores

Answer with reason, whether the appointment of whole-time company secretary is mandatory in terms of provisions of the Companies Act, 2013 for FY 2020-21 in Alpha Private Limited.
Answer:
1. As per Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 the Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 shall be substituted.

2. As per New Rule 8A of the said rules read with Section 203 of the Companies Act, 2013, Every private company which has a paid-up share capital of ten crores rupees or more shall have a whole-time company secretary.

3. The paid-up share capital as per the last date of the latest audited financial statement shall be taken into account for the said purpose.

Therefore, the paid-up capital of Alpha Private Limited falls below 10 crores.
Thus, the appointment of a whole-time company secretary is not mandatory in Alpha Private Limited for FY 2020-21.

Question 30.
The financial figures of Beta Private Limited are as follows as per the latest audited financial statement of the Company.

Particulars	Amount (INR in Crores)
Paid-up Share Capital	80
Turnover	2000
Outstanding Loan from banks	150

Answer with reason, whether a secretarial audit is applicable on Beta Private LfiUlted for the FY 2020-2021 as per the provisions of Section 204 Companies Act, 2013 read with relevant rules?
Answer:
1. As per Section 204(1) Companies Act, 2013:
Every listed company and a company belonging to another class of companies as may be prescribed shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.

2. As per Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended by Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020:

The other class of companies shall be as under
(a) Every public company having a paid-up share capital of fifty crore rupees or more; or
(b) Every public company having a turnover of two hundred fifty crore rupees or more; or
(c) Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

Explanation: It is hereby clarified that the paid-up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of the latest audited financial statement shall be taken into account.

Therefore, Beta Private Limited is a private company having outstanding loans from banks of INR 150 crores. Referring to discussed provisions, the secretarial audit is applicable on Beta Private Limited for the FY 2020-2021.

CS Executive Company Law Questions and Answers

Securities & Exchange Board of India Act, 1992 – Securities Laws and Capital Markets Important Questions

Leave a Comment / CS Executive / By Murali / April 6, 2024 April 10, 2024

Securities & Exchange Board of India Act, 1992 – Securities Laws and Capital Markets Important Questions

Question 1.
Discuss the various powers and functions of SEBI under the SEBI Act 1992. [June 2017 (4Marks)]
Answer:
The function of SEBI [Section 11(2)]: Functions of SEBI are as follows:

Regulating the business in stock exchanges and any other securities markets.
Registering and regulating the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner.
Registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies, and other intermediaries.
Registering and regulating the working of VCF and CIS, including MFs.
Promoting and regulating self-regulatory organizations.
Prohibiting fraudulent and unfair trade practices relating to securities markets.
Promoting investor’s education and training of intermediaries of securities markets.
Prohibiting insider trading in securities.
Regulating substantial acquisition of shares and takeover of companies.
Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market intermediaries and self-regulatory organizations in the securities market.
Calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State, or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the SEBI.
Performing functions and exercising powers under the provisions of the SCR Act, 1956 delegated by the Central Government.
Levying fees or other charges.
Conducting research.
Calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions.
Performing such other functions as may be prescribed.

Power of SEBI to make inspection [Section 11(2A)]: The SEBI may take measures to undertake inspection of any book, or register, or other document or record of

Any listed public company, or
A public company that is in process of listing its securities on the recognized stock exchange.

Such inspection can be made by the SEBI if it has reasonable grounds to believe that company has been indulging in insider trading or fraudulent and unfair trade practices relating to the securities market.

Power of Civil Court exercisable by SEBI [Section 11(3)]: The SEBI shall have the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters:

The discovery and production of books of account and other documents, at such place and such time as may be specified by the SEBI
Summoning and enforcing the attendance of persons and examining them on oath.
Inspection of any books, registers, and other documents of various market intermediaries at any place.
Inspection of any book, or register, or other document or record of any listed public company or a public company that intends to get its securities listed on any recognized stock exchange
Issuing commissions for the examination of witnesses or documents.

Question 2.
SEBI has been established with the objective of protecting the interest of investors and promoting the development of and regulating the securities market (SEBI Act, 1992). Discuss the composition and initiatives taken by the SEBI for the development and regulation of the securities market. [June 2018 (8 Marks)]
Answer:
Objectives of the SEBI Act, 1992 are as follows:

To protect the interests of investors in securities.
To promote the development of the securities market.
To regulate the securities market.
To promote fair dealing by the issuer of securities.
To ensure the issuer of securities can raise funds at a relatively low cost.
To regulate and develop a code of conduct and fair practices by various intermediaries.
To monitor the activities of stock exchanges, mutual funds, and merchant bankers.

Composition of the SEBI [Section 4(1)]: The SEBI shall consist of the following members:

A Chairman.
Two members from amongst the officials of the Ministry of the Central Government dealing with Finance and administration of the Companies Act, 2013.
One member from amongst the officials of the RBI.
Five other members of whom at least 3 shall be the whole-time members to be appointed by the Central Government.

Thus, SEBI Board consists of a total of 9 members.

Management of the SEBI [Section 4(2)]: The general superintendence, direction, and management of the affairs of the SEBI shall vest in a Board of members, which may exercise all powers and do all acts and things which may be exercised or done by the SEBI.

Power of Chairman of SEBI [Section 4(3)]: The Chairman shall also have powers of general superintendence and direction of the affairs of the SEBI. He may exercise all powers and do all acts and things which may be exercised or done by the SEBI.

Appointment of Chairman [Section 4(4)]: The Chairman and members shall be appointed by the Central Government. The members shall be nominated by both Central Government and RBI.

Who can be a member of SEBI [Section 4(5)]: The Chairman and other members shall be persons of ability, integrity, and standing who have shown capacity in dealing with problems relating to the securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the SEBI.

Duties of SEBI [Section 11(1)]: It shall be the duty of the SEBI

To protect the interests of investors in securities.
To promote the development of the securities market.
To regulate the securities market.

In order to discharge the above duties, SEBI may take such measures as it thinks fit.

Question 3.
State the measures that can be taken by the SEBI either pending investigation or inquiry or on completion of investigation or inquiry.
Answer:
Power of SEBI where an inquiry or investigation is ordered [Section 11(4)]: The SEBI may take any of the following measures, either pending investigation or inquiry or on completion of investigation or inquiry:

Suspend the trading of any security in a recognized stock exchange.
Restrain persons from accessing the securities market and prohibit any person associated with the securities market to buy, sell or deal in securities.
Suspend any office-bearer of any stock exchange or self-regulatory organization from holding such a position.
Impound and retain the proceeds or securities in respect of any transaction which is under investigation.
Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation.

Conditions for passing orders: SEBI shall give an opportunity of hearing to such intermediaries or persons concerned either before or after passing such orders.

Question 4.
State the circumstances under which SEBI may pass cease and desist orders in respect of any listed company.
Answer:
Cease and desist proceedings [Section 11D]: After inquiry, SEBI can issue cease and desist order to any person who has violated or is likely to violate any provisions of the Act or any rules or regulations.

However, in the case of a listed public company or a public company that intends to get its securities listed on any recognized stock exchange, such an order can be passed only if such a company has indulged in insider trading or market manipulation.

Question 5.
SEBI has been given the necessary autonomy and authority to regulate and develop an orderly market. Elucidate the statement in the light of statutory powers vested with SEBI. [June 2019 (4 Marks)]
Answer:
SEBI is vested with the following powers under the SEBI Act, 1992 to regulate and develop an orderly market:

Power to make an inspection of a listed public company or public company which is in process of listing its securities. [Section 11(2A)]
Power of civil court [Section 11(3)]
Power to take necessary measures where an inquiry or investigation is ordered. [Section 11 (4)]
Power to issue directions. [Section 11 B]
Power to issue cease and desist orders to any person who has violated or is likely to violate any provisions of the Act or any rules or regulations. [Section 11 D]
Power to impose a penalty for violation of provisions of the Act.

Question 6.
What is the penalty under the SEBI Act, 1992 for failure to redress investor’s grievances?
Answer:
Penalty for failure to redress investors grievances [Section 15C]: If any listed company or registered intermediary fails to redress grievances of investors within the time specified by the SEBI, such company or intermediary shall be liable to a penalty which shall not be less than ₹ 1 lakh but which may extend to ₹ 1 lakh for each day during which such failure continues subject to a maximum of ₹ 1 Crore.

Question 7.
What is the penalty under the SEBI Act, 1992 for insider trading?
Answer:
Penalty for insider trading [Section 15G]: For the following defaults, an insider shall be liable to a penalty which shall not be less than ₹ 10 lakhs but which may extend to ₹ 25 Crores or 3 times of profits out of insider trading, whichever is higher:
(a) Where he deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information.
(b) Where he communicates any unpublished price-sensitive information to any person except as required in the ordinary course of business or under any law.
(c) Where he counsels or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information.

Question 8.
Explain the procedure to be adopted by the SEBI for adjudication of penalties under the SEBI Act, 1992. Also, state the factors that must be taken into accounts by the Adjudicating Officer while determining the quantum of | penalty in such case.
Answer:
Power to adjudicate [Section 15-I(1)]: For the purpose of adjudging j under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H, 15HA, and 15HB, the j SEBI shall appoint any officer not below the rank of a Division Chief to be j an Adjudicating Officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty.

Power of Adjudicating Officer [Section 15-I(2)]: While holding an inquiry the Adjudicating Officer shall have the power to summon and enforce the 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 the Adjudicating Officer, may be useful for or relevant to the subject-matter of the inquiry. If on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the specified sections, he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.

Enhancement of quantum of penalty in case of erroneous order by Adjudicating Officer [Section 15-1(3)]: The SEBI may call for and examine the record of any proceedings under this section and if it considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty if the circumstances of the case so justify.

However, no such order shall be passed unless the person concerned has been given an opportunity of being heard in the matter.

It is to be noted here that provisions of passing order enhancing the penalty in case of erroneous order by Adjudicating Officer are not applicable after expiry of a period of 3 months from the date of the order passed by the Adjudicating Officer or disposal of the appeal u/s 15T, whichever is earlier.

Factors to be taken into account by Adjudicating Officer [Section 15J]: While adjudging quantum of penalty u/s 15-1, the Adjudicating Officer shall have due regard to the following factors, namely:

Amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default.
Amount of loss caused to an investor or group of investors as a result of the default.
Repetitive nature of the default.

Crediting sums realized by way of penalties to Consolidated Fund of India [Section 15JA]: All sums realized by way of penalties under this Act shall be credited to the Consolidated Fund of India

Question 9.
What actions lie against registered intermediary in case of defaults or violation under the SEBI Act, 1992? [June 2009 (4 Marks)]
Answer:
Following actions can be taken by the SEBI in case of defaults or violation under the SEBI Act, 1992 by a registered intermediary like merchant bankers:
1. Investigation: As per Section 11C, the SEBI may appoint any person (Investigating Authority) to investigate the affairs of intermediary if the SEBI has reasonable ground to believe that any intermediary has violated any of the provisions of the SEBI Act, 1992 or Rules or Regulations made or directions issued by the SEBI.

2. Cease and desist order: As per Section 1 ID, after inquiry, SEBI can issue cease and desist order to a registered intermediary who has violated or is likely to violate any provisions of the Act or any rules or regulations.

3. Imposition of penalty: The Adjudicating Officer of SEBI can also impose penalties under sections 15A to 15HB for violating any of the provisions of the SEBI Act, 1992 or Rules or Regulations made thereunder.

4. Cancellation of registration certificate: SEBI can also cancel the registration certificate of the intermediary after giving the opportunity of being heard.

Question 10.
XYZ Ltd. issued 12.5% debentures amounting to ₹ 150 Crore on a private placement basis during the financial year 2013. Later on, it was found that these debentures were issued to 73 persons. A Sessions Court in Mumbai took cognizance of the same and Suo Motu initiated the proceedings against XYZ Ltd. The company pleaded that the Court has no locus stand in this regard and therefore, it cannot initiate any proceedings against it.
As per the SEBI Act, 1992 and other relevant laws, discuss whether the company’s pleading is tenable and whether the Court should drop the proceedings against the company. [June 2014 (5 Marks)]
Answer:
As per section 26 of the SEBI Act, 1992, no Court shall take cognizance of any offense punishable under the Act or any rules or regulations made thereunder except on a complaint made by the SEBI. I

Thus, action initiated by Sessions Court in Mumbai is not valid.

Question 11.
A stockbroker or sub-broker shall not be liable for prosecution under the SEBI Act, 1992 for any violation. Comment. [Dec. 2014 (4 Marks)]
Answer:
Penalty for default in case of stockbrokers [Section 15F]: A registered stockbroker shall be liable to a penalty which shall not be less than ₹ 1 lakh but which may extend to ₹ 1 lakh for each day subject to a maximum of ₹ 1 Crore if it fails
(a) To issue contract notes in the form and manner specified by the stock exchange;
(b) To deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations;
(c) Charges an amount of brokerage which is in excess of the brokerage specified in the regulations.

Question 12.
Mr. DB Is a member of RPA Ltd. He obtains an order against the company for redressal of his grievances against the company. But the company fails to redress the grievances of DB within the time fixed by the SEBI. The SEBI thereafter imposed a penalty upon the company u/s 15C of the SEBI Act, 1992. RPA Ltd. seeks your advice on whether it has any remedy against the order of SEBI.
Answer:
Section 15C lays down that if any listed company or any person who is registered as an intermediary, after having been called upon by the SEBI in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the board, such company or intermediary shall be liable to a penalty of ₹ 1 lakh for each day during which such failure continues or ₹ 1 Crore, whichever is less.

RPA Ltd. was penalized under the provisions of the above-mentioned section. No two remedies are available to RPA Ltd. in this matter:
1. Appeal to the Securities Appellate Tribunal: Section 15T provides that any person aggrieved by an order of the SEBI may prefer an appeal to SAT. Such appeal shall be filed within a period of 45 days from the date on which a copy of the order is received. However, the SAT may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within that period. On receipt of an appeal, the SAT may pass orders as it thinks fit, confirming, modifying, or setting aside the order appealed after giving an opportunity of being heard to the parties.

2. Appeal to the Supreme Court: Section 15Z provides that any person aggrieved by any decision or an order of the SAT may file an appeal to the Supreme Court within 60 days from the date of communication of the decision or order to him on any question of law arising out of such order. The Supreme Court may allow it to be filed within a further period not exceeding 60 days if it is satisfied that the appellant was prevented by sufficient cause.

Question 13.
Write a short note on the Role of Company Secretary under the SEBI Act, 1992
Answer:
1. Right to Legal Representation: Any person aggrieved (the appellant) may either appear in person or authorize one or more chartered accountants or company secretaries (PCS) or cost accountants or legal practitioners or any of its officers to present his or its case before the Securities Appellate Tribunal (SAT).

2. The SEBI also recognizes the Company Secretary as the Compliance Officer and authorizes practicing company secretaries to issue various certificates under its Regulations. Further, practicing Company Secretaries are also authorized to certify compliance of conditions of corporate governance in the case of listed companies.

Question 14.
Write a short note on Securities Appellate Tribunal (SAT) [June 2009 (5 Marks)]
Answer:
Establishment of Securities Appellate Tribunals [Section 15K]: The Central Government shall establish Securities Appellate Tribunal by issuing a notification.

The Central Government shall also specify in the notification the matters and places in relation to which the SAT may exercise jurisdiction.

Composition of Securities Appellate Tribunal [Section 15L]: A SAT shall consist of a Presiding Officer and two other members, to be appointed by the Central Government by notification.

Qualification for appointment as Presiding Officer or Member of SAT [Section 15M]: Following person can be appointed as Presiding Officer of the SAT:
(a) A person who is a sitting or retired Judge of the Supreme Court or a sitting or retired Chief Justice of a High Court.
(b) A person who is a sitting or retired Judge of a High Court who has completed 7 years of service as a Judge in a High Court.

The Presiding Officer shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee.

A person can be appointed as a member of SAT if he is a person of ability, integrity, and standing who has shown capacity in dealing with problems relating to the securities market and has qualification and experience of corporate law, securities laws, finance, economics or accountancy.

A member of the SEBI or any person holding a post at senior management level equivalent to Executive Director in the SEBI shall not be appointed as Presiding Officer or Member of SAT during his service or tenure or within 2 years from the date on which he ceases to hold office as such in the SEBI.

Tenure of office of Presiding Officer and other Members of SAT [Section 15N]: The Presiding Officer and every other Member of an SAT shall hold office for a term of 5 years from the date on which he enters upon his office and shall be eligible for re-appointment.

No person shall hold office as the Presiding Officer after he has attained the age of 68 years.

No person shall hold office as a Member after he has attained the age of 62 years.

Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings [Section 15R]: No order of the Central Government appointing any person as the Presiding Officer or a Member of SAT shall be called in question in any manner, and no act or proceeding before SAT shall be called in question in any manner on the ground merely of any defect in the constitution of SAT.

Question 15.
Write a short note on Securities Appellate Tribunal (SAT) [Dec. 2009 (5 Marks)]
Answer:
Establishment of Securities Appellate Tribunals [Section 15K]: The Central Government shall establish Securities Appellate Tribunal by issuing a notification.

The Central Government shall also specify in the notification the matters and places in relation to which the SAT may exercise jurisdiction.

Composition of Securities Appellate Tribunal [Section 15L]: A SAT shall consist of a Presiding Officer and two other members, to be appointed by the Central Government by notification.

The Presiding Officer shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee.

No person shall hold office as the Presiding Officer after he has attained the age of 68 years.

No person shall hold office as a Member after he has attained the age of 62 years.

Question 16.
Write a short note: Powers of Securities Appellate Tribunal (SAT) [Dec. 2013 (4 Marks)]
Answer:
Procedure and powers of the SAT [Section 15U]: The SAT is not bound by the procedure laid down by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice. SAT has powers of Civil Court in respect of:

Summoning and enforcing the attendance of any person and examining him on oath.
Requiring the discovery and production of documents.
Receiving evidence on affidavits.
Issuing commissions for the examination of witnesses or documents.
Reviewing its decisions.
Dismissing an application for default or deciding it ex parte.
Setting aside any order of dismissal of any application for default or any order passed by it ex parte.
Any other matter which may be prescribed.

Every proceeding before SAT shall be deemed to be a judicial proceeding and the SAT shall be deemed to be a Civil Court.

Question 17.
“Securities Appellate Tribunal shall have the same power as are vested in a Civil Court while trying a suit.” In the light of this statement, state the powers vested in SAT as a Civil Court. [Dec. 2014 (5 Marks)]
Answer:
Procedure and powers of the SAT [Section 15U]: The SAT is not bound by the procedure laid down by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice. SAT has powers of Civil Court in respect of:

Summoning and enforcing the attendance of any person and examining him on oath.
Requiring the discovery and production of documents.
Receiving evidence on affidavits.
Issuing commissions for the examination of witnesses or documents.
Reviewing its decisions.
Dismissing an application for default or deciding it ex parte.
Setting aside any order of dismissal of any application for default or any order passed by it ex parte.
Any other matter which may be prescribed.

Every proceeding before SAT shall be deemed to be a judicial proceeding and the SAT shall be deemed to be a Civil Court.

Question 18.
Hon’ble Justice A, a retired Chief Justice of a High Court, attained the age of 62 years on December 31, 2017. The Central Government had appointed him as the Presiding Officer of the Securities Appellate Tribunal (SAT) with effect from January 1, 2018. You are required to state with reference to SEBI Act, 1992, (a) the term for which he may be appointed as Presiding Officer of the SAT (b) Whether he can be re-appointed as such and remains as Presiding Officer of the Securities Appellate Tribunal?
Answer:
As per Section 15M of the SEBI Act, 1992, a retired High Court Judge can be appointed as Presiding Officer of the SAT if he has completed 7 years of service as a Judge in a High Court.

As per Section 15N, no person shall hold office as the Presiding Officer after he has attained the age of 68 years.

Keeping in view the above provisions, Mr. A can be appointed as Presiding Officer of SAT since at the date of the appointment he has attained the age of 62 years. However, on the attainment of the age of 68 years, Mr. A shall have to vacate the office of Presiding Officer and he shall not be re-appointed as Presiding Officer.

Question 19.
What is Securities Appellate Tribunal (SAT)? Explain the procedure for appeal to SAT. [June 2011 (6 Marks)]
Answer:
An appeal shall lie to SAT against the following orders:

An order made of an Adjudicating Officer imposing a penalty.
Any order of SEBI made under the SEBI Act, 1992 or the rules or regulations made thereunder.

Every appeal to SAT shall be filed within a period of 45 days from the date on which a copy of the order. However, the SAT may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.

On receipt of an appeal, the SAT may pass orders as it thinks fit, confirming, modifying, or setting aside the order appealed after giving an opportunity of being heard to the parties.

The SAT shall send a copy of every order made by it to the SEBI, parties to the appeal, and to the concerned Adjudicating Officer.

The appeal should be decided by the SAT expeditiously and possibly within 6 months.

Question 20.
What do you mean by Securities Appellate Tribunal (SAT)? What is its composition? As a Company Secretary, advise the aggrieved party about the appeal procedure and powers of SAT. [June 2016 (6 Marks)]
Answer:
Establishment of SAT [Section 15K of the SEBI Act, 1992]: The Central Government shall establish Securities Appellate Tribunal by issuing a notification.

The Central Government shall also specify in the notification the matters and places in relation to which the SAT may exercise jurisdiction. SAT is located in Mumbai.

Composition of Securities Appellate Tribunal [Section 15L]: A SAT shall consist of a Presiding Officer and two other members, to be appointed by the Central Government by notification.

Appeal to the Securities Appellate Tribunal [Section 15T]: An appeal shall lie to SAT against the following orders:

An order made of an Adjudicating Officer imposing a penalty.
Any order of SEBI made under the SEBI Act, 1992 or the rules or regulations made thereunder.

On receipt of an appeal, the SAT may pass orders as it thinks fit, confirming, modifying, or setting aside the order appealed after giving an opportunity of being heard to the parties.

The SAT shall send a copy of every order made by it to the SEBI, parties to the appeal, and to the concerned Adjudicating Officer.

The appeal should be decided by the SAT expeditiously and possibly within 6 months.

As per Section 15T, any person aggrieved by an order of SEBI or by an Adjudicating Officer may prefer an appeal to an SAT. Such appeal has to be filed as per SAT (Procedure) Rules, 2000.

Following are the important provisions relating to SAT (Procedure) Rules, 2000. Limitation for filing appeal: Every appeal shall be filed within a period of 45 days from the date on which a copy of the order against which the appeal is filed, is received by the appellant. However, SAT may entertain an appeal after the expiry of the said period of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.

Form and procedure of appeal: A memorandum of appeal can be filed with SAT or shall be sent by registered post addressed. A memorandum of appeal sent by post shall be deemed to have been presented in the registry on the day it was received in the registry.

Appeal to be in writing: Every appeal filed before the SAT shall be typewritten, cyclostyled, or printed neatly.

Presentation and scrutiny of memorandum of appeal: If on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number. If an appeal on scrutiny is found to be defective and the defect noticed is formal in nature, the Registrar may allow the appellant to rectify the same in his presence and if the said defect is not formal in nature, the Registrar may allow the appellant such time to rectify the defect as he may deem fit.

Fee: Every memorandum of appeal shall be accompanied by a prescribed fee.

Contents of memorandum of appeal: Every memorandum of appeal shall set forth concisely under distinct heads, the grounds of such appeal without any argument or narrative, and such ground shall be numbered consecutively.

Documents to accompany memorandum of appeal: Every memorandum of appeal shall be in triplicate and shall be accompanied by a certified copy of the order.

Plural remedies: A memorandum of appeal shall not seek relief or reliefs therein against more than one order unless the reliefs prayed for are consequential.

Date of hearing to be notified: The SAT shall notify the parties of the date of hearing of the appeal as the Presiding Officer may by general or special order direct.

Hearing of appeal: On the day fixed or on any other day to which the hearing may be adjourned, the appellant shall be heard in support of the appeal. The SAT shall, then, if necessary, hear the SEBI or its authorized representative against the appeal, and in such case, the appellant shall be entitled to reply. During the course of the hearing of the appeal, the written arguments could be supplemented by time-bound oral arguments.

In case the appellant does not appear in person or through an authorized representative when the appeal is called for hearing, the SAT may dispose of the appeal on merits.

Question 21.
Fortune Ltd. is a registered stockbroker of the Bombay Stock Exchange. SEBI levied a penalty of ? 2 Crore on the company for violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practice:? relating to the Securities Market) Regulations, 2003. Fortune Ltd. is contemplating challenging the SEBI’s order before the Securities Appellate Tribunal (SAT) in an appeal. Explain the procedure for making an appeal before the SAT. [Dec. 2016 (8 Marks)]
Answer:
Procedure and powers of the SAT [Section 15U]: The SAT is not bound by the procedure laid down by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice. SAT has powers of Civil Court in respect of:

Summoning and enforcing the attendance of any person and examining him on oath.
Requiring the discovery and production of documents.
Receiving evidence on affidavits.
Issuing commissions for the examination of witnesses or documents.
Reviewing its decisions.
Dismissing an application for default or deciding it ex parte.
Setting aside any order of dismissal of any application for default or any order passed by it ex parte.
Any other matter which may be prescribed.

Every proceeding before SAT shall be deemed to be a judicial proceeding and the SAT shall be deemed to be a Civil Court.

Securities Laws and Capital Markets Questions and Answers

Collective Investment Schemes – Securities Laws and Capital Markets Important Questions

Leave a Comment / CS Executive / By Murali / April 5, 2024 April 10, 2024

Collective Investment Schemes – Securities Laws and Capital Markets Important Questions

Question 1.
Write a short note on Collective Investment Scheme [June 2011 (5 Marks)]
Answer:
A Collective Investment Scheme (CIS) is an investment scheme wherein several individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached between them prior to pooling in the money.

According to Section 2{ba) of the SEBI Act, 1992, “collective investment scheme” means any scheme or arrangement which satisfies the conditions specified in Section 11AA.

Collective Investment Scheme [Section 11AA(1) & (2)]: Any scheme or arrangement which satisfies the following conditions shall be a collective investment scheme.

Any scheme or arrangement made or offered by any company under which:

The contributions or payments made by the investors are pooled and | utilized solely for the purposes of the scheme or arrangement;
The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement;
The property, contribution, or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
The investors do not have day-to-day control over the management and ) operation of the scheme or arrangement.

Question 2.
What is a ‘collective investment scheme’? What are the restrictions on their j business activities? [Dec 2010 (5 Marks)]
Answer:
Collective Investment Scheme [Section 11AA(1) & (2)]: Any scheme or arrangement which satisfies the following conditions shall be a collective investment scheme.

Restrictions on business activities [Regulation 13]: The CIMC shall not:
(a) undertake any activity other than that of managing the collective investment scheme;
(b) act as a trustee of any collective investment scheme;
(c) launch any collective investment scheme for the purpose of investing in securities;
(d) invest in any collective investment scheme floated by it.

However, a CIMC may invest in its own collective investment scheme:

if it makes a disclosure of its intention to invest in the offer document of the collective investment scheme, and
does not charge any fees on its investment in that collective investment scheme.

Question 3.
Collective investment scheme to be constituted as trust. Comment. [Pec 2011 (3 Marks)]
Answer:
Trust Deed to be registered under the Registration Act, 1908 [Regulation 16(1)]: A collective investment scheme shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed duly registered under the provisions of the Indian Registration Act, 1908 executed by the CIMC in favor of the trustees named in such an instrument.

Appointment of trustees [Regulation 16(2)]: A CIMC shall appoint a trustee who shall hold the assets of the collective investment scheme for the benefit of unitholders.

Contents of trust deed [Regulation 17]: The trust deed shall contain such clauses as are specified in the Fourth Schedule and such other clauses as are necessary for safeguarding the interests of the unitholders.

No trust deed shall contain a clause which has the effect of:

Limiting or extinguishing the obligations and liabilities of the CIMC in relation to any collective investment scheme or the unitholders; or
Indemnifying the trustee or the CIMC for loss or damage caused to the unitholders by their acts of negligence or acts of commissions or omissions.

Question 4.
What is a collective investment scheme (CIS)? Discuss the scheme or arrangement which are not included in CIS. [Dec 2012 (5 Marks)]
Answer:
Scheme or arrangement that cannot be regarded as collective Investment schemes [Section 1IAA(3) of the SEBI Act, 1992): Following scheme or arrangement shall not be a collective investment scheme:

Any scheme or arrangement made or offered by a cooperative society
Any scheme or arrangement under which deposits are accepted by non-banking financial companies
Any scheme or arrangement is a contract of insurance
Any scheme or arrangement providing for Pension Scheme or the Insurance Scheme
Any scheme or arrangement under which deposits are accepted u/s 74 of the Companies Act, 2013
Any scheme or arrangement under which deposits are accepted by a company declared as a Nidhi or a Mutual Benefit Society
Chit fund business
Mutual fund.

Question 5.
What are the restrictions on business activities of Collective Investment Management Company? [Dec 2013 (5 Marks)]
Answer:
Collective Investment Scheme [Section 11AA(1) & (2)]: Any scheme or arrangement which satisfies the following conditions shall be a collective investment scheme.

However, a CIMC may invest in its own collective investment scheme:

if it makes a disclosure of its intention to invest in the offer document of the collective investment scheme, and
does not charge any fees on its investment in that collective investment scheme.

Question 6.
Define collective investment scheme and discuss the restriction on business activities. [June 2014 (5 Marks)]
Answer:
Collective Investment Scheme [Section 11AA(1) & (2)]: Any scheme or arrangement which satisfies the following conditions shall be a collective investment scheme.

However, a CIMC may invest in its own collective investment scheme:

if it makes a disclosure of its intention to invest in the offer document of the collective investment scheme, and
does not charge any fees on its investment in that collective investment scheme.

Question 7.
Collective Investment Schemes provide a relatively secure means of investing on the Stock Exchange and other financial instruments. [June 2015 (3 Marks)]
Answer:
A collective investment scheme is a trust-based scheme that comprises a pool of assets that are managed by a collective investment scheme manager and is governed by the Collective Investment Schemes Regulations given by SEBI. Collective Investment Schemes (CIS) are a popular form of investment, and they are accessible to all. Each investor has a proportional stake in the CIS portfolio based on how much, money he or she contributed.

The word ‘unit’ refers to the portion or part of the CIS portfolio that is owned by the investor. The ‘trust’ is the financial instrument that is created in order to manage the investment. The trust enables financial experts to invest the money on behalf of the CIS investor. Collective Investment Schemes provide a relatively secure means of investing on the Stock Exchange and other financial instruments. The sums of money that are exchanged on the Stock Exchange and in the Money Markets make them too pricey for most people. With a CIS, the money or funds from a group of investors are pooled or collected together to form a CIS portfolio.

Question 8.
“Collective investment scheme (CIS) is a popular form of investment and it is accessible to all.” In the light of this statement, explain the meaning and conditions for eligibility of CIS. [June 2016 (5 Marks)]
Answer:
Conditions for eligibility [Regulation 9 of the SEBI (Collective Investment Schemes) Regulations, 1999]: For registering with SEBI as CIMC following conditions are required to be fulfilled:

The applicant is set up and registered as a company under the Companies Act, 2013.
The MOA has to specify the managing of CTS as one of its main objects.
The applicant has a net worth of not less than ₹ 5 Crore. However, the applicant having a net worth of ₹ 3 Crore can also make an application if he agrees to increase the net worth of ₹ 3 Crore to ₹ 5 Crores within 3 years from the date of grant of registration.
The applicant is a fit and proper person.
The applicant has adequate infrastructure.
The directors or key personnel of the applicant shall be persons of honesty and integrity having adequate professional experience in a related field. They should not have been convicted for an offense involving moral turpitude or for any economic offense or for the violation of any securities laws,
At least 50% of the directors of CIMC shall consist of persons who are independent and are not directly or indirectly associated with the persons who have control over the CIMC.
No person, directly or indirectly connected with the applicant has in the past been refused registration by the SEBI.

Question 9.
What are the restrictions imposed on business activities for collective investment management companies? [Dec 2016 (7 Marks)]
Answer:
Restrictions on business activities [Regulation 13 of the SEBI (Collective Investment Schemes) Regulations, 1999]: The CIMC shall not:
(a) undertake any activity other than that of managing the collective investment scheme;
(b) act as a trustee of any collective investment scheme;
(c) launch any collective investment scheme for the purpose of investing in securities;
(d) invest in any collective investment scheme floated by it.

However, a CIMC may invest in its own collective investment scheme:

if it makes a disclosure of its intention to invest in the offer document of the collective investment scheme, and
does not charge any fees on its investment in that collective investment scheme.

Question 10.
Write a short note on Winding-up of collective investment scheme [June 2017 (3 Marks)]
Answer:
Winding-up of collective Investment scheme [Regulation 37]:
1. Compulsory winding-up: A collective investment scheme shall be wound up on the expiry of a specified duration scheme or on the accomplishment of the purpose.

2. Voluntary winding-up: Collective investment scheme; nav be wound up
(a) on the happening of any event which in the opinion of the trustee requires the scheme to be wound up and the prior approval of SEBI is obtained; or

(b) if unitholders holding at least 3/4th of the nominal value of unit capital pass a resolution that the scheme be wound up and the approval of the SEBI is obtained or

(c) if in the opinion of the SEBI, the continuance of the collective investment scheme is prejudicial to the interests of unitholders; or

(d) if in the opinion of CIMC, the purpose of the scheme cannot be accomplished and it obtains the approval of the trustees and also of the unit holders holding at least 3/4th nominal value of the unit capital with a resolution that the scheme be wound up and the approval of the SEBI is obtained.

3. Notice of winding-up: Where the scheme is to be wound up, the trustee shall give notice in a daily newspaper having nationwide circulation and in the language of the region where CIMC is registered.

4. Disposal of assets: The trustee shall dispose of assets of the scheme in the best interest of the unitholders. The proceeds of assets sold shall be first utilized towards the discharge of liabilities and after making appropriate provision for a meeting of winding-up expenses, the balance shall be paid to the unitholders on a proportionate basis.

5. Filing of report & certificate: On the completion of winding-up, the trustee shall forward to SEBI and the unit holders:
(a) a report on the steps taken for realization of assets, expenses for winding up and net assets available for distribution to the unitholders, and

(b) a certificate from the auditors to the effect that all the assets of the collective investment scheme are realized and the details of the distribution of the proceeds.

6. Treatment of unclaimed money: The unclaimed money shall be kept separately in a bank account by the trustee for a period of 3 years for the purpose of meeting the investor’s claims and thereafter shall be transferred to Investor Protection Fund.

Securities Laws and Capital Markets Questions and Answers

Administrative Law – Jurisprudence, Interpretation & General Laws Important Questions

Leave a Comment / CS Executive / By Murali / April 5, 2024 April 10, 2024

Administrative Law – Jurisprudence, Interpretation & General Laws Important Questions

Question 1.
Administrative law is the law relating to the administration. It determines the organization, powers, and duties of administrative authorities. Discuss.
Answer:

Administrative law is that branch of law that deals with powers, functions & responsibilities of various organs of the State. There is no single universal definition of ‘administrative law’ because it means different things to different theorists.
Administrative Law is the law concerning the powers and procedures of administrative agencies, including especially the law governing the judicial review of administrative action.
Administrative law is the branch of the law governing the relationship between the individual and the executive branch of the government when the latter acts in its administrative capacity.
Administrative law determines the organization, powers, and duties of administrative authorities.
Administrative law deals with the powers of administrative authorities the manner in which the powers are exercised and the remedies which are available to the aggrieved persons when those powers are abused by these authorities.

The primary function of administrative law is to keep governmental powers within the limits of law and to protect privacy rights and individual interests.

Rule-making power (delegated legislation) and an authority to decide (Tribunal/ Court) are described as effective and powerful weapons in the armory of administration.

All power has two inherent characteristics:

They are not absolute or unfettered.
They are likely to be abused.

Administrative law attempts to control the power of the government, and its instrumentalities and agencies. To achieve that objective, administrative law provides an effective mechanism and adequate protection. It helps to strike between two conflicting force:

Individual rights
Public interest.

Question 2.
Distinguish between: Constitutional Law & Administrative Law.
Answer:
Following are the main points of distinction between constitutional law & administrative law:

Points	Constitutional Law	Administrative Law
Meaning	Constitutional law is the body of law that evolves from a constitution, setting out the fundamental right and duties for its citizens and also the principles according to which a State is governed and defining the relationship between the various branches of government within the State.	Administrative Law is the law concerning the powers and procedures of administrative agencies, including especially the law governing the judicial review of administrative action.
Class	Constitutional law is a genus. It is the mother of all law of India.	Administrative law is a species of Constitutional Law.
Deals with	Constitutional law deals with various organs of the State. It also deals with the structure of the State.	Administrative law deals with those organs as in motion/ function. Thus, it deals with functions of the State.
Superiority	Constitutional law is the supreme and highest law in the country.	Administrative law is subordinate to Constitutional Law.
Type	Constitutional law is a theoretical one.	Administrative law is practical and functional.

Question 3.
Write a short note on Administrative Discretion
Answer:
Discretion in layman’s language means choosing from amongst the various available alternatives without reference to any predetermined criterion, no matter how fanciful that choice may be.

The term “discretion” when qualified by the word “administrative” has somewhat different overtones. ‘Discretion’ in this sense means choosing from amongst the various available alternatives, but with reference to the rules of reason and justice and not according to personal whims. Such exercise is not to be arbitrary, vague, and fanciful but legal and regular.

Conferment of discretion: Discretion is conferred in the area of rule-making or delegated legislation e.g. when the statutory formula says that the government may make rules which it thinks expedient to carry out the purposes of the Act. In effect, broad discretion and choice are being conferred on the government to make rules. Similarly, discretion is conferred on adjudicatory and administrative authorities on a liberal basis, that is, the power is given to apply vague statutory standards from case to case.

Need of discretion: Because of the complexity of socio-economic conditions which the administration in modern times has to contend with, it is realized that a government having only ministerial duties with no discretionary functions will be extremely rigid and unworkable and that, to some extent, officials must be allowed a choice as to when, how, and whether they will act.

The reason for this attitude is that, more often than not, the administration is required to handle intricate problems which involve investigation of facts, making of choices, and exercise of discretion before deciding upon what action to take. Thus, the modern tendency is to leave a large amount of discretion with various authorities.

Question 4.
Judicial review is the authority of Courts to declare void the acts of the legislature and executive if they are found in violation of provisions of the Constitution. Comment. [Dec 2019 (4 Marks)]
Answer:
The biggest check over administrative action is the power of judicial review. Judicial review is the authority of Courts to declare void the acts of the legislature and executive if they are found in violation of provisions of the Constitution. Judicial Review is the power of the highest Court of jurisdiction to invalidate on Constitutional grounds, the acts of other Government agencies within that jurisdiction.

The doctrine of judicial review has been originated and developed by the American Supreme Court, although there is no express provision in the American Constitution for the judicial review. The judicial review is not an appeal from a decision but a review of the manner in which the decision has been made. The judicial review is concerned not with the decision but with the decision-making process.

The power of judicial review controls not only the legislative but also the executive or administrative act. The Court scrutinizes the executive act for determining the issue as to whether it is within the scope of authority or power conferred on the authority exercising the power. Where the act of executive or administration is found ultra vires the Constitution or the relevant Act, it is declared void. The Court’s attitude appears to be stiff er in respect of discretionary powers of the executive or administrative authorities.

The Court is not against the vesting of discretionary power in the executive, but it expects that there would be proper guidelines for the exercise of power. The Court interferes when the uncontrolled and unguided discretion is vested in the executive or administrative authorities or the repository of the power abuses its discretion.

Question 5.
If the discretionary power is exercised by the authority with bad faith or dishonest intention, the action is quashed by the Court. Discuss.
Answer:
If the discretionary power is exercised by the authority with bad faith or dishonest intention, the action is quashed by the Court.

Mala fide (bad faith) may be taken to mean dishonest intention or corrupt motive. In relation to the exercise of statutory powers, it may be said to comprise dishonesty, fraud, and malice. Power is exercised fraudulently if its repository intends to achieve an object other than that for which he believes the power to have been conferred. The intention may be to promote another public interest or private interest.

In Partap Singh v. the State of Punjab, the Supreme Court, by a majority judgment, set aside an order of suspension and departmental proceedings against a Civil Surgeon on the ground that the order of the Government was made at the instance of Chief Minister who had grudge against the appellant.

Question 6.
Under what circumstances the decision exercised by administrative authorities are treated as an abuse of discretion? Explain any four. [Dec 2019 (4 Marks)]
Answer:
Abuse of discretion:

Mala Fides (bad faith): If the discretionary power is exercised by the authority with bad faith or dishonest intention, the action is quashed by the Court.
Leaving out relevant considerations: The administrative authority exercising the discretionary power is required to take into account all the relevant facts. If it leaves out relevant consideration, its action will be invalid.
Arbitrary orders: The order made should be based on facts and cogent reasoning and not on the whims and fancies of the adjudicatory authority.
Improper purpose: The discretionary power is required to be used for the purpose for which it has been given. If it is given for one purpose and used for another purpose it will amount to an abuse of power.
Colorable exercise of power: Colourable exercise means that under the “color” or “guise” of the power conferred for one purpose, the authority is seeking to achieve something else which it is not authorized to do under the law in question.
Exceeding jurisdiction: An administrative authority is required to exercise discretion within the limits of the statute. An action or decision going beyond what is authorized by law is ultra vires.

Question 7.
Write a short note on Non-application of mind
Answer:
Where the authority exercises its discretionary power under the instructions or dictation from superior authority it is taken as a non-exercise of power by the authority and its decision or action is bad. In such a condition, the authority purports to act on its own but in substance, the power is not exercised by it but by the other authority. The authority entrusted with the powers does not take action on its own judgment and does not apply its mind.

In Commissioner of Police v. Gordhandas Bhanji, the Police Commissioner empowered to grant a license for the construction of cinema theatres, granted the license but later canceled it at the discretion of the Government. The cancellation order was declared bad as the Police Commissioner did not apply his mind and acted under the dictation of the Government.

Question 8.
Write a short note on Preventive relief
Answer:
Preventive relief means preventing a person from doing such things or acts, which he is under an obligation not to do. It is directed to prevent the violation of the negative actions and therefore it is called preventive relief. The power upon Courts to prevent and to restrain is absolutely necessary for the effective administration of justice. Preventive relief is granted at the discretion of the Court by injunctions – temporary or perpetual.

Question 9.
Distinguish between: Temporary Injunction & Perpetual Injunction
Answer:
Following are the main points of distinction between temporary and perpetual injunction:

Points	Temporary Injunction	Perpetual Injunction
Meaning	A temporary injunction is a Court Order prohibiting an action until there has been a trial or other court action.	A perpetual injunction is a type of order issued by a Court after a full trial on the merits of a case has been conducted.
Nature	A temporary injunction is provisional in nature as it does not conclude or determine a right.	Perpetual injunction is permanent in nature as it determines a right on the merits of the suit.
Governing statute	Temporary injunctions also known as interlocutory and are granted under the Civil Procedure Code 1908.	Perpetual injunctions are granted under Section 38 of the Specific Relief Act, 1963.
Stage of granting	It is granted before the plaintiff establishing his case at the trial and continues up to a specified time.	Perpetual injunction can be granted only after hearing the defendant and upon the merits of the suit.

Question 10.
The Civil Court has the power to grant a temporary injunction, but for obtaining the same the plaintiff is required to satisfy the Court. Explain in brief. [June 2019 (4 Marks)]
Answer:
Temporary injunctions are such as to continue until a specified time or until the further order of the court. It is granted as an interim measure to preserve the status quo until the case is heard and decided. A temporary injunction may be granted at any stage of a suit. Temporary injunctions are regulated by the Civil Procedure Code and are provisional in nature. It does not conclude or determine a right. Besides, a temporary injunction is a mere order. The granting of a temporary injunction is a matter of discretion of the Court.

The court may grant a temporary injunction to restrain any such act (as set out below) or make such other order for the purpose of staying and preventing the wasting, damaging, alienation or sale or removal or disposition of the property g or dispossession of the plaintiff, or otherwise causing injury to the plaintiff in relation to any property in dispute in the suit; where it is proved by affidavit or otherwise:

That any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree.
That the defendant threatens or intends to remove or dispose of his property with a view to defrauding his creditors.
That the defendant threatens to dispossess the plaintiff or otherwise cause injury to the plaintiff in relation to any property in dispute in the suit.
It would be necessary for the plaintiff to satisfy the Court that substantial and irreparable harm or injury would be suffered by him if such temporary injunction (till the disposal of the suit) is not granted and that such loss or damage or harm cannot be compensated by damages.

Question 11.
No person should be made a judge in his own cause. Comment.
Answer:
It is a fundamental principle that no man shall be a judge of his own cause. The principle is that a judge is disqualified from determining any case in which he may, or may fairly be suspected to have an interest in the subject matter. The underlying principle is that justice should not only be done but should manifestly and undoubtedly be seen to be done.

In the case of A. K. Kraipak v. Union of India, the facts show that one of the members of a selection board constituted to make the selection to a Central cadre, was also a candidate for the interview. After the interview, the name of the candidate appeared at the top of the list. This was challenged as infringing the principles of natural justice. It was held that as the member was one of the persons to be considered for selection it was against all canons of justice to make him judge of his own cause.

Though he did not participate in the deliberation of the committee when his name was considered, his presence in the selection board must have had its own impact on the decision of the board. It was also held that it was his interest to keep out his rivals in order to keep his position safe. It follows that the Supreme Court has declared that there need not be any actual deliberation to make it invalid.

The first requirement is that the Judge should be impartial and natural and must be free from bias. One cannot act as judge of a cause in which he himself has some interest either pecuniary or otherwise as it affords the strongest proof against neutrality.

One must be in a position to act judicially and to decide the matter objectively. If the judge is subject to bias in favor of or against either party to the dispute or is in a position that a bias can be assumed, he is disqualified to act as a judge and the proceedings will be vitiated. It is a well-settled principle of law that justice should not only be done but manifestly and undoubtedly be seen to be done.

Question 12.
Write a short note on Rule against bias
Answer:
According to this rule, no person should be made a judge in his own cause. Bias means an operative prejudice whether conscious or unconscious in relation to a party or issue. It is a presumption that a person cannot take an objective decision in a case in which he has an interest. The rule against bias has two main aspects – one, that the judge must not have any direct personal stake in the matter at hand, and two, there must not be any real likelihood of bias.

Bias can be of the following three types:
(a) Pecuniary bias: Pecuniary bias, however slight, will vitiate the decision. This is a case where the deciding authority has monetary7 or proprietary interest in the subject matter. The historical example is the decision of the House of Lords in Dimes v. Grand Junction Canal There the judgment of Lord Cottenham in a case was set aside since he held shares in the respondent company.

It was observed, “It is of importance that the maxim that no man is to be a judge in his own cause should be held sacred”. It was rightly stated that a pecuniary interest however slight, will disqualify even though it is not proved that the decision is in any way affected.

(b) Personal bias: Personal bias may arise owing to friendship, personal ani¬mosity, or near relationship. But it is difficult to say when it will vitiate the order. What is required is taking a decision Personal animosity will vitiate the order. In P. H. Kalyani v. Air France, Culcutta, it was held that where an inquiry was conducted by an officer against whom the delinquent employee had earlier given evidence. In a criminal proceeding was held incompetent to hold a disciplinary inquiry.

(c) Subject matter bias: A judge may have a bias in the subject matter, which means that he himself is a party, or has some direct connection with the litigation. To disqualify on the ground of bias there must be an intimate and direct connection between the adjudicator and the issues in dispute. To vitiate the decision on the ground of bias as for the subject matter there must be a real likelihood of bias.

Question 13.
Notice is the first limb of a proper hearing. Explain.
Answer:
Notice is the first limb of a proper hearing. Notice should be definite. It should specify the authority issuing the notice. The notice must give sufficient time to the person concerned to prepare his case. Whether the person concerned has been allowed sufficient time or not depends upon the facts of each case. The notice must be adequate and reasonable. The notice is required to be clear and unambiguous. If it is ambiguous or vague, it will not be treated as reasonable or proper notice.

The Courts insist that sufficient time should be given to the person against whom action is proposed to be taken to prepare his defense. The Court has struck down a notice which stated that an inquiry would be held in the next morning. Notice need not be reissued if the concerned party acquires knowledge of the proceeding and appears before the authority. But if the statute specifically provides for a notice the proceeding may be struck down for failure to issue the notice

In R v. the University of Cambridge, Dr. Bentley was deprived of his degrees by the Cambridge University on account of his alleged misconduct without giving any notice or opportunity of hearing. The Court of King’s Bench declared the decision as null and void.

Question 14.
Abhay a student of Dayaram Medical College was debarred from entering into premises of the college and attending the class till the pendency of a criminal case against him for stabbing Ranvir, another student of the college. In preliminary inquiry before the college authority, he submitted that he has not stabbed Ranvir and debarring him from attending the college will cause a lot of loss in his studies and such order is against the principle of natural justice as he has not been given the opportunity of being heard in the preliminary inquiry. Decide.
Answer:
The rules of natural justice are not attractive in the case of interim disciplinary action. In Abhay Kumar v. K. Srinivasan AIR 1981 Delhi 381, an order was passed by the college authority debarring the student from entering the premises of the college and attending the class till the pendency of a criminal case against him for stabbing a student. The Court held that the order was interim and not final. It was preventive in nature. It was passed with the object to maintain peace on the campus. The rules of natural justice were not applicable in such cases.

Thus, keeping in view of the above decision it can be concluded that there is no violation of the principle of natural justice. A further only preliminary inquiry is started and on completion of final proceedings of complaint, if college authorities & police do not found Abhay guilty of charges, he will be allowed to attend the college. Hence, Abhay is advised to cooperate in the inquiry so that proceedings are completed as early as possible to avoid further loss of his studies.

Question 15.
Explain in brief the ‘Audi Alterum Partem Rule’ under the Administrative law. [Dec 2018 (4 Marks)]
Answer:
The second principle of natural justice is Audi Alteram Partem. Hear the other side is the essence of the principle.

The authority:

Must not hear one side in absence of other, or
Must not make a decision without hearing the other side.

Being part of natural justice, it was made applicable even to administrative authority adjudicating matters having civil consequences. In practice, it is more frequently invoked than the rule against bias. No proposition can be more clearly established than that a man cannot incur the loss of liberty or property for an offense by a judicial proceeding until he has had a fair opportunity of answering the case against him.

Question 16.
Explain in the brief doctrine of ‘Nemo Judex in Causa Sua [June 2019 (4 Marks)] x
Answer:
According to this rule, no person should be made a judge in his own cause. Bias means an operative prejudice whether conscious or unconscious in relation to a party or issue. It is a presumption that a person cannot take an objective decision in a case in which he has an interest. The rule against bias has two main aspects – one, that the judge must not have any direct personal stake in the matter at hand, and two, there must not be any real likelihood of bias.

Question 17.
Enumerate in short the exceptional circumstances of the application of natural justice under Administrative Law. [Dec 2019 (4 Marks)]
Answer:
The principles of natural justice have taken deep root in the judicial conscience of our people. Where authority functions under a statute and the statute provides for the observance of the principles of natural justice in a particular manner, natural justice will have to be observed in that manner and in no other. No wider right than that provided by statute can be claimed nor can the right be narrowed.

Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice. The implication of natural justice being presumptive it may be excluded by express words of the statute or by necessary intendment. So the principles of natural justice can be modified and also in exceptional cases they can even be excluded. Some of the exceptions are given below:

(1) Statutory Exclusion: The principle of natural justice may be excluded by the statutory provision. Where the statute expressly provides for the observance of the principles of natural justice, the provision is treated as mandatory and the authority ¡s bound by it.

Where the statute is silent as to the observance of the principle of natural justice, such silence is taken topic the observance thereto. However, the principles of natural justice are not incapable of exclusion. The statute may exclude them. When the statute expressly or by necessary implication excludes the application of the principles of natural justice the courts do not ignore the statutory mandate.

Emergency: In exceptional cases of urgency or emergency where prompt and preventive action has required the principles of natural justice need not be observed.

Emergency or prompt action in case of public interest, public safety, or public health was held to be a reasonable, valid, and justifiable ground for exclusion of Principles of Natural Justice. Thus, the pre-decisional hearing may be excluded where prompt action is required to be taken in the interest of public safety or public morality.

Interim disciplinary action: The rules of natural justice are not attractive in the case of interim disciplinary action.

Academic evaluation: Where a student is removed from an educational institution on the grounds of unsatisfactory academic performance, the requirement of pre-decisional hearing is excluded. The Supreme Court has made it clear that if the competent academic authority assesses the work of a student over the period of time and thereafter declares his work unsatisfactory the rule of natural justice may be excluded but this exclusion does not apply in the case of disciplinary matters.

Impracticability: Where the authority deals with a large number of person it is not practicable to give all of the opportunity of being heard and therefore in such condition the court does not insist on the observance of the rules of natural justice.

Question 18.
Discuss the provisions relating to the formation of a Government Contract under the Constitution of India.
Answer:
Formation of Government Contracts: The executive power of the Union of India and the States to carry on any trade or business, acquire, hold and dispose of property and make contracts is affirmed by Article 298 of the Constitution of India. If the formal requirements required by Article 299 are complied with, the contract can be enforced against the Union or the States.

Article 299 provides:
1. All contracts made in the exercise of executive power of the union or a state shall be expressed to be made by the President or by the Governor of the State as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such person and in such manner as he may direct or authorize.

2. Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purpose of any enactment relating to Government of India hereto before in force, nor shall any such contract or assurance on behalf of any of them be personally liable in respect thereof.

Thus, Article 299 lays down three conditions which the contracts made in the exercise of the executive power of the Center or a State must fulfill to be valid:

The contract must be expressed to be made by the President or the Governor as the case may be.
These contracts made in the exercise of the executive power are to be executed on behalf of the President/Governor as the case may be.
The execution must be by such person and in such manner as the President or the Governor of the case as the case may be, may direct, or authorize.

It has been held by the Supreme Court in the case of Bhikaraj Jaipuria v. Union of India, it is clear from the words “expressed to be made” and “executed” that there must be a formal written contract. The provisions of Article 299(1) are mandatory in character and any contravention thereof nullifies the contract and makes it void.

Where a contract is made by tender and acceptance, the acceptance must be made by a duly authorized person and on behalf of the President, and a valid contract may result from correspondence. J,

Implied Contract with the Government: In view of Article 299(1) there can be x no implied contract between the government and another person, the reason g being that if such implied contracts between the government and another § person were allowed, they would in effect make Article 299(1) useless, for then P a person who had a contract with the government which was not executed I at all in the manner provided under Article 299(1) could get away by saying that an implied contract may be inferred on the facts and the circumstances j of the particular case.

Question 19.
Write a short note on Quasi-contractual liability of the Government
Answer:
The obligation of a person enjoying the benefit of the non-gratuitous act [SectIon 70 of the Indian Contract Act, 1872]: Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.

Illustrations: (As given in Indian contract Act, 1872)
(a) A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay A for them.
(b A saves B’s property from fire. A is not entitled to compensation from B if the circumstances show that he intended to act gratuitously. If the requirements of Section 70 arc fulfIlled, even the Government will be liable to pay compensation for the work actually done or services rendered by the State.

Section 70 is not based on any subsisting contract between the parties but is based on quasi-contract or restitution. Section 70 enables a person who actually supplies goods or renders some services not intending to do gratuitously, to claim compensation from the person who enjoys the benefit of the supply made or services rendered. It is a liability, which arises on equitable grounds even though express agreement or contract may not be proved.

Question 20.
Write a short note on Vicarious liability of Government
Answer:
Unlike the Crown Proceeding Act, 1947 of England, we have no statutory provision with respect to the liability of the State in India. When a case of Government liability in tort comes before the Courts, the question is whether the particular Government activity, which gave rise to the tort, was the sovereign function or non-sovereign function.

If it is a sovereign function it could claim immunity from the tortuous liability, otherwise not. Generally, the activities of commercial nature or those which can be carried out by the private individual are termed as non-sovereign functions.

In India, Article 300 of the Constitution declares that the Government of India or of a State may be sued for the tortious acts of its servants in the same manner as the Dominion of India and the corresponding provinces could have sued or have been sued before the commencement of the Constitution. This rule is, however, subject to any such law made by the Parliament or the State Legislature. No law has so far been passed as contemplated by Article 300(1).

Question 21.
The driver of a jeep, owned and maintained by the State of Rajasthan for the official use of the Collector of the district, drove it rashly and negligently while taking it back from the workshop to the residence of the Collector after repairs, knocked down a pedestrian and fatally injured him. Whether State is vicariously liable for damages caused by the negligence of the driver?
Answer:
In-State of Rajasthan y. Vidyawati, the driver of a jeep, owned and maintained by the State of Rajasthan for the official use of the Collector of the district, drove it rashly and negligently while taking it back from the workshop to the residence of the Collector after repairs, knocked down a pedestrian and fatally injured him. The State was sued for damages. The Supreme Court held that the State was vicariously liable for damages caused by the negligence of the driver.

The decision of the Supreme Court in the above case introduces an important qualification on the State immunity in tort based on the doctrines of sovereign and non-sovereign functions. It decided that the immunity for State action can only be claimed if the act in question was done in the course of the exercise of sovereign functions. Thus, immunity is not available for non-sovereign functions and the State will liable for the damages.

Question 22.
A lady doctor of a government hospital was negligent while conducting an operation on Dinkar’s leg. The lady doctor amputated the left leg of Dinkar instead of his right leg by mistake. Dinkar filed suit against the authority of the government hospital and lady doctor for damages on the plea of negligence. Will lie succeed?
Answer:
Yes. Dinkar will succeed. Where the relations of master and servant exist, a master is liable not only for those authorized acts which have been committed by the servants but also for the acts done by him which not specifically authorized in the course of his employment.

The defense of the government that running a hospital is a sovereign function and hence it is not liable will not hold good, as declared in various cases. The extent of liability of the lady doctor would be determined by the rules/conditions of her employment.

Question 23.
What do you understand by the term ‘Statutory Corporations’? Give examples. Also, state their main features.
Answer:
A public corporation is that form of public enterprise which is created as an autonomous unit, by a Special Act of the Parliament or the State Legislature.

Since a public corporation is created by a Statute; it is also known as a statutory corporation.

Following are some o1 the examples of Public Corporations:

Life Insurance Corporation (LIC)
Food Corporation of India (FCI)
Oil and Natural Gas Corporation (ONGC)
Air India
State Bank of India (SB!)
Reserve Bank of India (RBI)
Employees State Insurance Corporation (ESIC)

Features: Features of statutory corporations are as follows:

Special statute: A public corporation is created by a special Act of the Parliament or the State Legislature. The Act defines its powers, objectives, functions, and relations with the ministry and the parliament or State Legislature.

Separate legal entity: A public corporation is a separate legal entity with perpetual succession and a common seal. It has an existence, independent of the Government. It can own property; can make contracts and hic suits, in its own name.

Capital provided by the Government: The capital of a public corporation is provided by the Government or by agencies controlled by the government.

However, many public corporations have also begun to raise money from the capital market.

Financial autonomy: A public corporation enjoys financial autonomy. It prepares its own budget and has the authority to retain and utilize its earnings for its business.

Management by Board of Directors: Its management is vested in a Board of Directors, appointed or nominated by the Government. But there is no Governmental interference in the day-to-day working of the corporation.

Own Staff: A publication corporation has its own staff; whose appointment, remuneration, and service conditions are decided by the corporation itself.

Service Motive: The main objective of a public corporation is service-motive; though it is expected to the self-supporting and earn reasonable profits.

Public Accountability: A public corporation has to submit its annual report on its work. Its accounts are audited by the Comptroller and Auditor General of India. Annual reports and audited accounts of a public corporation are presented to the Parliament or State Legislatures, which is entitled to discuss these.

Question 24.
Can ‘Government Company’ is treated as ‘State or Central Government’ for claiming exemption under the various statutes or constitutions of India?
Answer:
In Andhra Pradesh Road Transport corporation y, ITO, the Andhra Pradesh State Road Transport Corporation claimed exemption from taxation by invoking Articles 289 of the Constitution of India according to which the property and income of the State are exempted from the Union taxation.

The Supreme Court, while rejecting the Corporation’s claim, held that though it was wholly controlled by the State Government, it had a separate entity and its income was not the income of the State Government. The Court observed that the companies which are incorporated under the Companies Act have a corporate personality of their own, distinct from that of the Government of India. The land and buildings are vested in and owned by the companies, the Government of India only owns the share capital.

In Hindus/a Steel Works construction Ltd. y. In the state of Kerala, it was held that in spite of all the control of the Government, the company is neither a Government department nor a Government establishment, it is just an agency of the Government, and hence not exempt from the purview of Kerala Construction Workers Welfare Funds Act. The employees of a Government Company are not the employees of the Central or State Government.

Jurisprudence, Interpretation & General Laws Questions and Answers

Appeal, Revision, Settlement, Penalties, Offences & Recovery of Tax – CS Executive Tax Laws MCQs

Leave a Comment / CS Executive / By Murali / April 5, 2024 April 10, 2024

Students should practice Appeal, Revision, Settlement, Penalties, Offences & Recovery of Tax – CS Executive Tax Laws MCQ Questions with Answers based on the latest syllabus.

Appeal, Revision, Settlement, Penalties, Offences & Recovery of Tax – CS Executive Tax Laws MCQ Questions

Question 1.
An appeal against the order of Tribunal to the High Court shall be filed within
(A) 120 days from the date of order
(B) 180 days from the date of order
(C) 120 days from the date on which such order is received
(D) 180 days from the date of receipt of an order [Dec. 2014]
Answer:
(C) 120 days from the date on which such order is received

Question 2.
The time limit for revision by Commissioner of Income Tax (CIT) u/s 264 is
(A) 3 Months
(B) 6 Months
(C) One year
(D) Two years [June 2015]
Answer:
(C) One year

Question 3.
The maximum penalty leviable for failure to get accounts audited or to furnish report u/s 44AB is
(A) ₹ 75,000
(B) ₹ 1,00,000
(C) ₹ 1,50,000
(D) ₹ 3,00,000 [Dec. 2015]
Answer:
(C) ₹ 1,50,000

Question 4.
An order passed by the Commissioner (Appeals) should be communicated to
(A) Assessee
(B) CIT who has jurisdiction over the case
(C) Both the assessee and CIT
(D) The assessee through CIT [Dec. 2015]
Answer:
(C) Both the assessee and CIT

Question 5.
The order passed by the Assessing Officer when challenged before the Commissioner (Appeals) under section 246A, memorandum of appeal should be filed in
(A) Form No. 35
(B) Form No. 36
(C) Form No. 36A
(D) Form No. 38 [Dec. 2015]
Answer:
(A) Form No. 35

Question 6.
The Commissioner of Income-tax is empowered to revise the assessment order of the Assessing Officer when the same is erroneous and prejudicial to the interest of revenue.
Such power is vested in the Commissioner of Income-tax under
(A) Section 263
(B) Section 246C
(C) Section 264
(D) Sections 263 and 264 [Dec. 2015]
Answer:
(A) Section 263

Question 7.
The time limit for making revisional order under Section 263(2) and 263(3) is
(A) 6 months from the date of assessment
(B) 6 months from the date of order
(C) One year from the end of the financial year in which the order was passed
(D) None of the above [June 2016]
Answer:
(C) One year from the end of the financial year in which the order was passed

Question 8.
The order of revision passed by Commissioner u/s 264 is –
(A) Appealable before Commissioner (Appeals)
(B) Appealable before Appellate Tribunal
(C) Appealable before High Court
(D) Not appealable [Dec. 2016]
Answer:
(D) Not appealable

Question 9.
Dec. 2016: Any person who is aggrieved by the order passed by the Appellate Tribunal may make the appeal to High Court within
(A) 30 days
(B) 60 days
(C) 90 days
(D) 120 days
Answer:
(D) 120 days

Question 10.
Revision of an order which is prejudicial to the revenue is made under –
(A) Section 264
(B) Section 260
(C) Section 263
(D) Section 262 [Dec. 2016]
Answer:
(C) Section 263

Question 11.
Mr. Balwant received an assessment order passed under section 143(3) on 10.1.2020. He wants to prefer an appeal before C1T (Appeals) against the assessment order. The time limit for preferring appeal is……days from the date of receipt of the assessment order.
(A) 15
(B) 30
(C) 35
(D) 60 [June 2017]
Answer:
(B) 30

Question 12.
An assessment order under section 143(3) dated 15.9.2020 was served on the assessee on 25.9.2020. The Commissioner wants to make a revision of the order passed under section 143(3) by invoking section 263. The time limit for passing revision order under section 263 is:
(A) 31st March 2021
(B) 31st March 2022
(C) 31st March 2023
(D) 26th September 2024 [June 2017]
Answer:
(C) 31st March 2023

Question 13.
Mr. Bimal received an assessment order passed by the Assessing Officer on 10.1.2020. What is the time limit within which the appeal has to be filed to CIT (Appeals) in case the assessee wants to challenge the order of the Assessing Officer?
(A) 10 days after the receipt of the order
(B) 15 days after the receipt of the order
(C) 30 days after the date of order
(D) 30 days after the date of receipt [Dec. 2017]
Answer:
(D) 30 days after the date of receipt

Question 14.
An appeal against the order passed by the Assessing Officer u/s 143(3) read with section 148 can be filed by an aggrieved assessee before the:
(A) Additional Commissioner of Income Tax
(B) Commissioner of Income Tax
(C) IT
(D) Commissioner of Income Tax (Appeals) [June 2018]
Answer:
(D) Commissioner of Income Tax (Appeals)

Question 15.
The first appeal can be filed by:
(A) Department only
(B) Assessee only
(C) (A)or(B)
(D) None of the above [June 2018]
Answer:
(B) Assessee only

Question 16.
The Principal Commissioner of Income-tax is empowered to revise the assessment order of the Assessing Officer when the same is found to be erroneous and prejudicial to the interest of Revenue. Such power is vested in the Principal Commissioner of Income-tax u/s:
(A) 263
(B) 246C
(C) 264
(D) Both 263 and 264 [June 2018]
Answer:
(A) 263

Question 17.
The respondent is having the right to file a Memorandum of Cross Objections before the ITAT after receipt of the Memorandum of Appeal filed by the appellant. Such Memorandum of Cross Objections is to be filed by the respondent within a period of:
(A) 45 days
(B) 60 days
(C) 30 days
(D) 15 days [June 2018]
Answer:
(C) 30 days

Question 18.
Income-tax Appellate Tribunal cannot grant stay either under the original order or any other subsequent order in aggregate beyond the period of:
(A) 180 days
(B) 365 days
(C) 90 days
(D) 240 days [June 2018]
Answer:
(A) 180 days

Question 19.
An appeal from the order of ITAT lies before the High Court and the same is to be filed within the period of days from the date on which the order appealed against is received by the assessee or the CIT.
(A) 60
(B) 90
(C) 120
(D) 180 [June 2018]
Answer:
(C) 120

Question 20.
The time limit for filing an appeal by a person denying liability to deduct tax in respect of payments payable to non-resident or a foreign company as provided in section 249(2)(a) of the Income-tax Act, 1961 is within:
(A) 30 days from the date of payment of tax deducted at source to the credit of Central Government.
(B) 3 5 days from the date of payment of tax deducted at source to the credit of Central Government.
(C) 45 days from the date of payment of tax deducted at source to the credit of Central Government.
(D) 60 days from the date of payment of tax deducted at source to the credit of Central Government [Dec. 2018]
Answer:
(A) 30 days from the date of payment of tax deducted at source to the credit of Central Government.

Question 21.
An application for stay of demand to be filed before the Income Tax Appellate Tribunal (ITAT) has to be accompanied by a requisite fee of:
(A) ₹ 1,000
(B) ₹ 500
(C) ₹ 1,500
(D) ₹ 10,000 [Dec. 2018]
Answer:
(B) ₹ 500

Question 22.
The rationale behind the power of revision of orders prejudicial to the interest of revenue conferred on the Commissioner of Income Tax under Section 263 of Income-tax Act, 1961 is that:
(A) The order has not been made in accordance with any order, direction, or instruction issued by the Board under section 119
(B) The order passed is without inquiries or verification which should have been made
(C) The order is passed allowing any relief without inquiring into the claim
(D) The department has no right of appeal to the Commissioner (Appeals) against any order passed by the Assessing Officer [Dec. 2018]
Answer:
(C) The order is passed allowing any relief without inquiring into the claim

Question 23.
Income Tax Appellate Tribunal (ITAT) as per section 254(2A) may hear and decide any appeal within a period of:
(A) 1 year from the end of the financial year in which appeal is filed
(B) 2 years from the end of the financial year in which appeal is filed
(C) 3 years from the end of the financial year in which appeal is filed
(D) 4 years from the end of the financial year in which appeal is filed [June 2019]
Answer:
(D) 4 years from the end of the financial year in which appeal is filed

Question 24.
Appeal against the order of the Appellate Tribunal (ITAT) can be filed in High Court within days.
(A) 30 days from the date of order
(B) 60 days from the date of receipt of order by the assessee
(C) 120 days from the date of receipt of order by the assessee
(D) 180 days from the date of an order [June 2019]
Answer:
(C) 120 days from the date of receipt of order by the assessee

Question 25.
Revision order of the Commissioner of Income Tax passed under section 264 of the Income Tax Act, 1961 can be challenged by the assessee by filing an appeal to:
(A) Income Tax Appellate Tribunal (ITAT)
(B) High Court
(C) Commissioner Appeals
(D) Dispute Resolution Penal (DRP) [June 2019]
Answer:
(B) High Court

Question 26.
A taxpayer wants to prefer an appeal against the order of the Assessing Officer. He received the order dated 30th April 2020 on 5th May 2020. He must prefer an appeal before the CIT (Appeals) under section 246A of the Income Tax Act, 1961, within:
(A) 30 days from the date of order
(B) 30 days from the date of receipt of the order
(C) 60 days from the date of order
(D) 60 days from the date of receipt of an order [June 2019]
Answer:
(B) 30 days from the date of receipt of the order

Registration Act, 1908 – Jurisprudence, Interpretation & General Laws Important Questions

Leave a Comment / CS Executive / By Murali / April 5, 2024 April 10, 2024

Registration Act, 1908 – Jurisprudence, Interpretation & General Laws Important Questions

Question 1.
State the documents of which registration is compulsory under the Registration Act, 1908. [June 2010 (4 Marks), June 2014 (6 Marks, Dec. 2017 (5 Marks)]
Answer:
Documents of which registration is compulsory [Section 17(1)]: Following documents shall be registered namely:

Instruments of the gift of immovable property.
Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees, and upwards, to or in immovable property.
Non-testamentary instruments acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, f limitation or extinction of any such right, title or interest.
Leases of immovable property from year to year, or for any term exceeding I one year, or reserving a yearly rent.
Non-testamentary instruments transferring or assigning any decree or order of a court or any award when such decree or order or award pur¬ports or operates to create, declare, assign, limit or extinguish, whether | in present or in future, any right, title or interest, whether vested or contingent, of the value of ₹ 100 and upwards, to or in immovable property.

Question 2.
State the documents of which registration is optional under the Registration Act, 1908. [June 2011 (4 Marks), Dec. 2014 (4 Marks), Dec. 2018 (5 Marks)]
Answer:
Documents of which registration is optional [Section 18]: Any of the following documents may be registered, namely:

Instruments (other than instruments of gift and wills) which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than ? 100, to or in immovable property.
Instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest.
Leases of immovable property for any term not exceeding one year and leases exempted u/s 17.
Instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than one hundred rupees, to or in immovable property.
Instruments (other than wills) which purport or operate to create, declare, assign, limit or extinguish any right, title or interest to or in movable property.
Wills.
All other documents not required by Section 17 to be registered.

Question 3.
Mention the documents which are not required to be registered compulsorily under the Registration Act, 1908. [Dec 2011, Dec 2019 (4 Marks)]
Answer:
The registration of the non-testamentary documents mentioned under Section 17( 1)(b) and (c) of the Registration Act, 1908 is subject to the exceptions provided in Section 17(2).

Hence, the following non-testamentary instruments do not require registration:

any composition deed. i.e. every deed the essence of which is composition; or
any instrument relating to shares in Joint Stock Company; or
any debentures issued by any such Company; or
any endorsement upon or transfer of any debenture; or
any document other than the documents specified under clause (e) above creating merely a right to obtain another document which will, when executed create, declare, assign, limit or extinguish any such right, title or interest; or
any decree or order of a court; or
any grant of immovable property by the Government: or
any instrument of partition made by Revenue-officer; or
any order granting a loan or instrument of collateral security granted under the Land Improvement Act, 1871, or the Land Improvement Loans Act, 1883; or
any order granting loan made under the Agriculturists Loans Act. 1884 or instrument for securing the repayment of a loan made under that Act; or
any order made under the Charitable Endowments Act, 1890 vesting any property in a treasurer of a charitable endowment or divesting any such Treasurer of any property; or
any endorsement on a mortgage deed acknowledging the payment of the whole or any part of the mortgage money, and any other receipt for payment of money, due under a mortgage when the receipt does not purport to extinguish the mortgage; or
any certificate of sale granted to the purchaser of any property sold by public auction by Civil or Revenue Officer.

Question 4.
What are the documents which are compulsorily registrable under the Registration Act, 1908? [Dec 2014 (5 Marks)]
Answer:
Documents of which registration is compulsory [Section 17(1)]: Following documents shall be registered namely:

Instruments of the gift of immovable property.
Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees, and upwards, to or in immovable property.
Non-testamentary instruments acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, f limitation or extinction of any such right, title or interest.
Leases of immovable property from year to year, or for any term exceeding I one year, or reserving a yearly rent.
Non-testamentary instruments transferring or assigning any decree or order of a court or any award when such decree or order or award pur¬ports or operates to create, declare, assign, limit or extinguish, whether | in present or in future, any right, title or interest, whether vested or contingent, of the value of ₹ 100 and upwards, to or in immovable property.

Question 5.
Enumerate the documents, registration of which is optional under the provisions of the Registration Act, 1908. [Dec 2015 (5 Marks)]
Answer:
Documents of which registration is optional [Section 18]: Any of the following documents may be registered, namely:

Instruments (other than instruments of gift and wills) which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than ? 100, to or in immovable property.
Instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest.
Leases of immovable property for any term not exceeding one year and leases exempted u/s 17.
Instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than one hundred rupees, to or in immovable property.
Instruments (other than wills) which purport or operate to create, declare, assign, limit or extinguish any right, title or interest to or in movable property.
Wills.
All other documents not required by Section 17 to be registered.

Question 6.
Explain the documents of which registration is optional under the Registration Act, 1908. [June 2019 (4 Marks)]
Answer:
Documents of which registration is optional [Section 18]: Any of the following documents may be registered, namely:

Instruments (other than instruments of gift and wills) which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than ? 100, to or in immovable property.
Instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest.
Leases of immovable property for any term not exceeding one year and leases exempted u/s 17.
Instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of a value less than one hundred rupees, to or in immovable property.
Instruments (other than wills) which purport or operate to create, declare, assign, limit or extinguish any right, title or interest to or in movable property.
Wills.
All other documents not required by Section 17 to be registered.

Question 7.
Amrit executed a gift deed in his lifetime in favour of Bhanu. The gift deed was not registered during the lifetime of Amrit. Bhanu, after the death of Amrit, presented the gift deed before the Registrar for its registration. Rakshit, brother of Amrit, raised an objection to the registration of the gift deed on the ground of the fake signature of Amrit. Both the witnesses to the gift deed contended that the signatures were made in their presence by the donor at the time of execution of the gift deed. Whether the gift deed will be treated as valid for registration under the Registration Act, 1908? [Dec 2014 (5 Marks)]
Answer:
Provision:

Section 17 of the Registration Act, 1908 provides for those documents the registration of which is compulsory under the Act.
It includes a gift of immovable property.
However, it is not mandatory that the deed be registered during the life of the donor; even if subsequently registered, it will have the same effect as if it had been registered from the date of execution.

Facts of the case:

Amrit executed a gift deed favour of Bhanu which was not registered during the lifetime of Amrit.
After the death of Amrit, Bhanu presented the gift deed before the Registrar for its registration. Rakshit, brother of Amrit raised an objection to the registration of the gift deed as the signatures of Amrit were fake.
But the witnesses to the gift deed contended that the signatures were made before them by the donor at the time of execution of the gift deed.

Ref. Case Law
Kalyana Sundram v. Karuppa AIR 1927 PC 42 case.

Conclusion
Applying the above provision to the given facts, I conclude that the gift deed would be valid for registration and the objection made by Rakshit will not stand.

Question 8.
Advise in the matter of the following, the provisions of registration of documents under the Registration Act, 1908 with reference to the section applicable:
(i) Lease agreement for eleven months with rent payable monthly, having an option to the tenant to renew for further for the same period and so on. (1 Mark)
Answer:
Lease agreement for eleven months with rent payable monthly, having an option to the tenant to renew for further for the same period and so on does not require registration of documents in the light of Section 107 of Transfer of Property Act, 1882 and Section 17(1 )(d) of Registration Act, 1908.

(ii) Lease agreement is only for a year with a reserved rent for the period granted vis. one year. (1 Mark)
Answer:
If a lease is of a very high value but is neither from year to year, nor for any term exceeding one year, nor reserving a yearly rent, does not require registration of documents under Section 17( 1 )(d) of Registration Act, 1908.

(iii) Lease agreement for one with reserving a yearly rent. (1 Mark)
Answer:
Lease agreement for one year with reserving yearly rent, require regis¬tration of documents in the light of Section 107 of Transfer of Property Act, 1882 and Section 17(1)(d) of Registration Act, 1908.

(iv) Lease agreement for a fixed term of five years with yearly rent payable. (2 Marks) [June 2019]
Answer:
Lease agreement for a fixed term of five years with yearly rent payable, require registration of documents in the light of Section 107 of Transfer of Property Act, 1882 and Section 17(l)(d) of Registration Act, 1908.

Question 9.
A document was executed outside India and it was presented for registration after a lapse of four months from the date of its arrival in India. Whether the document may be accepted for registration by the Registrar? Decide. [June 2010 (5 Marks)]
Answer:
As per Section 26 of the Registration Act, 1908, when a document has been executed out of India is not presented for registration within 4 months from the date of execution then registering officer may register within 4 months after its arrival in India on payment of the proper registration fee.

Section 25 gives the power to Registrar to give extra time for 4 months for a | fine up to 10 times the normal registration fee. This provision is not applicable | for documents executed outside India. Thus, the Registrar has the right to refuse registration of document presented for registration after a lapse of four months from the date of its arrival in India.

Question 10.
A document was executed by several persons at different times. The person in whose favour of such execution was made presented the documents for re-registration after the expiry of 3 months. Whether such documents can be registered and if yes, within what period? [June 2011 (5 Marks)]
Answer:
As per Section 23 of the Registration Act, 1908, a document other than a will shall be accepted for registration within 4 months from the date of its execution. Section 25 provides a further period of 4 months in cases of urgent necessity and unavoidable accident on payment of a fine up to 10 times of normal fee. Thus, a maximum period for presenting a document for registration is 8 months under Section 23 read with Section 25.

As per Section 23A, if any person finds that, a document has been filed for registration by a person who is not empowered to do so, then such person can present the document for re-registration within 4 months from the date he becomes aware of the fact that registration of document is invalid.

In the given case, the document was executed by several persons at different times. The person in whose favour of such execution was made presented the document for re-registration after the expiry of 3 months. Thus, a period of 4 months has not been expired from the date he becomes aware of the fact that the registration of the document is invalid. Hence, the document is presented within the statutory time limit and hence can be registered by Registrar on payment of normal fees.

Question 11.
“Is it necessary that registration of documents should be done only where the property is situated”? Discuss the provision of the Registration Act, 1908 dealing with the matter. [June 2018 (5 Marks)]
Answer:
Place for registering documents relating to land [Section 28]: Document relating to immovable property should be registered in the office of Sub-registrar of Sub-district under whose jurisdiction the whole or some property is situated.

Place for registering other documents [Section 29]: Other documents can be registered in the office of such sub-registrar, where all the persons executing the document desire it to be registered.

Question 12.
Shyam executes a sale deed of a house in favour of Krishna. The house is situated in Faridabad, but the transferor and the transferee want the sale deed to be registered at Gurgaon, which has also a District Court of Haryana State. Can they do so? Give reasons. [June 2012 (5 Marks)]
Answer:
As per Section 28 of the Registration Act, 1908, a document relating to immovable property should be registered in the office of Sub-registrar of j Sub-district under whose jurisdiction the whole or some property is situated. In a given case house is situated at Faridabad, hence documents can be registered at Faridabad and not at Gurgaon.

Question 13.
Who can present the document for registration? [Dec. 2018 (5 Marks)]
Answer:
Persons to present documents for registration [Section 32]: Every document to be registered shall be presented at the proper registration office:

By some person executing or claiming under the same, or, in the case of a copy of a decree or order, claiming under the decree or order, or
By the representative or assignee of such a person, or
By the agent of such a person duly authorized by power-of-attorney.

It is to be noted that, for the purpose of Section 32 special power of attorney is required, a general power of attorney will not do.

It is immaterial whether the registration is compulsory or optional but if the document is presented for registration by a person other than a party mentioned in Section 32, such presentation is wholly inoperative and the registration of such a document is void. [Kishore Chandra Singh v. Ganesh Prashad Singh]

Question 14.
Bijoy executed a contract for purchasing a piece of land in Delhi from Ajoy. Just after the execution of the contract, Bijoy proceeded to England and he is not expected to return to India before six months. Chirag, a good friend of Ajoy who has a general power of attorney to act on behalf of Bijoy, gets the said sale deed registered. Is this registration valid? [June 2007 (5 Marks)]
Answer:
As per Section 32 of the Registration Act, 1908, the document for registration can be presented at the proper registration office by the agent duly authorized by the power-of-attorney of a person executing the document. It is to be noted that, for the purpose of Section 32 special power of attorney is required, a general power of attorney will not do. As per facts given in the case, Ajoy has a general power of attorney to act on behalf of Bijoy and hence registration effected by Ajoy is not valid.

Question 15.
Is the registration of a will optional under the Registration Act, 1908? Explain the manner in which it may be presented for registration. [Dec 2013(3 Marks)]
Answer:
As per Section 18, of the Registration Act, 1908, registration of will is optional. In Celestine Silva Bai v. Josphin Noronha Bai, Madras HC held that the mere fact that a will is not registered is not much a circumstances as it must ipso facto fell against its genuineness. For non-registration may be due to a dislike for publicity of the agreement that one may make or to avoid expense and trouble. Hence, the registration of will is optional.

Persons entitled to present Wills and authorities to adopt [Section 40]:

The testator, or after his death executor may present it for registration.
The donor, or after his death the donee, of any authority to adopt, or the adoptive son, may present it to for registration.

Registration of Wills and authorities to adopt [Section 41]:

A will or an authority to adopt may be registered in the same manner as any other document.
A will or authority to adopt presented for registration by any other person it shall be registered if the registering officer is satisfied that:
1. The will or authority was executed by the testator or donor.
2. The testator or donor is dead.
3. The person presenting the will or authority is entitled to present the same.

Question 16.
Gautam executed a document on 20th October 2007 in favour of Thomas. Thereafter, Gautam executed another document on 1st December 2007 in favour of Peter in respect of the same property. The document between Gautam and Thomas was registered on 15th January 2008 whereas the document between Gautam and Peter was registered on 15th December 2007. Which document gets priority and why? [Dec 2009 (5 Marks)]
Answer:
Effect of registration can be stated as follows:

A registered document has priority over an unregistered document.
A document when registered takes effect from the date of execution and not from the time of its registration. [Section 47]

As between two registered documents, the date of execution determines the priority of the two registered documents executed by the same persons in respect of the same property to two different persons at two different times, the one which is executed first under Section 47 gets priority over the other. This is the position even though the former deed is registered subsequently to the latter one [K.J. Nathan v. S. V. Maruthi Rai]

Therefore, the document executed on 15.1.2008 gets priority over the document executed on 1.12.2007 even though the first document was registered subsequently.

Question 17.
State the places where documents affecting immovable property may be presented for registration under the Registration Act, 1908. [June 2012 (5 Marks)]
Answer:
1. Section 28 provides that documents affecting immovable property shall be presented for registration in the office of a Sub-Registrar within whose sub-district the whole or some portion of the relevant property is situated, (it) Section 29 provides that any other document may be presented for reg¬istration either in the office of the Sub-Registrar in whose sub-district the document was executed or in the office of any other Sub-Registrar under the State Government at which all the persons executing desire the document to be registered.

Question 18.
State the effect of non-registration of documents required to be registered under the Registration Act, 1908. [June 2014 (5 Marks)]
Answer:
Document required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall not:
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(c) be received as evidence of any transaction affecting such property or conferring such power.

However, as provided in the proviso of Section 49, an unregistered document affecting the immovable property and required by this Act or the Transfer of Property Act, 1882 to be registered may be received as evidence of a contract in a suit for part performance under Section 53A of the Transfer of Property Act, 1882 & Suit for Specific Performance.

Question 19.
What is the effect of non-registration of compulsorily registrable documents under the Registration Act, 1908? [Dec 2014 (5 Marks)]
Answer:
Document required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall not:
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(c) be received as evidence of any transaction affecting such property or conferring such power.

Question 20.
What are cases in which compulsorily registrable documents can be used in evidence, even if it has not been registered? [Dec 2014 (5 Marks)]
Answer:
1. Section 49 of the Act provides that no document required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall:
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(c) be received as evidence of any transaction affecting such property or conferring such power unless it has been registered.

2. Section 49 is mandatory, and a document that is required to be regis¬tered cannot be received in evidence as affecting the immovable property. An unregistered document that comes within Section 17 cannot be used in any legal proceeding to bring out indirectly the effect which it would have if registered.

3. However, as provided in Section 49, proviso, an unregistered document affecting the immovable property and required by this Act or the Transfer of Property Act, 1882 to be registered may be received as evidence of a contract in a suit for specific performance or as evidence of part perfor¬mance of a contract for the purposes of Section 53A of the Transfer of Property Act, 1882.

4. All that the proviso to Section 49 permits is that in a suit for specific per¬formance an unregistered document affecting immovable property may be given in evidence.

Question 21.
What do you understand by registration of documents? State the effect of non-registration of documents required to be registered. [Dec 2016 (5 Marks)]
Answer:
The main purpose of registration of documents is to provide a method of public registration of documents so as to give information to people regarding legal rights and obligations arising or affecting a particular property and to perpetuate documents which may afterwards be of legal importance, and also to prevent fraud. Registration ensures and safeguards the interest of an intending purchaser.

Thus, the Registration Act, 1908 was designed to ensure that correct land records could be maintained. The Act is also used for the proper recording of transactions relating to other immovable property. The Act provides for the registration of other documents also, which can give these documents more authenticity. Registering authorities have been provided in all the districts for this purpose.

Effect of non-registration of documents [Section 49]:

1. Section 49 of the Act provides that no document required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall:
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(c) be received as evidence of any transaction affecting such property or conferring such power unless it has been registered.

4. All that the proviso to Section 49 permits is that in a suit for specific per¬formance an unregistered document affecting immovable property may be given in evidence.

Question 22.
Yash signed a deed of gift in favour of Raja. If Yash does not agree to its registration, will the gift deed be registered? Explain, whether the delay in registration of a gift deed will postpone its operation? [June 2019 (4 Marks)]
Answer:
It was held by the Privy Council in Kalyana Sundram v. Karuppa, that while registration is a necessary solemnity for the enforcement of a gift of immovable property, it does not suspend the gift until registration actually takes place when the instrument of gift has been handed over by the donor to the donee and accepted by him, the former has done everything in his power to complete the donation and to make it effective and if it is presented by a person having a necessary interest within the prescribed period the Registrar must register it. Neither death nor the express revocation by the donor is a ground for refusing registration, provided other conditions are complied with.

In case the donor dies before registration of a document, the document may be presented for registration after his death and if registered will have the same effect as it was registered in his lifetime.

Question 23.
Discuss the remedies available to a person who has been refused to register a document by a Sub-Registrar. Can registration of documents be refused on the ground of undervaluation for stamp duty? [Dec 2011 (5 Marks)]
Answer:
1. Reasons for refusal to register to be recorded [Section 71]: When Sub-Registrar refuses to register a document then he has to record the reason for refusing in Book No. 2. He also has to endorse the words ‘Registration Refused’ on documents. If a party makes an application for getting the reasons of refusal, the Sub-Registrar has to give it without payment.

2. Appeal to Registrar from orders of Sub-Registrar refusing registration [Section 72]: Appeal can be made to Registrar within 30 days against the order of Sub-Registrar and on receiving such appeal Registrar can also refuse or order the Sub-Registrar to get the document registered.

If the Registrar finds that the document has been executed and that the said requirements have been complied with, he shall order the document to be registered. [Section 75]

3. Suit in case of an order of refusal by Registrar [Section 77]: If Registrar also refuses to register the document then an appeal can be filed in Civil Court within 30 days from the date of refusal by Registrar.

Question 24.
Under what circumstances a Sub-Registrar can refuse to register a document under the Registration Act, 1908? [June 2017 (3 Marks)]
Answer:
1. Reasons for refusal to register to be recorded [Section 71]: When Sub-Reg¬istrar refuses to register a document then he has to record the reason for refusing in Book No. 2. He also has to endorse the words ‘Registration Refused’ on documents. If a party makes an application for getting the reasons of refusal, the Sub-Registrar has to give it without payment.

If the Registrar finds that the document has been executed and that the said requirements have been complied with, he shall order the document to be registered. [Section 75]

Jurisprudence, Interpretation & General Laws Questions and Answers

Different Forms of Business Organizations & Registration Sole Proprietorship – Setting Up of Business Entities and Closure Important Questions

Leave a Comment / CS Executive / By Murali / April 3, 2024 April 10, 2024

Different Forms of Business Organizations & Registration Sole Proprietorship – Setting Up of Business Entities and Closure Important Questions

Question 1.
What formalities and procedures are required to be followed to start a business by a sole proprietor?
Answer:
Sole Proprietorship is formed, managed, and controlled by one individual.

No deed or agreement is required to constitute a Sole Proprietorship. However, in actual practice and keeping in mind the nature of the business activity, registration may be required under the following enactments as prevailing in the respective States or of the Central Government, such as:

Shops and Commercial Establishments Act (State-specific)
Law relating to Professional Tax (State-specific)
Registration under the Micro, Small & Medium Enterprises Development Act, 2006.
Registration as a Small Scale Industry (State-specific)
GST registration?
Intellectual Property laws.

Question 2.
Distinguish between: Sole Proprietor & One Person Company (OPC)
Answer:
Following are the main points of difference between Sole Proprietor & One Person Company (OPC):

Points	Sole Proprietor	One Person Company (OPC)
Meaning	The word ‘sole’ denotes single and ‘proprietorship’ signifies ownership. A sole proprietorship is recognized as one of the most common, simplest, and oldest forms of business entity. It is owned and controlled by one person only and the person running it is known by the name of ‘sole proprietor’ or a ‘sole trader’.	One Person Company is a fusion of Sole-Proprietorship and Company form of business. The Companies Act, 2013 brought in the new concept of One Person Company, thereby enabling a person who is carrying on the business in the Sole- Proprietorship firm to enter into a corporate outline with relaxed requirements under the Act.
Registration	In the case of a sole proprietorship, formal registration is not required.	A-One Person Company requires registration under the Companies Act, 2013.
Distinct legal entity	A Sole Proprietorship is not a distinct legal entity from the proprietor.	A-One Person Company is a distinct legal entity from the business owner.
Liability	A proprietor of a sole proprietorship has unlimited liability for the debts incurred by him. This means that if the business is in debt, even the personal assets of the proprietor may be used to recover the debt.	As a Person Company is a separate legal entity, hence the owner has limited liability. This is the most desirable reason why many individuals are opting for an OPC.
Taxation	In a proprietorship, the tax liability of the proprietorship firm is borne by the proprietor. He can claim a basic exemption under the Income Tax Law. For OPC, the tax liability of the company and the single member is independent.	OPC is liable to be taxed at 30% as it formed as a private company. No basic exemption is available for OPC.
Succession	In the case of a sole proprietorship, succession takes place through the execution of a Will.	In a One Person Company, nominee designated by its member, who shall, in the event of the death of the member, become a member of the company and shall be responsible for the running of the company.
Separate Property	As there is no distinction between the owner and business in a sole proprietorship, therefore, any creditor of the proprietorship can also claim all the assets of the owner.	In OPC there is an added advantage as a company is a separate legal entity. Any property purchased by OPC will be the asset of that OPC. The member does not have an insurable interest in the property of the company.

Question 3.
Ankur has passed out MBA from a premier institution. He wants to become an entrepreneur but he is confused in choosing the form of ownership. Advice Ankur on the aspects which he should consider before deciding the form of ownership. [Dec. 2018 (4 Marks)]
Answer:
One of the first decisions that are faced by entrepreneurs is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so one has to select the form of ownership that is right for him/her.

Thus, while choosing the form of ownership one must consider the following aspect:

His vision regarding the size and nature of the business.
The level of control he wishes to have.
The level of “structure” he is willing to deal with.
The business vulnerability to litigation.
Tax implications of the different organizational structures.
Expected profit (or loss) of the business.
Whether or not he will need to re-invest earnings into the business.
His need for access to cash out of the business for himself.

Question 4.
What are the various types of partnership firms?
Answer:
Various types of partnership are as follows:
1. Partnership at will [Section 7]: Where no provision is made by contract between the partners for the duration of their partnership, or when no provision is made as to whom and how the partnership will come to an end, the partnership is known as partnership-at-will.

The partnership-at-will has no fixed or definite date of termination and, therefore, the death or retirement of a partner does not affect the existence of such partnership.

Dissolution of partnership at will [Section 43]: Partnership-at-will can be dissolved at any time by any of the partners by giving notice in writing to all other partners. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

2. Particular Partnership [Section 8]: When two or more persons come together for particular adventures or undertakings it is known as a particular partnership. Where the adventure is complete, such a partnership can be dissolved. When the persons decide to continue the partnership after the completion of the adventure, it becomes a partnership at will.

Example: A and B enter into a joint trading adventure for the sale of sesame seeds grown in both their fields during its harvest season. The partnership comes to an end after the sale.

3. Partnership for fixed-term: It is a partnership entered into for a fixed duration, after the expiry of which it comes to an end. When the partners carry on the business even after the expiry of the said period, it is said to be a partnership at will.

4. Sub-partnership: When a partner of a firm agrees to share his own share of profits with an outsider, it is called sub-partnership and such outsider is called a sub-partner. A partner is free to make an agreement of sub-partnership, provided it does not affect the position of other partners with reference to him.

Important points relating to sub-partnership:

A sub-partner is not connected with the firm.
A sub-partner has no relationship with other partners.
A sub-partner has no right to take part in a firm’s business,
A sub-partner cannot examine the firm’s accounts.
A sub-partner can claim his agreed share from the partner with whom he enters into a sub-partnership.

Question 5.
Write a short note on Registered partnership. [Dec. 1994 (5 Marks)]
Answer:
Registration of a firm is not mandatory under the Act. Certain privileges are available only to registered firms, thus indirectly making it compulsory to register so as to enjoy those privileges. Registration does not j create a partnership but is only evidence of the existence of a partnership. It is advantageous both to the firm and also to outsiders.

Provision & procedure for registration of partnership [Sections 58 & 59]:
Time: Registration of partnership may be effected at any time during the continuance.
1. Application form & fee: Application for registration has to be made in the prescribed form along with the prescribed fee.

2. Documents to be attached: Following documents are required to be attached with the application of registration:

Affidavit
Partnership Deed on requisite stamp paper.
Proof of place of business or Rental/Lease Agreement.
Other documents are may be required by the Registrar.

3. Signing & verification: Application for registration has to be signed by all the partners, or their agent specially authorized on this behalf.

4. Registration by Registrar: If Registrar is satisfied that all requirement relating to registration of firm has been fulfilled, he issues a certificate of registration.

5. The effective date of registration: Registration is effective from the date when Registrar makes entries in the ‘Register of Firms’ and not from the date of presentation of the statement to him.

Question 6.
A B & C are partners. They admit D, a minor, to the benefit of the partnership. Within the six months of attaining majority, D gives public notice that he has become a full-fledged partner. But all other partners refuse to take him. Can D become a partner or not? Give reason. [June 1996 (5 Marks)]
Answer:
Facts of Case: A, B & C are partners. They admit D, a minor, to the benefit of the partnership. Within the six months of attaining majority, D gives public notice that he has become a full-fledged partner. But all other partners refuse to take him

Provision: As per Section 30 of the Partnership Act, 1932, deals with the exercise of the option by minor on attaining majority. Section 30 provides that at any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, which-ever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm. Conclusion: In the given case, D has given public notice within 6 months of his attaining majority and his contention that he has become a full-fledged partner is correct.

Question 7.
A, B & C, who are partners of an unregistered firm, sell washing machines to D for ₹ 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for ₹ 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of ₹ 10,000 should be adjusted against the claim in question Will the firm succeed? Give reasons. [Dec. 1997 (3 Marks)]
Answer:
Facts of the case: A, B & C, who are partners of an unregistered firm, sell washing machines to D for ₹ 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for ₹ 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of ₹ 10,000 should be adjusted against the claim in question.

Provision: As per Section 69 of the Partnership Act, 1932, registration of firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.

Further, an unregistered firm cannot claim set-off or another proceeding to enforce a right arising from a contract above ₹ 100. Conclusion: Hence, the firm will not succeed in claiming set-off as the amount is exceeding ₹ 100.

Question 8.
Anian and Barun are partners carrying on the business of shoemaking. Their firm is not registered. The firm purchases raw material worth ₹ 20,000 on credit from Chetan. But the firm refuses to pay the price of raw material on the plea of its non-registration. Chetan institutes a suit against the firm to claim the amount due. Will Chetan succeed? Give reasons. [June 2005 (5 Marks)]
Answer:
Facts of Case: Aman and Barun are partners carrying on the business of shoemaking. Their firm is not registered. The firm purchases raw material worth ₹ 20,000 on credit from Chetan. But the firm refuses to pay the price of raw material on the plea of its non-registration. Chetan institutes a suit against the firm to claim the amount due.

Provision: As per Section 69 of the Partnership Act, 1932, registration of T firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.

Non-registration of a firm does not affect the right of a third party to file a suit to claim the amount due. The firm cannot take the plea of its non-registration.

Conclusion: Hence, Chetan will succeed.

Question 9.
Rohit is not a partner in a particular firm. But, he knowingly permits himself to be represented as a partner of that particular firm to Sanjay, who on the faith of such a representation gives credit to the firm. Is Rohit liable as a partner in the firm? [Dec. 2005 (5 Marks)]
Answer:
Facts of Case: Rohit is not a partner in a particular firm. But, he knowingly permits himself to be represented as a partner of that particular firm to Sanjay, who on the faith of such a representation gives credit to the firm

Provision: As per Section 28 of the Partnership Act, 1932, if a person represents himself or knowingly permits himself to be represented as a partner of a particular firm, when actually he is not, such person is liable as a partner of the firm.

Thus, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership firm is called a partner by holding out.

Conclusion: Hence, Rohit is liable as a partner by holding out.

Question 10.
Explain the position of a minor in a partnership firm. [June 2007 (5 Marks)}
Answer:
As per Section 11 of the Contract Act, 1872, an agreement with or by a minor is void and in-operative ab initio. Minor cannot be a promisor. However, all agreements with minors are not void; if an agreement is for the benefit of minors then it is valid and enforceable.

Minors admitted to the benefits of partnership [Section 30]: If all the partners agree, a minor may be admitted to the benefits of an already existing firm. There must be at least two major partners before a minor is admitted into the benefits of a partnership.

Share of profits & property: Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon.

Inspection & copying of accounts: Minor has a right to access and inspect and copy any of the accounts of the firm.

Liability of minor: Minor’s share is liable for the acts of the firm but the minor is not personally liable for any such act.

Filing of the suit: Minor has the right to file a suit for his share of profits of the firm’s property when he is not given his due share. This right can be exercised only when he decides to sever his connections with the firm.

Election by minor: At any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm.

If he fails to give such notice, he shall become a partner in the firm on the expiry of the said 6 months.

Exercise of option by minor on attaining majority:
If minor elects to become a partner: When the minor elects to become a partner of his own volition or by his failure to give public notice within the specified time:

He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the firm.
His share in the property and profits of the firm remains the same as he was entitled as a minor.

If minor elects not to become a partner: If minor elects not to become a partner:

His right and liabilities continue to be those of a minor up to the date of giving public notice.
His share is not liable for any acts of the firm done after the date of the public notice.
He is entitled to sue the partners for his share of the property and profits in the firm.

Question 11.
What are the effects of the non-registration of a partnership firm? [June 2007 (5 Marks)]
Answer:
Effects of non-registration [Section 69]: Registration of firms is not compulsory, but an unregistered firm suffers from the following disabilities as mentioned:
1. Suit between partners and firm: A partner of an unregistered firm cannot sue the firm or any other partner of the firm to enforce a right arising from a contract, or conferred by the Partnership Act.

2. Suit between the firm and third party: An unregistered firm cannot file a § suit against a third party to enforce any right arising from a contract.

However, a third party can file suit against an unregistered firm.

3. Claim of set-off: An unregistered firm or a partner thereof cannot claim set-off or other proceedings to enforce a right arising from a contract above ₹ 100.

Non-registration not to affect the following [Section 69]:
1. Even if the firm is unregistered partners can sue for –

Dissolution of the firm or
Settlement of accounts of a dissolved firm or
Realizing the property of a dissolved firm.

2. Right of the firm to institute a suit or claim of set-off not exceeding ₹ 100.

3. An unregistered firm can bring a suit against third parties to enforce a right arising otherwise than out of a contract e.g. for enforcing a trademark.

Question 12.
There can be different kinds of partners. State briefly about any five kinds of partners. [Dec. 2008 (5 Marks)]
Answer:
Various types of partners are as follows:
1. Actual/Ostensible Partner: Active partner is one who is actively engaged in the conduct of the business of the partnership. He is the agent of other partners, in the ordinary course of business. Acts of such partner are binding to the firm and he is bound by the act of other partners which is done in the ordinary course of business and in the firm’s name.

2. Nominal Partner: He is a partner only by name and only his name is used. He is not entitled to share profits but held liable. He shall give notice of his retirement or otherwise terminating his relationship with the firm.

3. Sleeping/Dormant Partner: He is one who contributes to the capital and has a share in Profits, but does not actively participate in the business. He is liable like any other Partner but was specifically excluded, he is not so. He is not required to give notice after he ceases to be a partner, nor does his insanity dissolve the firm.

4. Partner in profits only: When all partners agree that a partner shall share only profits and not losses then such partner is known as a partner in profit only. Even though such partner shares profit and not loss, but he is liable for all the debts of the firm are jointly and severally with other partners.

5. Sub-partner: A sub-partnership comes into existence when one of the partners agrees to share his profits from the firm with a stranger. Such a third party is called a sub-partner. He is not a partner in the eyes of law and, therefore, has no right against the firm. He is also not liable for the debts of the firm.

6. Partner by estoppels or holding out: If the behavior of a person arouses misunderstanding that he is a partner in a firm when actually he is not; such a person is stopped from later on denying the liabilities for the acts of the firm. Such a person is called a partner by estoppels and is liable to all third parties.

Holding out means to represent, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership are. called as a partner by holding out.

Example 1: Arun introduces Balu as a partner in his business to Chandan. Balu, in fact, was not a partner but he did not deny the statement. Chandan advanced a loan to Arun. Arun could not repay the loan. Balu is responsible for the repayment of the loan because Balu is a partner by estoppel.

Example 2: Where a partner retires but does not give notice, he holds himself to be a partner. He can be held liable by establishing the fact that he has held himself as a partner and on the faith of such representation a third party has lent money to the firm.

Question 13.
Write a short note on Sleeping or dormant partner [June 2009 (5 Marks)]
Answer:
Various types of partners are as follows:
1. Actual/Ostensible Partner: Active partner is one who is actively engaged in the conduct of the business of the partnership. He is the agent of other partners, in the ordinary course of business. Acts of such partner are binding to the firm and he is bound by the act of another partner which is done in the ordinary course of business and in the firm’s name.

Holding out means to represent, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership are. called as a partner by holding out.

Question 14.
Aman, Bhuvan, and Chaman are partners in a partnership firm. Their firm is unregistered. After some time, Aman and Bhuvan decide to get their firm registered. They request Chaman also to put his signature on the registration papers. Chaman refuses to do so. Now Aman and Bhuvan file a suit against Chaman for compelling him to join in the registration of the firm. Will they succeed? Give reasons.
Answer:
Facts of Case: Aman, Bhuvan, and Chaman are partners in a partnership firm. Their firm is unregistered. After some time, Aman and Bhuvan decide to get their firm registered. They request Chaman also to put his 2 signatures on the registration papers. Chaman refuses to do so. Now Aman and Bhuvan file a suit against Chaman for compelling him to join in the X registration of the firm

Provision: As per Section 69 of the Partnership Act, 1932, registration of firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit, against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.

Conclusion: Hence, Aman and Bhuvan will not succeed in their suit against Chaman for compelling him to join in the registration of the firm. The only remedy of such partners is to institute a suit for dissolution. [Keshav Lai v. Chuni Lai]

Question 15.
“Registration of partnership firm is not compulsory, yet it is desirable.” Comment. [June 2010 (5 Marks)]
Answer:
Effects of non-registration [Section 69]: Registration of firms is not compulsory, but an unregistered firm suffers from the following disabilities as mentioned:
1. Suit between partners and firm: A partner of an unregistered firm cannot sue the firm or any other partner of the firm to enforce a right arising from a contract, or conferred by the Partnership Act.

2. Suit between the firm and third party: An unregistered firm cannot file a § suit against a third party to enforce any right arising from a contract.

However, a third party can file suit against an unregistered firm.

3. Claim of set-off: An unregistered firm or a partner thereof cannot claim set-off or other proceedings to enforce a right arising from a contract above ₹ 100.

Non-registration not to affect the following [Section 69]:
1. Even if the firm is unregistered partners can sue for:

Dissolution of the firm or
Settlement of accounts of a dissolved firm or
Realizing the property of a dissolved firm.

2. Right of the firm to institute a suit or claim of set-off not exceeding ₹ 100.

3. An unregistered firm can bring a suit against third parties to enforce a right arising otherwise than out of a contract e.g. for enforcing a trademark.

Question 16.
Define ‘partnership’. Discuss the essential elements of the partnership. [June 2010 (5 Marks)]
Answer:
Partnership [Section 4]: Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Essential elements of partnership:
1. Association of two or more persons: Minimum of 2 persons are required to form a partnership. The maximum number for partners is 50 whether it banking or any other business.

2. Carrying on business: Partnership can be formed only for the purpose of carrying on some business. Associations created for charitable, religious, and social purposes are not partnerships.

3. Agreement: The relationship of partnership arises from contract and not from status.-Agreement may be express or implied. Further, the agreement must be a valid agreement and for a lawful object and purpose and between the persons competent to contract.

4. Sharing of profit:

Sharing the profits of a business is the essence of the partnership but it cannot be conclusive evidence as to the existence of a partnership.
Sharing of profits implies sharing of losses as well unless agreed otherwise. Partners may shares profit in one ratio and losses in some other ratio.
A person may become a partner only for profits and not for losses by agreement between all partners.
The ratio in which profits and losses will be shared is based on agreement amongst the partners.
Though sharing of profits of a business is essential, it does not mean that everyone who participates in the profits of a business is necessarily a partner.

Example: A Manager, as a part of his remuneration, may be given a share in profits of.the business. He does not thereby become a partner.

5. Mutual Agency T Partnership business is carried on by all or any of them acting football, Hence, a partner is both an agent and a principal. Partner by his acts bind other partners and is in turn bound by acts of other partners. It is to be noted that all partners should not actively participate in the business. The business may be managed by one or more partners and remaining partners will be bound by their acts provided such acts relate to carrying on the firm’s business and have been done in the firm’s name.

6. Consideration: As no consideration is required to create agency u/s 185 of the Contract Act, 1872, no consideration is required to create a partnership which is an extension of the law of partnership.

Question 17.
A partnership can be formed according to the nature of the agreement amongst partners. Explain. [Dec. 2018 (4 Marks)]
Answer:
Meaning of Partnership: Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are collectively called Firms.

Creation of Partnership: Partnership is formed on the basis of an agreement between two or more persons to carry on business. It does not arise out of the operation of law as in the case of joint Hindu family business. The terms and conditions of partnership are laid down in a document known as Partnership Deed.

A partnership can be formed only for the purpose of carrying on some business. Associations created for charitable, religious, and social purposes are not partnerships. Thus, a partnership can engage in any occupation – production and/or distribution of goods and services with a view to earning profits.

Question 18.
Paramvir & Associates, a firm of practicing professionals consists of Ashok, Paramvir, and Vir having one-third share each in the firm. According to Ashok and Paramvir, the activities of Vir are not in the interest of the firm and thus want to expel Vir from the firm. Advice Ashok and Paramvir whether they can do so quoting the relevant provisions of the Indian Partnership Act, 1932. [June 2019 (4 Marksj]
Answer:
Facts of Case: Paramvir & Associates, a firm of practicing professionals consists of Ashok, Paramvir, and Vir having one-third share each in the firm. According to Ashok and Paramvir, the activities of Vir are not in the interest of the firm and thus want to expel Vir from the firm

Provision: As per Section 33 of the Partnership Act, 1932, a partner can be expelled from the firm if the following conditions are fulfilled:
(a) Decision of a particular partner is taken by a majority of the partners.
(b) The contract/partnership deed provides for such expulsion.
(c) Such right of expulsion is exercised in good faith and for the firm’s benefit.

The test of good faith includes:

That the expulsion must be in the interest of the partnership.
That the partner to be expelled is served with a notice.
That the partner has been given an opportunity of being heard.

Conclusion: Thus, in the given case Paramvir and Ashok the majority of partners can expel the partner Vir only if the above conditions are satisfied and procedure, as stated above, has been followed.

Further, the invalid expulsion of a partner does not put an end to the partnership and it will be deemed to continue as before.

Question 19.
What do you understand by ‘Hindu Undivided Family? Also, state the characteristics of HUF.
Answer:
Meaning of HUF Business: Joint Hindu Family Business is a different type of organization, which is found only in India. As the name suggests, it is a type of organization in which all the members of the Hindu Undivided Family manage and control the business with the direction of the head of the family.

Joint Hindu Family Firm is created by the operation of law. It does not have any separate and distinct legal entity from that of its members.

The business of the Joint Hindu Family is controlled and managed by one person who is called ‘Karta’ or ‘Manager’. The Karta or manager works in consultation with other members of the family but ultimately he has a final say. The liability of Karta is unlimited while the liability of other members is limited to their shares in the business.

Characteristics of a Joint Hindu Family Business:
1. Governed by Hindu Law: The business of the Joint Hindu Family is controlled and managed under Hindu law.

There are two schools of Hindu law:

Dayabhaga and
Mitakshara.

2. Management: All the affairs of a Joint Hindu Family are controlled and managed by one person who is known as ‘Karta’ or ‘Manager’. The Karta is the senior-most male member of the family. He works in consultation with other members of the family but ultimately he has a final say. The members of the family have full faith and confidence in Karta. Only Karta is entitled to deal with outsiders. But other members can deal with outsiders only with the permission of Karta.

3. Membership by Birth: The membership of the family can be acquired only by birth. As soon as a male child is born in the family, he becomes a member. Membership requires no consent or agreement.

4. Liability: Except the Karta, the liability of all other members is limited to their shares in the business. Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and the amount of debt can be recovered from his separate property.

5. Permanent Existence: The death, lunacy, or insolvency of any member of the family does not affect the existence of the business of the Joint Hindu Family. The family goes on doing its business.

6. Implied Authority of Karta: In a joint family firm, only Karta has the implied authority to contract debts and pledge tire credit and property of the firm for the ordinary purpose of the businesses of the firm.

7. Minor can also take part in business: In a partnership, minor cannot become co-partner though he may be admitted to the benefit of the partnership. In a Joint Hindu Family firm, minors can take part in business activities under the supervision of Karta.

8. Dissolution: The Joint Hindu Family Business can be dissolved only at the will of all the members of the family. Any single member has no right to get the business dissolved.

Question 20.
What are the key points in the creation of HUF and HUF deeds?
Answer:
The following points need consideration while drafting a HUF Deed:

One person cannot form HUF.
A HUF is formed by a family.
A HUF is automatically created at the time of marriage.
HUF consists of a common ancestor and all of his lineal descendants, including their wives and unmarried daughters.
Hindus, Buddhists, Jains, and Sikhs can form HUFs.
HUF usually has assets that come as a gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
Under the Income Tax Act, a HUF is a separate entity for the purpose of the income tax return.
A HUF deed is written on stamp paper.
The eldest male member of HUF becomes Karta of HUF.
The name of members of HUF and the name of the HUF is also required to be stated in the HUF Deed at the time of creating of HUF.
It is recommended that the Deed should be notarized.

Question 21.
What.do you understand by ‘Multi-State Co-operative Society’? What types of co-operative societies can be registered under the MultiState Co-operative Societies Act, 2002?
Answer:
Presence in More than one State: Multi-State Co-operative Society means a society whose main objective is to serve the interests of its members in more than one state. Thus, such societies have members from more than one State and also have business transactions in more than one State.

Governing Law: The Multi-State Co-operative Societies Act, 2002 facilitates the incorporation of co-operative societies.

Object: The main object and function of Multi-State Co-operative Society are to spread over to several states.

Body Corporate and Limited Liability: Types of Multi Co-operative Society

The Act provides for the formation of both the types of Co-operative Societies i. e.

Primary co-operatives [with both individual and institutional members] and
Federal co-operatives [with only institutional membership].

Various types of Multi-State Co-operative Society are as follows:

Multi-State Solar Co-operative Society
Farming Co-operative Society
Credit Co-operative Society
Agricultural Co-operative Society
Real Estate Co-operative Society
Diary Firm Co-operative Society
Transport Co-operative Society etc.

Question 22.
Write a short note on Benefits of Multi-State Co-operative Society
Answer:
Various benefits of Multi-State Co-operative Society are given below:
1. Loans at Reasonable Rates: Multi-State Co-operative Society provides loans at reasonable rates of interest to the poor. This benefits them, as they do not have to go to financiers who lend at high-interest rates.

2. Democracy: Multi-State Co-operative Societies are democratically governed (one-member, one-vote)

3. Low Compliance: Regulatory requirements of filing are minimum; hence Multi-State Co-operative Societies have low compliance costs.

4. Members are the Owners and Customers: A Multi-State Co-operative Credit Society belongs to its members, who are at the same time the owners and the customers of their society; this creates a sense of belonging and ownership among the members.

Question 23.
Prathik has studied mass farming and is keen on uniting farmers in various states by forming a Multi-State Co-operative Society. Brief Prathik on the documentary requirements for the formation of a Multi-State Co-operative Society and the Authority with whom the application needs to be filed. [Dec. 2019 (5 Marks)]
Answer:
An application for registration of a Multi-State Co-operative Society shall be made in Form I. Following documents are required to be attached with Form I.
1. A certificate from the bank stating credit balance there in favor of the proposed multi-state co-operative society.

2. A scheme explaining how the proposed multi-state cooperative society has reasonable prospects of becoming a viable unit.

3. Four copies of bye-laws in original.

4. The proposed area of operation for registration shall initially be permitted for two contagious states only.

5. List of at least 50 members from each State along with the copies of ID proofs of the members duly attested by Chief promoter.

6. Certified copies of the resolutions passed by the proposed society along with the certified copy of the resolution of the promoters which shall specify the name and address of one of the applicants to whom the Central Registrar may address correspondence under the rules before registration and dispatch or hand over registration documents.

7. Contact number and e-mail address of the Chief Promoter or Society on the cover page.
For societies having objects related to thrift and credit and for multi-purpose societies following additional documents are required to be submitted:

8. No Objection Certificate from the Registrar of Co-operative Societies of the States/U.T. where the area of operation of the society is proposed to be confined.

9. A certificate to the effect that the credentials of the Chief Promoter/ Promoters have been verified by the Registrar of Co-operative Societies of the state where the head office is proposed to be located.

10. All documents to be submitted in original with the signatures of the Chief Promoter/Promoters on each page.

Setting Up of Business Entities and Closure Questions and Answers

Limitation Act, 1963 – Jurisprudence, Interpretation & General Laws Important Questions

Leave a Comment / CS Executive / By Murali / April 3, 2024 April 10, 2024

Limitation Act, 1963 – Jurisprudence, Interpretation & General Laws Important Questions

Question 1.
Explain the ‘doctrine of sufficient cause for condonation of delay as provided in section 5 of the Limitation Act, 1963. [June 2012 (5 Marks)]
Answer:
Section 5 of the Limitation Act, 1963 allows the extension of the prescribed period in certain cases on sufficient cause being shown for the delay. This is known as the doctrine of “sufficient cause”.

Section 5 provides that any appeal or application (not plant or suit) may be admitted after the prescribed period if the appellant or the applicant satisfies the Court that he had sufficient cause for not preferring the appeal or making the application within such period.

Section 5 applies only to appeals or applications. The reason for the non-applicability of the Section to suits is that the period of limitation allowed in most of the suits extends from 3 to 12 years whereas in appeals and application it does not exceed 6 months.

Examples of sufficient cause: What is sufficient cause and what is not may be explained by the following judicial observations:

Wrong practice of High Court which misled the appellant or his counsel in not filing the appeal should be regarded as sufficient cause under Section 5.
In certain cases, the mistake of counsel may be taken into consideration in condensation of delay, but such mistake must be bona fide.
Wrong advice given by advocates can give rise to sufficient cause in certain cases.
Mistakes of law in establishing or exercising the right given by law may be considered as sufficient cause. However, ignorance of the law is no excuse, not the negligence of the party or the legal adviser constitutes a sufficient cause.
Imprisonment of the party or serious illness of the party may be considered for condonation of delay.
Time taken for obtaining certified copies of the decree of the judgment necessary to accompany the appeal or application was considered for condoning the delay.
Non-availability of the file of the case to the State Counselor Panel Lawyer is no ground for condonation of inordinate delay.
The ailment of the father during which period the defendant was looking after him has been held to be a sufficient and genuine cause.

Question 2.
“Law of limitation bars the remedy in a court of law only when the period of limitation has expired, but it does not extinguish the right that it cannot be enforced by judicial process.” Elaborate. [June 2014 (4 Marks)]
Answer:
The Law of limitation is based on the equitable principle that equity helps the diligent and not the indolent It induces the claimants to be prompt in claiming the relief.

The law of limitation bars the remedy only after the limitation period has expired, but it does not extinguish a right on which the suit has to be based. In all personal actions, the right subsists although the remedy is no longer available If therefore, a creditor, whose debt becomes statute-barred, has any means of realizing and enforcing claim by any method except by a suit, the Limitation Act does not prevent him from recovering his debt by such means.

Thus, if S a time-barred debt is settled outside the Court, it is not illegal. If the debtor without being aware of a bar of time pays the debt, he cannot sue the creditor to refund the money paid to him on the ground of recovery being time-barred.

Example: Ram owes Shyam a sum of ₹ 12,00,000. The debt is barred because of the law of limitation. The Court shall dismiss the suit if filed by Shyam for the recovery of the debt after the period of limitation (Le. after 3 years). However, if Ram pays Shyam the amount even after the same has become time-barred, the payment would be a valid one.

Question 3.
“Law of limitation bars the remedy, but does not extinguish the right.” Explain the statement with its exceptions. [Dec. 2011 (4 Marks)]
Answer:
The Law of limitation is based on the equitable principle that equity helps the diligent and not the indolent It induces the claimants to be prompt in claiming the relief.

The law of limitation bars the remedy only after the limitation period has expired, but it does not extinguish a right on which the suit has to be based. In all personal actions, the right subsists although the remedy is no longer available, If therefore, a creditor, whose debt becomes statute-barred, has any means of realizing and enforcing claim by any method except by a suit, the Limitation S Act does not prevent him from recovering his debt by such means.

Thus, if S a time-barred debt is settled outside the Court, it is not illegal. If the debtor without being aware of the bar of time pays the debt, he cannot sue the creditor to refund the money paid to him on the ground of recovery being time-barred.

Example: Ram owes Shyam a sum of 12,00,000. The debt is barred because of the law of limitation. The Court shall dismiss the suit if filed by Shyam for the recovery of the debt after the period of limitation (Le. after 3 years). However, if Ram pays Shyam the amount even after the same has become time-barred, the payment would be a valid one.
1. The Limitation Act, 1963 makes specific provisions for exclusion of certain time in some cases for computation of the prescribed period of limitation.

2. These provisions are as under:

Exclusion of time in legal proceedings (section 12).
Exclusion of time during which leave to sue or appeal as a pauper is applied for (section 13).
Exclusion of time bona fide taken in a court without jurisdiction (section 14).
Exclusion of time in certain other cases (sections 15, 16 & 17).

Question 4.
The Law of Limitation under the Limitation Act, 1963 bars the remedy but it does not extinguish the right. Explain in brief. [June 2019 (4 Marks)]
Answer:
The Law of limitation is based on the equitable principle that equity helps the diligent and not the indolent It induces the claimants to be prompt in claiming the relief.

The law of limitation bars the remedy only after the limitation period has expired, but it does not extinguish a right on which the suit has to be based. In all personal actions, the right subsists although the remedy is no longer available, If therefore, a creditor, whose debt becomes statute-barred, has any means of realizing and enforcing claim by any method except by a suit, the Limitation Act does not prevent him from recovering his debt by such means.

Question 5.
Discuss the provisions relating to persons under legal disability under the Limitation Act, 1963. [Dec. 2019 (4 Marks)]
Answer:
Legal disability [Section 6]: Law of limitation relating to legally disabled persons is explained below:

If a person entitled to institute a suit or make an application is a minor, insane, or idiot at the time of the cause of action, the period of limitation to file a suit or to make an application will start when such disability ceases.
Where one legal disability is followed by another legal disability, the disabilities are successive and the limitation period will run when all the legal disabilities are ceased.
If a legal disability continues up to death, the period of limitation will run for a legal representative (who is not legally disabled) from the date of death.
Where a person under disability dies after the disability ceases but within the period allowed to him under this section, his legal representative may institute the suit or make the application within the same period after the death, as would otherwise have been available to that person had he not died.

Question 6.
“Where once time has begun to run, no subsequent disability or inability to institute a suit or make an application can stop It.” Comment. [Dec 2011, 2014(4 Marks)]
Answer:
Time for limitation runs when the cause of action accrues. However, certain exceptions were provided in Sections 4 to 8. Section 4 provides that if the period prescribed expires on a day when the Court is closed, the application, etc, may be made on the day, the Court reopens. As per Section 5 condonation of delay is allowed on sufficient grounds. Sections 6, 7 & 8 allow extension of time in certain cases of disability.

Continuous running of time [Section 9]: Once a period of limitation starts no subsequent disability or inability can stop it. The applicability Section 9 is limited to suits and applications only and does not apply to appeals unless the case fell within any of the exceptions provided in the Act itself. Section 9 applies when the cause of action or right to move the Court continues to exist on the date of making the application. Thus, the time runs, when the cause of action accrues. Thus, once time has begun to run, no subsequent disability or inability stops it.

Question 7.
Manoj died on 3rd August 2016 before a right to institute a suit accrued, leaving behind a minor son of the age of 15 years. Decide the time from where the period of limitation shall be calculated under the Limitation Act, 1963. : [Dec 2018 (4 Marks)]
Answer:
Section 9 of the Limitation Act, 1963 states that, once time begins to rim no subsequent disability or inability can stop to institute a suit or make an application. For a given case, the period of limitation will run from the date of the loan (Le. cause of action). There is no disability at that time and time has begun to run from the date of the loan itself. Subsequent disability i.e. the son was a minor has no use. The limitation period, in this case, will end after 3 years from the date of the loan (Le. cause of action).

Question 8.
The law of limitation bars the remedy in a court of law when the period of limitation has expired. However, there are certain exclusions in the computation of the period of limitation. Explain. [June 2011 (4 Marks)]
Answer:
The Limitation Act, 1963 makes specific provisions for exclusion of certain time in some cases for computation of the prescribed period. These 2 provisions are as follows:

In case of any suit, appeal, or application, the period of limitation is to be computed exclusive of the day on which the time begins to run. [Section 12(1)]
The day on which the judgment complained of was pronounced and the time requisite for obtaining a copy of the decree, sentence or order appealed from or sought to be revised or reviewed shall be excluded. [Section 12(2)]
Time required for obtaining a copy of the judgment on which the decree or order is founded shall also be excluded. [Section 12(3)]
The time required for obtaining a copy of the award shall be excluded. [Sec¬tion 12(4)]
The time during which the applicant has been prosecuting in good faith, his application for “leave to sue or appeal as a pauper is applied for”, shall be excluded. [Section 13]
A civil proceeding relating to the matter in issue had been initiated in a Court which is unable to entertain it, by lack of jurisdiction or by any other like cause shall be excluded. [Section 14]
Exclusion of time in certain other cases [Sections 15, 16 & 17]:
(a) If suit or application for the execution of a decree had been stayed by an injunction or order then such period of injunction shall be excluded.
(b) Time required to obtain the sanction/consent of the Government shall be excluded.
(c) The time during which the defendant has been absent from India and from the territories outside India but administered by the Central Government, shall be excluded.
(d) Where the suit or application is based upon the fraud or mistake of the defendant or respondent or his agent or in other cases as mentioned in Section 17, the period of limitation shall not begin to run until the plaintiff or applicant has discovered fraud or mistake subject to certain exceptions.

Question 9.
Computation of period of limitation for an appeal or an application for leave to appeal. Comment. [Dec 2012 (4 Marks)]
Answer:
The Limitation Act, 1963 makes specific provisions for exclusion of certain time in some cases for computation of the prescribed period. These 2 provisions are as follows:

In case of any suit, appeal, or application, the period of limitation is to be computed exclusive of the day on which the time begins to run. [Section 12(1)]
The day on which the judgment complained of was pronounced and the time requisite for obtaining a copy of the decree, sentence or order appealed from or sought to be revised or reviewed shall be excluded. [Section 12(2)]
Time required for obtaining a copy of the judgment on which the decree or order is founded shall also be excluded. [Section 12(3)]
The time required for obtaining a copy of the award shall be excluded. [Sec¬tion 12(4)]
The time during which the applicant has been prosecuting in good faith, his application for “leave to sue or appeal as a pauper is applied for”, shall be excluded. [Section 13]
A civil proceeding relating to the matter in issue had been initiated in a Court which is unable to entertain it, by lack of jurisdiction or by any other like cause shall be excluded. [Section 14]
Exclusion of time in certain other cases [Sections 15, 16 & 17]:
(a) If suit or application for the execution of a decree had been stayed by an injunction or order then such period of injunction shall be excluded.
(b) Time required to obtain the sanction/consent of the Government shall be excluded.
(c) The time during which the defendant has been absent from India and from the territories outside India but administered by the Central Government, shall be excluded.
(d) Where the suit or application is based upon the fraud or mistake of the defendant or respondent or his agent or in other cases as mentioned in Section 17, the period of limitation shall not begin to run until the plaintiff or applicant has discovered fraud or mistake subject to certain exceptions.

Question 10.
Explain Valid acknowledgment and its effect on the limitation period. [Dec 2009 (4 Marks)]
Answer:
As per Section 18 of the Limitation Act, 1963, the following are the requirements for a valid acknowledgment:

There must be admission or acknowledgment.
Such acknowledgment must be of an existing liability in respect of a property or right.
It must be made in writing and signed by the party against whom such property or right is claimed, and
It must be made before the expiry of the period of limitation.

If all the above conditions are satisfied, a fresh period of limitation shall be computed from the time when the acknowledgment was signed.

Question 11.
What is the effect of acknowledgment on the period of limitation? Discuss. [June 2019 (4 Marks)]
Answer:
As per Section 18 of the Limitation Act, 1963, the following are the requirements for a valid acknowledgment:

There must be admission or acknowledgment.
Such acknowledgment must be of an existing liability in respect of a property or right.
It must be made in writing and signed by the party against whom such property or right is claimed, and
It must be made before the expiry of the period of limitation.

If all the above conditions are satisfied, a fresh period of limitation shall be computed from the time when the acknowledgment was signed.

Question 12.
State the effects of ‘acknowledgment’ and ‘payment against debt’ on the period of limitation. [Dec 2011 (4 Marks)]
Answer:
Valid acknowledgment: As per Section 18 of the Limitation Act, 1963, the following are the requirements for a valid acknowledgment:

There must be admission or acknowledgment.
Such acknowledgment must be of an existing liability in respect of a property or right.
It must be made in writing and signed by the party against whom such property or right is claimed, and
It must be made before the expiry of the period of limitation.

If all the above conditions are satisfied, a fresh period of limitation shall be computed from the time when the acknowledgment was signed.

Effect of payment of debt or interest: As per Section 19 of the Limitation Act, 1963, where payment on account of a debtor of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorized in this behalf, a fresh period of limitation shall be computed from the time when the payment was made.

Thus, according to this Section, a fresh period of limitation becomes available to the creditor when part-payment of debt is made by the debtor before the expiration of the period of limitation.

Question 13.
On 30th November 2008, Mohan took a loan of ₹ 20,000 from Sohan. He paid ₹ 5,000 to him on 31st August 2011, towards part payment. After that, Sohan did not receive any amount from Mohan. Subsequently, Sohan instituted a suit for recovery of the dues from Mohan after the expiry of 2 years from the date of the last part payment. Advise, whether
(i) the suit is maintainable; and
(ii) the part payment is an acknowledgment of payment. [June 2014 (6 Marks)]
Answer:
The limitation period for the present case is 3 years from the date of the loan. Thus limitation period will start from 1.12.2008 and will end on 30.11.2011.

According to Section 19 of the Limitation Act, 1963 a fresh period of limitation becomes available to the creditor when part-payment of debt is made by the debtor before the expiration of the period of limitation.

As per facts given in the case, Mohan has made a part payment on 31.8.2011 Le. before the expiry of the original limitation period hence a fresh period of limitation of 3 years will start from 31.8.2011. Since Mohan has made an application after 2 years from the date of 31.8.2011, the suit is maintainable as the limitation period will end at 3 years from the date of 31.8.2011.

Jurisprudence, Interpretation & General Laws Questions and Answers

Foreign Trade Policy & Procedures – Economic, Business and Commercial Laws Important Questions

Leave a Comment / CS Executive / By Murali / April 3, 2024 April 10, 2024

Foreign Trade Policy & Procedures – Economic, Business and Commercial Laws Important Questions

Question 1.
Write a short note on Privileges of Star Export House [June 2010 (3 Marks)]
Answer:
Privileges to Status Holders: A Status Holder shall be eligible for privileges as under:
1. Authorization and Customs Clearances for imports and exports may be granted on a self-declaration basis.

2. Input-Output norms may be fixed on priority within 60 days by the Norms Committee.

3. Exemption from the furnishing of Bank Guarantee for Schemes under FTP, unless specified otherwise anywhere in FTP or HBP.

4. Exemption from compulsory negotiation of documents through banks. The remittance, however, would be received through banking channels.

5. Two-star and above Export houses shall be permitted to establish Export Warehouses as per Department of Revenue guidelines.

6. Three Star and above Export House shall be entitled to get the benefit of the Accredited Clients Programme (ACP) as per the guidelines of CBEC.

7. The status holders would be entitled to preferential treatment and priority in handling their consignments by the concerned agencies.

8. Manufacturers who are also status holders will be enabled to self-certify their manufactured goods as originating from India with a view to qualify for preferential treatment under different preferential trading agreements, Free Trade Agreements, Comprehensive Economic Co-operation Agreements & Comprehensive Economic Partnership Agreements. Subsequently, the scheme may be extended to remaining Status Holders.

9. Manufacturer exporters who are also Status Holders shall be eligible to self-certify their goods as originating from India as per of Hand Book of Procedures.

10. Status holders shall be entitled to export freely exportable items on a free of cost basis for export promotion subject to an annual limit of ₹ 10 lakhs or 296 of average annual export realization during the preceding three licensing years whichever is higher.

Question 2.
Write a short note on Board of Trade under the Foreign Trade (Development & Regulation) Act, 1992 [June 2014 (5 Marks)]
Answer:
The Board of Trade has been given a clear and dynamic role in advising the Government on relevant issues connected with FTP. A process of continuous interaction between the Board of Trade and the Government has been put in place in order to achieve the desired objective of boosting India’s exports. The terms of reference of the Board of Trade include:
1. Advising the Government on policy measures for preparation and implementation of both short and long-term plans for increasing exports in the light of emerging national and international economic scenarios.

2. Reviewing the export performance of various sectors, identify constraints, and suggest industry-specific measures to optimize export earnings.

3. Examining the existing institutional framework for imports & exports and suggest practical measures for further streamlining to achieve the desired objectives.

4. Reviewing the policy instruments and procedures for imports & exports and suggest steps to rationalize and channelize such schemes for optimum use.

5. Examining issues that are considered relevant for the promotion of India’s foreign trade, and to strengthen the international competitiveness of Indian goods and services.

6. Commissioning studies for the furtherance of the above objectives. Composition: The Government has been empowered to nominate an eminent person or expert on trade policy to be President of the Board of Trade and 25 persons as members, of whom at least ten to be experts in trade policy. In addition, Chairmen of recognized Export Promotion Councils and President or Secretaries-General of National Chambers of Commerce to be ex-officio members.

Meetings: The Board is required to meet at least once every quarter and make recommendations to the Government on issues pertaining to its terms of reference. The Board of Trade has been empowered to set up sub-committees and to co-opt experts to make recommendations on specific sectors and objectives

Question 3.
Write a short note on the Advance Authorization Scheme [June 2014 (5 Marks)]
Answer:
Under the Advance Authorization Scheme, the exporter can import raw materials and related inputs by claiming a 100% duty exemption from import duty on the condition that the final product made by using such imported raw material or input is exported.

Advance Authorization:
1. Advance Authorization is issued to allow duty-free import of input, which is physically incorporated in export products (making normal allowance for wastage). In addition, fuel, oil, the catalyst which is consumed/utilized in the process of production of export product, may also be allowed.

2. Advance Authorization is issued for inputs in relation to the resultant product, on the following basis:

As per Standard Input Output Norms (SION) notified
On the basis of self-declaration as per Handbook of Procedures. Eligible Applicant/Export/Supply:

3. Advance Authorization can be issued to:

Manufacturer Exporter or
Merchant Exporter tied to Supporting Manufacturer.

4. Advance Authorization for pharmaceutical products manufactured shall be issued to manufacturer exporter only.

5. Advance Authorization shall be issued for:

Physical export (including export to SEZ).
Intermediate supply
Supply under Deemed Exports.
Supply of ‘stores’ on board of foreign-going vessel or aircraft. Advance Authorization for Annual Requirement:

6. Advance Authorization for Annual Requirement shall be issued for the items for which Standard Input Output Norms (SION) are notified.

7. Advance Authorization for Annual Requirement shall not be available in the case of ad hoc norms under FTP.
Eligibility condition to obtain Advance Authorization for Annual Requirement:

8. Exporters having past export performance (in at least the preceding 2 financial years) shall be entitled to Advance Authorization for Annual requirement.

9. Entitlement in terms of CIF value of imports shall be up to 300% of the FOB value of physical export and/or FOR value of deemed export in preceding financial year or ? 1 Crore, whichever is higher.

Question 4.
What are the short-term and long-term objectives of India’s foreign trade policy? [Dec. 2016 (5 Marks)]
Answer:
The FTP is formulated for 5 years time. It may be reviewed every year. The Foreign Trade Policy seeks to achieve the following short term and long term objectives:

Sustainable Policy: To provide a stable and sustainable policy environment for foreign trade in merchandise and services;
Other Initiatives: To link rules, procedures, and incentives for exports and imports with other initiatives such as “Make in India”, “Digital India” and “Skills India” to create an “Export Promotion Mission for India”;
Promote Export: To promote the diversification of India’s export basket by helping various sectors of the Indian economy to gain global competitiveness with a view to promoting exports;
Make in India initiative: To create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions, thereby increasing the demand for India’s products and contributing to the government’s flagship “Make in India” initiative;
Reduce trade imbalance: To provide a mechanism for regular appraisal in order to rationalize imports and reduce the trade imbalance.

Question 5.
Describe the privileges of Export and Trading House Status Holders in pursuance of the foreign trade policy. [June 2017 (5 Marks)]
Answer:
Privileges to Status Holders: A Status Holder shall be eligible for privileges as under:
1. Authorization and Customs Clearances for imports and exports may be granted on a self-declaration basis.

2. Input-Output norms may be fixed on priority within 60 days by the Norms Committee.

3. Exemption from the furnishing of Bank Guarantee for Schemes under FTP, unless specified otherwise anywhere in FTP or HBP.

4. Exemption from compulsory negotiation of documents through banks. The remittance, however, would be received through banking channels.

5. Two-star and above Export houses shall be permitted to establish Export Warehouses as per Department of Revenue guidelines.

6. Three Star and above Export House shall be entitled to get the benefit of the Accredited Clients Programme (ACP) as per the guidelines of CBEC.

7. The status holders would be entitled to preferential treatment and priority in handling their consignments by the concerned agencies.

9. Manufacturer exporters who are also Status Holders shall be eligible to self-certify their goods as originating from India as per of Hand Book of Procedures.

Question 6.
What is meant by ‘Service Export from India Scheme’ (SEIS)? Which services shall be eligible under service export from the India scheme? [Dec. 2017 (5 Marks)]
Answer:
Served from India Scheme (SFIS) has been replaced with Service Exports from India Scheme (SEIS).

Objective: The objective of the Service Exports from India Scheme is to encourage the export of notified Services from India.

Eligibility:
1. Service Providers of notified services, located in India, shall be rewarded under SEIS, subject to conditions as may be notified.

2. Such service providers should have minimum net free foreign exchange earnings of US$ 15,000 in the preceding financial year to be eligible for Duty Credit Scrip. For Individual Service Providers and a sole proprietorship, such minimum net free foreign exchange earnings criteria would be US$ 10,000 in the preceding financial year.

3. Net Foreign exchange earnings for the scheme are defined as under Net Foreign Exchange = Gross Earnings of Foreign Exchange minus Total expenses/payment/remittances of foreign exchange by the IEC holder, relating to the service sector in the financial year.

4. If the IEC holder is a manufacturer of goods as well as a service provider, then the foreign exchange earnings and Total expenses/payment/ remittances shall be taken into account for the service sector only.

5. In order to claim reward under the scheme, the Service provider shall have to have an active IEC at the time of rendering such services for which rewards are claimed.

Question 7.
Distinguish between ‘Capital Goods’ and ‘Consumer Goods’ under the Foreign Trade Policy of the Government of India. [June 2018 (5 Marks)]
Answer:
“Capital Goods” means any plant, machinery, equipment, or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up-gradation, or expansion. It also includes packaging machinery and equipment, refractories for initial lining, refrigeration equipment, power generating sets, machine tools, catalysts for an initial charge, equipment and instruments for testing, research and development, quality, and pollution control.

Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, and viticulture as well as for use in the services sector.

“Consumer Goods” means any consumer goods, which can directly satisfy human needs without further processing and includes consumer durables and accessories thereof.

Question 8.
Capital goods and spares that have become obsolete/surplus may be exported, transferred to another Special Economic Zone unit but the law does not permit to dispose of in the Domestic Tariff Area on payment of applicable duties. Comment. [Dec. 2018 (5 Marks)]
Answer:
Capital goods and spares that have become obsolete/surplus, may either be exported, transferred to another EOU/EHTP/STP/BTP/SEZ unit, or disposed of in DTA on payment of applicable duties.

The benefit of depreciation, as applicable, will be available in case of disposal in DTA only when the unit has achieved positive NFE taking into consideration the depreciation allowed. No duty shall be payable in case capital goods, raw material, consumables, spares, goods manufactured, processed or packaged, and scrap/waste/ remnants/ rejects are destroyed within the unit after intimation to Customs authorities or destroyed outside unit with permission of Customs authorities.

Destruction, as stated above, shall not apply to gold, silver, platinum, diamond, precious and semi-precious stones. Thus, it is incorrect to say that capital goods and spares that become obsolete/surplus cannot be disposed of in the Domestic Tariff Area.

Question 9.
What is the object of service export from the India Scheme and what are the eligibility conditions of obtaining benefits of the same under Foreign Trade Policy 2015-2020? [Dec. 2018 (4 Marks)]
Answer:
Served from India Scheme (SFIS) has been replaced with Service §; Exports from India Scheme (SEIS).

Objective: The objective of the Service Exports from India Scheme is to encourage 21 export of notified Services from India.

Eligibility:
1. Service Providers of notified services, located in India, shall be rewarded under SEIS, subject to conditions as may be notified.

3. Net Foreign exchange earnings for the scheme are defined as under:
Net Foreign Exchange = Gross Earnings of Foreign Exchange minus Total expenses/payment/remittances of foreign exchange by the IEC holder, relating to the service sector in the financial year.

5. In order to claim reward under the scheme, the Service provider shall have to have an active IEC at the time of rendering such services for which rewards are claimed.

Question 10.
Explain the objectives of ‘Foreign Trade Policy under the Foreign Trade Policy for 2015-2020. [June 2019 (4 Marks)]
Answer:
The FTP is formulated for 5 years time. It may be reviewed every year. The Foreign Trade Policy seeks to achieve the following short term and long term objectives:

Sustainable Policy: To provide a stable and sustainable policy environment for foreign trade in merchandise and services;
Other Initiatives: To link rules, procedures, and incentives for exports and imports with other initiatives such as “Make in India”, “Digital India” and “Skills India” to create an “Export Promotion Mission for India”;
Promote Export: To promote the diversification of India’s export basket by helping various sectors of the Indian economy to gain global competitiveness with a view to promoting exports;
Make in India initiative: To create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions, thereby increasing the demand for India’s products and contributing to the government’s flagship “Make in India” initiative;
Reduce trade imbalance: To provide a mechanism for regular appraisal in order to rationalize imports and reduce the trade imbalance.

Question 11.
What are the privileges of “Status Holders” under the Foreign Trade Policy and Procedure of India enumerated under the Foreign Trade Policy 2015-20? [Dec. 2019(4 Marks)]
Answer:
Privileges to Status Holders: A Status Holder shall be eligible for privileges as under:
1. Authorization and Customs Clearances for imports and exports may be granted on a self-declaration basis.

2. Input-Output norms may be fixed on priority within 60 days by the Norms Committee.

3. Exemption from the furnishing of Bank Guarantee for Schemes under FTP, unless specified otherwise anywhere in FTP or HBP.

4. Exemption from compulsory negotiation of documents through banks. The remittance, however, would be received through banking channels.

5. Two-star and above Export houses shall be permitted to establish Export Warehouses as per Department of Revenue guidelines.

6. Three Star and above Export House shall be entitled to get the benefit of the Accredited Clients Programme (ACP) as per the guidelines of CBEC.

7. The status holders would be entitled to preferential treatment and priority in handling their consignments by the concerned agencies.

9. Manufacturer exporters who are also Status Holders shall be eligible to self-certify their goods as originating from India as per of Hand Book of Procedures.

Economic, Business and Commercial Laws Questions and Answers